The Financialization of Housing: What types exist?

Financialization of Mortgages: packaging homeowner loans (debt) as items (called ‘securities’) to be traded.

Also known to be the instigator of housing bubbles (Walks 2014).
^{*see graph at the very bottom of this section below.}

Heightening Our Housing Crisis

• Public policy changes in late 2006/early 2007 led to private lenders “securitizing as many mortgages as they could into MBS [mortgage backed securities] and selling them to CMHC/CHT [Canada Mortgage and Housing Corporation / Canadian Housing Trust]” (pgs 264 -265).
• This lowered lending standards as lenders who securitized mortgages were not responsible for these debts – they bundled mortgage debts together and sold them off as a package to CMHC/CHT. Instead of the usual standard of 5% down payment and 25 year amortization period, mortgages were issued without down payments and with 40 year amortization periods (pg 265).
• Many households, who previously did not quality, were drawn into homeownership.
  • In just 2 short years mortgage debt in Canada grew by 30% from $628 billion to $828 billion (pg 265).
  • By 2009 30% of Canadian mortgage debt was securitized.
• Pausing with the onset of the Global Financial Crisis in 2008 (and due to the federal government using public funds to bail out lenders, through CMHC (Walks 2014)), the results of this included inflated housing prices unattached to income and record rates of household debt (a ‘housing bubble’) (Walks 2014, Kalman-Lamb 2017, August 2022).
  
  In Edmonton
• Highlighted by the graph below, the impact on Edmonton has been sobering, and is illustrative of why our current housing crisis continues to worsen.
  • In just 3 years the average cost of an absorbed (newly built and sold upon completion) single family dwelling in the City of Edmonton Doubled (between 2005-2008).
• Since 2009, these trends have only worsened:
  • We can see below there was already another housing bubble peaking around 2015.
  • Incomes are even further disconnected from housing costs, not only for homeownership but also for tenants:
    • Rents doubled between 1998 – 2008
    • Rents also increased another 50% between 2012 – 2015.
  • Wealth gaps have also continuously widened, especially between tenant and homeowner households.
  • Since 2015, rates of first time homeownership have been decreasing while housing prices continue to outpace incomes (2022)
  • In 2020 investors purchased between 20-30% of homes (2023),
  • And from 2014 to 2021, 1/5 of every newly issued mortgage was for an investor (2022)

_{Click here for a larger view of the graph below.}

• If we look at the changes in Edmonton over the last 30 years between the average price of a single detached absorbed house (city) and average employment income (cma – disaggregated by sex and age) we see that incomes have not at all kept pace with housing costs (click on graphs below to view):
  ^{Note: absorbed meaning recently built and sold}

Single-Family Rental (SFR):
Investors and institutional owners purchase single family homes for the sole purpose of being investment properties – and to be rented out to tenants (August 2022, p5). These homes are not purpose built nor intended for the rental market, and are a part of the secondary rental market (2016). Blackstone’s model is credited as establishing SFRs as an asset class (UNHCR / Reply).

Following the 2008 financial crisis in the United States, vulture funds and investors (who had a hand in the creation of the financial crisis) purchased large swaths of single family rentals at ‘bargain prices‘ from underneath households who defaulted on sub-prime mortgages issued by predatory lenders. In some cases these landlords even rented the same home back to the same household (i.e. Detroit).

Tenants living in SFRs typically deal with a number of housing stressors including security of tenure and affordability challenges. And institutional owners of SFRs have higher eviction rates compared with other landlords (August 2022, p5).

Of Note:

• In 2021 the first institutional investor, Core Development Group, announced their intention to spend $1 Billion investing in 4000 family homes through SFR
• The Canadian Pension Plan Investment Board (CPP is the federal employee pension plan) is also spending $1 Billion on SFR, but in the United States
• Epic Alliance, a real estate company created in 2013, attracted 120 investors through an SFR scheme. Last year the company collapsed, $10 million has disappeared, over 500 homes are impacted, and investigations are ongoing (2022)

The Financialization of Senior’s Housing has been driven by the privatization of senior’s long term care facilities (LTCs), and neoliberal agendas pushing to privatize and reform health care (August 2022).
_{^{Learn more about financialized Seniors’ housing in Canada here.}}

The financialized model of Senior’s housing is based on extracting and accumulating profits (including government subsidies). Which means that prioritizing resident care is incomprehensible.

