Renter Realities and Another Housing Policy Paradox

Update: On March 27 2023, from what appears to be pressure from the commercial real estate sector, changes to Canada’s Prohibition on the Purchase of Residential Property by Non-Canadians Act were implemented:

  • This legislation / ownership ban no longer applies to vacant land that is zoned for residential and mixed use (with no regulation on what purpose the land can be developed for)
  • The threshold for a company to be considered ‘foreign-controlled’ has been relaxed with an increase from 3% ‘non-Canadian’ ownership to 10% ‘non-Canadian’ ownership
  • The rules prohibiting ownership of residential property for residential development have been reversed. Including for publicly traded companies created in Canada that are foreign controlled

In addition, newcomers with a work visa with a minimum of 183 days remaining are able to purchase property.

More details here.

The Federal Government of Canada recently revealed the details of a ban on foreign/non-Canadian purchasing residential properties. This legislation was initially proposed in April’s 2022 budget to ‘curb foreign investment and speculation’ – a source of increasing housing costs.

Starting on January 1, 2023 until January 1, 2025, ‘non-Canadians’ are restricted from directly or indirectly (through corporate structures) purchasing residential property located in a census metropolitan area or a census agglomeration.

‘Non-Canadian’ is defined as individuals who are not permanent residents or Canadian citizens – with some conditional exceptions for temporary residents with study permits, work permits, foreign nationals with temporary resident visas or status as well as refugee claimants already referred to the Refugee Protection Division.

‘Non-Canadian’ also includes corporations or ‘entities’ established outside of federal or provincial law, or controlled by ‘Non-Canadian’ entities or individuals.

Penalties for breach of this ban include fines of up to $10,000 as well as a potential judicial sale order of residential property.

What is Excluded?

  • Vacant land (without a habitable and immovable dwelling)
  • Recreational property / vacation homes (located outside of a census metropolitan area or census agglomeration)
  • Buildings with three or more dwelling units

What does this mean?

Acknowledged in the 2022 Federal budget, a growing number of households continue to be unable to access safe, affordable and adequate homes (p.35). “Foreign investors and speculators are buying up homes that should be for Canadians to own. Rents in our major cities continue to climb, pushing people further and further away from where they work (p.35).”

Unfortunately the 2-year ban and the additional interventions proposed in the 2022 Federal budget are seemingly untethered to the root causes and household experiences of inadequate housing.

Financialization of Housing

One of the key drivers of our prolonged housing crisis is due to financializing housing. The phrase ‘financialization of housing‘ is used to describe the “…structural changes that have occurred in recent years whereby massive amounts of global capital have been invested in housing as a commodity, as security for financial instruments that are traded on global markets, and as a means of accumulating wealth (p.1).”

The financialization of housing is the commodification of housing – distancing housing from being an essential human right and a social good, and instead regarding housing as a vehicle for investment and a means of generating wealth. Instead of building homes to meet the adequate housing needs of individuals and households, homes are built for investors and institutional owners (i.e. pension funds, hedge funds, mutual funds, endowments).

The consequences of financializing housing are staggering and for tenants include increasing housing costs (often outpacing household incomes), reduced habitability/quality of life and higher rates of eviction and displacement – which disproportionately impact Black, Indigenous, and racialized persons as well as economically disenfranchised households (Crosby, 2021; August, 2022; Lewis, 2022; Acorn, 2022).

Yet we still lack good data on the scale and volume of financialized ownership – for both non-Canadian as well as Canadian entities (i.e. Core Development Group (Younglai, 2021; Alini, 2021)). While some entities are publicly traded and share investor information on the location and details of the multi-family housing they own – which would primary rental housing (residential apartments or row housing purposely built for renter households) – it is more difficult to determine the ownership of multi-family buildings privately owned by financialized entities.

Further, there is no data on financialized owners of secondary rental housing (housing intended for homeownership that is rented including single family homes, semidetached/row homes/duplexes, and other dwelling types like accessory suites). Despite secondary non-purpose built rental housing being a significant supply for tenant households – including an estimated 51% of tenants in Edmonton, as well as ~56% across Canada in 2021 (Statistics Canada, CMHC; Canada and Edmonton).

Without a base of good information, the creation of piecemeal legislation to address increasing housing costs by investment and speculation solely through non-Canadian entities (while also exempting sales of residential buildings with three or more dwelling units) is contradictory and the latest example of a housing policy paradox.

To address some of the data gaps and limitations on the scale and impact of financialized ownership (Arsenault, 2022), the Affordable Housing Solutions Lab (AHSL) has been working to compile a local database of financialized owners of our primary (purpose built) rental buildings in Edmonton. As well, the AHSL has also created some estimates of the secondary rental housing supply in Edmonton by Census year.

Some of these findings are shared Edmonton follow below, and provide some insight on the potential implications of this new federal ban.   

Will tenant households in Edmonton benefit?

To address this question, it is important to get a clear picture of our housing rental market.

Composition of Rental Homes in the City of Edmonton

When the topic of housing affordability, and discussion of solutions through our market rental ‘housing supply’ comes up, this is often done with the assumption that all market rental housing is the same. While this may have been the case in the past, there are a few different forms that have emerged that all have different implications for renters. Namely primary rental housing that is financialized (purpose built rental housing owned by financialized owners) as well as secondary rental housing (not purpose built for rental housing and may or may not be owned by financialized entities).

