While several academic studies have recently cautioned against investment firms in the rental market,Canada’s national housing agency saysreal estate investment trusts (REITs) have higher rents for “sound reasons”andrent control may stifle supply.
In an released last month with two separate reportson REITs and rent control, Canada Mortgage and Housing Corp. (CMHC) deputy chief economist Aled ab Iorwerth saidsome concerns about thefinancialization of rental housing appear “misplaced,” and more large-scale private and institutional investment in construction is necessary for affordability.
While one report foundREITs charge above-average rents, Iorwerthsaid there are usually “sound financial reasons” for this. He also wrote that rent control could discourage private investors from building more rental housing.
The publicationscameon the heels of a number of studies that found “financial landlords,” such as REITshiked rentsandpursued evictions more aggressively than other landlords.
The CMHC publications have raised concernsfromsome housing researchers who fear the agency has departed from its mandate to promote housing affordability.
Critics argue the findings are misleading, saying they omit past CMHC research, disregard relevant studies, have inconsistencies and fail to critically examine the impact of REITs on renters.
Martine August,an associate professor at the University of Waterloo whose research focuses on the financialization of the housing market, said she found the reports “extremely concerning.”
“It has such a substantial impact on the public perception of this problem and justifies the role of these firms in our housing market, when you have all sorts of advocates and researchers who are pointing to a problem,” she said.
Iorwerth said the agencywants to increasehousing supply while protecting tenants.
Hesaid the research may not support existing ideas about REITs,“but our job is to get the data out there, get the research out there. People want to react to the research, react to the data, that’s fair game.”
The CMHC REITrents in ɫɫ and Vancouver are about two-to-five per cent higher than properties owned by other landlords, but the gaps “largely disappear” when adjustedfor location, timing of purchase and operational differences.
In Montreal, it said, REIT rents are 25 per cent higher, but REITs often buy in neighbourhoods with early signs of gentrification and “when controlling for this strategy,” the difference drops.
August said by comparing REITs to allother landlords, including other financial landlords, “they’re not going to see as big of a difference.” Her research found financial firms as a whole had substantially higher rentsthanother landlordtypes.
“By choosing to just focus on REITs, it really doesn’t show the impact of financial ownership, and actually really minimizes it,” August said.
Real Estate Investment Trusts (REITs), asset managers and private equity firms raised rents
Iorwerth said CMHC focused on REITs because “a lot of the challenges, complaints, observations” areabout them. He saidthe reportused economic analysisandhasreceived support from someindustry leaders.
David Amborski, a professor at ɫɫ Metropolitan University’s School of Urban and Regional Planning,defended thestudy,sayingwhile REITsraise rents in renovated buildings, it’s “another question” whether they influence the entire market.
The rent control studyincluded research frominternational reports on rent control, including three that mentioned Canada. In the article, Iorwerth wrote the researchshowed thatrent controls decreased supply andreduced housing quality.
However, Ricardo Tranjan, a political economist and senior researcher with the Canadian Centre for Policy Alternatives, saidthe study itself noted the impact on new construction is not clear.The report also did not cite—an analysis of major Canadian cities from 1971 to 2019 that found no evidence that rent control reduces rental construction.
Not engaging with the “most robust” and “most relevant” statistical analysis in Canada in recent years seems “disingenuous,” he said.
Iorwerth said the 2020 CHMC report’s approach was too broad, andthe new reportonly examined more in-depth studies.
The recent study also said rent controlscould discourage tenants from getting better jobs because they “leave more money in tenants’ hands” and that removing rent control could reduce crime as higher-income renters buy security products.
Tranjan andJohn Pasalis, president of brokerage and market data platform Realosophy Realty, pointed to these findings as evidence that CMHC’s priority is not affordability.
Pasalisadded thatthe CMHCcontradicts itselfin the articleby“banging the drum” on needing more supply butwarningof an “oversupply” of condo rentals.
“On the one hand, they’re arguing supply is important to lower prices. Once lower prices are coming … they’re flagged as a negative side effect that will hurt future supply.”
Starlight Investments filed 15 eviction applications per 100 units each year, while chain owned
Carolyn Whitzman,a senior housing researcher at the University of ɫɫ’s School of Cities, said CMHC strayedfrom its mandateto focus on the needs of low- and moderate-income Canadians in the early 1990s,andbecause of this,“an entire generation” of affordable housing experts left the agency.
Iorwerth said CMHC’s current position is being concerned about “affordability for everybody in Canada.” Whilesocial housing for low-income households is “entirely appropriate,” there’s also an affordability challenge for middle-class Canadians, he said.
“For that, we need morehousing supply across the board. We need more purpose-built rentals, REITs. We need more home ownership,” he said.
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