When the underlying goal of maintaining a good and dignified quality of life is usurped by maximizing private profit, quality of care becomes compromised for patients in health care settings and residents in facilities (Brown 2022).

This is reflected by minimal investment which reduces resident health and well-being, while producing poorer labor conditions – often off the backs of staff who are racialized women.

This lower level of care is also more expensive for residents (out of pocket) as well as public funders with increasing costs across the health care sector – including LTCs along with retirement homes, and collective residences with varying levels of resident care (Brown 2022).

In Edmonton, to mitigate the exorbitant amount of monthly fees for private housing, many seniors entered into life leases with Christenson Communities. Following a fire, some were displaced and waited months for their payout, only to find a significant amount deducted (2022).

The effects of the financialization of Senior’s Housing were devastating during Covid with the extreme loss of life of residents in LTCs operated by financialized owners – which could have been largely mitigated.

While non-profit LTCs provided care above and beyond what was even funded (i.e. in British Columbia, an additional 80,000 hours) for-profit homes did not even provide the hours they were funded for (Brown 2022, p.21).

Meanwhile financialized owner executives and shareholders acted accordingly with their model. While mortality rates spiked they took for themselves government funds intended to resource a resident prioritized response to COVID-19 (Wallace et. al. 2020).

In Edmonton

It has been estimated that 42% of retirement and 22% of long-term care homes are financialized (August 2022, p.5).

In Edmonton, there are a number of financialized senior’s housing owners. Including Chartwell, Optima Living (& Axium Infrastructure), Christenson Group, Revera, and Atria. Boardwalk also has a mixed apartment complex with seniors retirement apartments.

Edmonton’s senior’s housing has been a longtime target for financialized owners, and the pandemic has not been a deterrent.

This has had a significant impact on costs. By example, seniors living in market rental standard spaces (not requiring high level care) have had significant rental increases over a relatively short amount of time:

• In 2009, 27.1% of standard spaces had rents costing $2500 or more per month.
• In 2021, 71.1%% of standard spaces had rents costing $2500 or more per month.

More details about these step increases in rents are highlighted in the graph below (click here to enlarge):
^{Data: CMHC Housing Information Portal}

Social Housing: social (or non-market) housing exists in perpetuity – it is meant to be protected by remaining outside of the speculative (and unregulated) private market indefinitely.

The stock of non-market housing in Canada is already severely insufficient (demonstrated by waitlists). Commodifying, privatizing and/or selling any social housing when we are already at a deficit, let alone to investors, intensifies housing crises and homelessness. First, by taking away housing that were already a lifeline for too few tenants who have no where else to go. Secondly, as shelter costs in the private rental market will be skewed upwards – by higher rents attached to the volume of suites joining the private rental market.

In Edmonton

Over the last few years some ‘affordable’ housing projects have been built through new federal programs and dedicated federal funds. However, it turns out that the majority of this new affordable housing is actually unaffordable for tenants (over half of these funds went to private developers (NHC 2022).

The majority of non-market housing was built in Canada around 50 years ago. Funds for non-market were never set aside for repairs nor maintenance.

In 2021, under the guise of the state of repair of non-market housing, the provincial government in Alberta created bill 78. This bill makes privatizing and selling off roughly half of Alberta’s non-market housing possible – 26,100 homes.

The claim was this will create 25,000 more homes – which at best would result in a further deficit of 1,100 non-market homes. With what can only be best described as magical thinking, details have yet to be provided to demonstrate how this could be done.
_{More background information on this here.}

Student Housing: The financialization of housing has also materialized an an asset class of (off-campus) purpose built rentals for post-secondary students (‘PBSAs’).

Not only has this added to the gentrification of neighborhoods and intensified already increasing debt loads for students, much of this housing is not affordable either (August 2022, Revington & August 2019, Revington & Benhocine 2023).

In Edmonton

• In 2020 Alignvest Student Housing REIT arrived in Edmonton by purchasing a building on 110 Street and Whyte Avenue. Rebranded as 1Ten on Whyte (fully furnished student housing), this building was formerly known as St. John’s Institute – initially developed as a residence for students enrolled at the University of Alberta of Ukrainian descent.

Short-term rentals: the acquisition or development of investment properties as short-term rentals (STR) for visitors and tourists is another form of housing financialization that generates wealth beyond traditional tenancies – changing the landscape of rental housing for tenants (August 2022; Wachsmuth et al. 2019; Farha et al. 2022; UN 2017).

“Small-scale individual investment in one or two properties beyond those required for personal use may positively contribute to a functioning private rental market. Individual investment in multiple properties, however, can contribute to pressures on the housing market. This type of speculation can make it very difficult for first-time home buyers, the less affluent, women and racialized groups to access homeownership and generate intergenerational wealth” (Farha et al. 2022, p16).

Without proper and effective regulation, STRs instigate gentrification, higher housing costs for tenants living in areas with STRs, and can result in a ‘hollowing-out’ of neighborhoods as tourism displaces local households – significantly changing communities for all residents (August 2022; UN 2017).

As an investor can turn around a higher profit with STRs, the threat of conversion of a long-term rental to a short-term accommodation adds additional stressors for tenant security of tenure. Properties used for less than 30 day occupancy are taken off the rental market and are inaccessible to local long-term tenants.

Recently 7 people tragically lost their lives in an apartment fire in Old Montréal – 6 of which had organized their accommodation through Airbnb. These STRs were operating illegally without provincial short-term accommodation licenses (along with unaddressed safety issues).

While investigation is still ongoing, what we do know is that the named owner Emile Benamor is a lawyer who has pled guilty to tax evasion, and has been linked to organized crime. It also appears he was in the process of pushing long-term tenants out in order to sign new leases with Airbnb hosts.

An additional layer of complexity with regulating STRs are effective mechanisms to prevent short-term rentals operating illegally. This tragic case highlights regulatory gaps as (undiscerning) short-term rental platforms do not screen unlicensed owners, and municipalities do not have access to intermediary data.

With STRs, transparency and accountability is even harder to come by due to beneficial ownership (especially with secondary rentals), as well as the opaqueness of platforms. There is a disconnect between owners and hosts, and hosts can add a further layer of anonymity for owners. Especially as research across Canada has found that most STRs are owned by large-scale commercial operators (Combs, Kerrigan & Wachsmuth 2019).

In Edmonton

As of August 14, 2023, the estimated number of STRs in Edmonton* is:
^{*Airdna (Edmonton) accessed Aug 14/23: data from Airbnb (79%), VRBO (5%), & both (16%)}

• 2660 active rentals
  • 2152 entire homes (81%)
  • 502 private rooms
  • 6 shared rooms

Of the 2152 postings for entire homes, many seem to be concentrated centrally around downtown, and the Whyte Avenue area (Garneau/Strathcona):

Owners of STRs in Edmonton are meant to register for a business license. It is hard to know how many of the above are registered as the city’s open dataset of businesses licenses omitted STR accommodations. City of Edmonton officials estimate 55% of STRs are unlicensed (CBC 2023).

It is also estimated that in Edmonton ~46% of Airbnb revenues are generated by large-scale commercial operators (Combs, Kerrigan & Wachsmuth 2019, p 13).

_{Additional sources on STRs: AirDna (Edmonton) / Inside Airbnb / Fairbnb / UPGo (2019 data)}

Manufactured or Mobile Home Communities (MHCs) have been identified by financialized entities as ‘recession proof‘ investments (August 2022, p.6). A form of housing associated with lower shelter costs, residents of MHCs with financialized owners may have to deal with:

• Lot rental fees
  • Being introduced or increased
• Rising service costs
• Higher utility fees

There also appears to be a trend of mass evictions of residents from MHCs (Lund 2021). Either as an alternative to doing major repairs for owners, and/or when the land the MHC is located on is going to be redeveloped.

In Edmonton
In Alberta residential tenancy law does not extend to residents of MHCs (Lund 2021). As a result residents are even more vulnerable to eviction and displacement.

As of 2018 in East Edmonton, over 860 residents living in Maple Oak Ridge were forced to live with unaddressed and long-standing safety issues as well as maintenance neglect (2018). Reliant on housing with lower shelter costs, residents cannot afford nor are able to do maintenance and repair required by the owner themselves.

^{Note: The owner of Maple Oak Ridge is Parkbridge Investment Group – which was purchased in 2010 by British Columbia Investment Management Corporation (BCI/BCIMc), a provincial pension fund investor.}

^{Parkridge owns 2 additional MHCs in Edmonton – Evergreen and Jubilee Landing – as well as Willow Park Estates in Leduc and Parkland Village in Spruce Grove.}

The National Housing Advocate also has excellent resources.