Figure 1 highlights the differences in these forms of rental housing in the City of Edmonton over 20 years, comparing 2001 with 2021.

The number of tenant households living in secondary rental housing was approximated by subtracting the total number of renter households in the City of Edmonton in the 2001 and 2021 censes from the estimated total number of occupied primary rental units from CMHC’s rental survey in 2001 and 2021 (using CMHC’s housing market information portal).

Figure 1: Move the slider to see the (occupied) rental supply differences in Edmonton over a 20 year period (2001 – 2021), specifically the proportional changes between primary (financialized and not financialized) and secondary rental suites.

There are a number of things that are important about these observable differences in our market rental housing stock over the past 20 years.

Firstly, secondary rental homes tend to be much more expensive than primary (non-financialized) rentals (1). While rents tend to be higher, utilities are also less likely to be included with monthly rents and are additional costs on top of elevated monthly rents.

The Canadian Mortgage and Housing Corporation started sharing secondary rental market data for Census Metropolitan Areas in 20072016. In 2017 this data collection was ended abruptly and the was the only secondary housing data collection that has continued is the condominium apartment survey – despite condominium apartments being only 1/5 of secondary housing in Edmonton (CMA) in 2016.

As well, many secondary rentals are managed by 3rd party firms – including individual households that may have one or two additional homes that are rented out, small mom and pop multi-family apartment owners, private family-run residential companies, as well as institutional owners and financialized entities.

A number of real estate firms have been creating their own or purchasing existent 3rd party residential management companies – with a vested interest both in increasing homeownership costs as well as increasing renter costs. Many 3rd party firms offer a free service of speculating what owners might charge for monthly rents, with the option for an additional 10-20% to manage the unit on behalf of the owner. Despite estimates that over half of all tenant households in Edmonton currently live in secondary rentals, there is no data at present on the proportion of secondary rentals that are managed by 3rd parties – nor of the impact of this on housing affordability.

Secondly, with a few exceptions, the vast majority of financialized owners of primary rental stock in Edmonton are actually Canadian entities. The AHSL has estimated from that as of 2022 there are around 35,000 primary rental units that are financialized through asset management organizations, REITs (Real Estate Investment Trusts), REOCs (Real Estate Operating Companies) or private equity firms. Of these 35000 homes, 93% are Canadian owned.

Thirdly, the affordability of our primary rental housing stock has been really affected by the volume of existing and newer builds purchased by financialized owners, with a significant loss of our ‘more affordable’ rental housing. For example, in 2006 the monthly shelter costs for approximately 82% of all rental units was $999 or less per month – this dropped down to 29% in 2016 (2).

Fourthly, related to broader discussions around financialization, one hidden trend regarding tenant affordability is that there are a number of financialized owners who accept payment of rent through credit card, such as Boardwalk (which is a REIT) and Mainstreet (which is a REOC). While rents can be increased every 12 months in Alberta, appeasing shareholders and investors, an untold number of households are remaining housed by incurring deepening credit card debt. And this is in addition to countless households who continue to make ends meet and deal with income shortfalls by paying for utilities and other essentials such as food, health care, transportation, clothing, et cetera, through credit card(s). Without the income to keep pace with the cost of living essentials, paying off credit cards becomes increasingly impossible with high interest rates accumulating even more debt.

None of this information is being collected or tracked over time in relation to housing affordability. While Equifax does release quarterly reports of consumer credit trends and insights by province and select cities (for mortgage debt and non-mortgage debt), this information is not disaggregated by housing tenure (whether homeowner or tenant). At present, there are no solutions and policies for housing affordability that factors in household debt. Which is a glaring omission considering the average individual non-mortgage debt for Edmontonians is $24,255 (Q3 2022).

Policy Paradox

Based on the current realities of the rental market and what tenant households are coping with in Edmonton, the federal ban will largely have little to no impact on addressing the key drivers that continue to increase housing unaffordability and decrease access to adequate housing (Sotheby’s, 2022).

Between 2001 to 2021, almost 50% of our primary rental housing was been lost to financialized owners (Figure 1). The amount of primary financialized rental housing over that time period has increased over 1300% and seems to be continually rising. Again, as the ban does not include buildings with 3 or more units, the financialization of our primary rental housing will not be addressed at all, despite it being a key driver of our housing crisis.

However at the household level, this policy disproportionately impacts migrant households and is punitive, confusing, discriminatory, xenophobic, and will impede access to homeownership. Although we are still waiting for data from outstanding provinces (such as Alberta), current estimates from 2020 indicate that around 4% of homes are non-resident owned (based on available data from Ontario (3.4%), British Columbia (4.7%) and Nunavut (2.7%)) (Canadian Housing Statistics Program).

(1) CMHC Housing Portal, Edmonton CMA: Secondary Rental Market (condo and ‘other) and Primary Rental Market (rental universe, historical)
(2) CMHC Housing Portal, Edmonton CMA – Population, Households & Housing Stock: Shelter Costs (historical) for renters)

Additional Resources that may be of interest:
McQuillan, L. Canada’s ban on foreign property buyers won’t apply to many workers, international students. CBC: Dec. 21, 2022.
McQuillan, L. Will Canada’s ban on foreign homebuyers make houses more affordable? Some experts have doubts. CBC: Dec. 30, 2022

Blog updated February 17, 2023

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