Stop Attacking Real Estate Investors
Real estate investors, landlords and developers provide a valuable service to the market, and we need them more than ever.
Statistics Canada recently published data on residential properties in British Columbia, Ontario and Nova Scotia on ownership and occupancy of residential properties. In B.C. they looked at a sample of 1.7 million properties and estimated that 457,000 or 27 per cent were not “owner-occupied.” In Ontario, just over one million of the 4.8 million total properties in the province are not owner occupied (21 per cent), and in Nova Scotia nearly 120,000 properties of the 450,000 total (27 per cent) were not occupied by the owners.
When getting more granular, data showed that about 37 per cent of condominium apartments in the Toronto and Vancouver Census Metropolitan Areas were not occupied by the owner. The immediate response from the “real estate shock jocks” in Canadian media was to rile up the housing bears and anti-development crowd by blaming investors driving up prices and rents. If we only had fewer investors, they said, the cost of living would be so much lower.
However, more investors, and thus more demand, can only drive up prices and rents if supply doesn’t keep up with demand. There is a higher percentage share of investors in Nova Scotia than Ontario, and house prices are less than half of those in Ontario (CREA, July 2019 average: $261,000 vs. $611,000). Every investor that buys a unit and leases it out is adding to rental supply. The typical response to that point is: we don’t need mom-and-pop investors buying units to lease them out; those units should be available for purchase, and that rental units should come via purpose-built apartment projects.
Ignoring the fact that not everyone that wants to rent, wants to rent an apartment, the owners of rental apartments are…investors! Property owners, landlords, developers are in business to make money, and buying, renovating, maintaining and building apartments have risks, and participants in the industry are looking for appropriate risk-adjusted returns on their investment in the residential housing market.
Like any needed product or service, we need investors to invest their time, expertise and capital into creating more of that product or service, and that includes rental apartment developers and owners. Even the much-dreaded mom-and-pop pre-construction condo investor provides a valuable service by acting as a middle man, helping the developer secure enough sales to qualify for construction financing (by putting up a 20 per cent down payment, taking the risk that the project doesn’t get cancelled, committing to a unit they can only see on paper, and tying up their money for three to five years) and eventually selling or renting that unit to an eventual end-user. Many first-time buyers don’t have more than five per cent to put down, and don’t want to wait up to five years for their home to get built.
Are there some investors that keep their units vacant? Yes. Are there some investors that fund their purchases via illegally-gained funds? Yes. Are there some investors that are not paying their fair share of taxes? Yes. These are all issues that should be addressed, but they are not reasons to ban “investors” or stop building new housing to prevent these (small number of) investors from acquiring more property. We don’t prevent McDonalds from building more restaurants because some kids waste food, or someone got a hamburger bun with mold on it!
We can all agree that the short-term speculative buyer, that adds no value to the houses they purchase, and only intends to flip the property as quickly as possible is an undesirable investor, but the reason these speculators exist is scarcity. One of the reasons that property is scarce is not enough new housing is getting built. For more housing to be built, we need more investors!
The next complaint is that new housing is too expensive and not affordable. Where do you think developers should cut costs to make new housing affordable? No basements; no parking; no balconies; no ovens; cheap interior finishes; micro units? Should a developer source cheap alternative materials; lower ceiling heights; buy smaller appliances; reduce green features; pay employees less? Many of the costs are fixed, and it’s not easy to create affordable new housing.
The only way to make housing more affordable is to increase supply. We can reduce the number of empty homes, vacation properties, or Airbnb units, but we’re eventually going to need to build more supply. If we want more supply we need investments from developers, from real estate equity firms, from construction lenders, from mom-and-pop investors, and from end-user buyers.
Ben Myers is president of Bullpen Research & Consulting, a boutique real estate advisory firm that works with land owners, developers, and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects.