Investment firms have become the biggest new buyers of U.S. homes — a trend that could make home ownership more difficult for average families.
The idea of big investors buying single-family homes to rent them out is “just in its infancy” in Canada, but is worth watching, according to the president of one of this country’s largest real estate firms. Some advocacy groups fear families can’t compete against money managers with billions in assets.
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As interest rates rise and property prices fall across much of North America, deep-pocketed investors such as hedge funds, private equity giants and pension managers are hunting for stable assets to offset inflation and volatile stock markets, according to market observers.
In the first quarter of 2022, investors made up a record 28 per cent of U.S. single-family home sales, according to a report published in June by the Harvard Joint Center for Housing Studies, compared to less than 20 per cent a year earlier.
“Investors bought a larger share of America’s homes than ever before,” noted a separate report from the real estate firm Redfin.
The trend of money managers buying single-family homes to rent out is “a new phenomenon” for the Canadian market, said Christopher Alexander, president of ReMax Canada. He thinks the notion could catch on here as it has south of the border, especially given recent price declines.
“The lower you can buy as an investor, the higher the chance of selling high,” Alexander said in an interview.
“They are well capitalized, they are smart and they have the means to make an impact in the marketplace.”
As middle-class families increasingly struggle to buy homes, analysts say more capital from large firms is expected to enter the Canadian market, further straining supply and affordability for average people. A lack of hard data on the scale of these investments makes it harder for policymakers to respond to the emerging trend, affordable housing advocates said.
Lack of Canadian data
The scale of current institutional ownership over Canadian housing is unclear, but analysts believe it’s far lower than in the U.S. and generally a minor cause of the rapid rise in home prices this country has seen over the last decade.
The Canadian government does not have clear data on the footprint of large investors in the domestic housing market. Neither Statistics Canada nor the Canadian Mortgage Housing Corporation (CMHC), federal agencies which track the sector, could say how many homes are owned by investment firms.
WATCH | Soaring rents price out some Canadians:
Soaring rents price out some Canadians
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Duration 2:01
Some Canadians are finding themselves increasingly priced out as the cost of rent soars across the country.
“For the moment, Statistics Canada does not publish information on institutional investors, and the type of residential properties they own,” a spokesperson for the government organization told CBC News via email.
“CMHC does not collect the data that you are looking for,” a spokesperson echoed.
Nailing down purchases by institutional investors isn’t an easy task, said ReMax’s Alexander, especially as these firms often “don’t put all of their purchases in the same name or will register properties to different numbered companies or holding companies.”
“I just don’t know if we are set up to track a new phenomenon,” he said.
‘The question of not knowing’
The subject is politically sensitive. Few other major property firms would comment on investor interest in the Canadian housing market.
The Canadian Real Estate Association, the trade body representing brokers, declined to comment. So did Royal LePage, a major brokerage. Two other property agencies, Century 21 and Keller Williams, didn’t respond to interview requests.
Christopher Alexander, president of ReMax Canada, said he isn’t sure whether the government is currently set up to track the trend in Canada. (Chad Hipolito/The Canadian Press)
Getting a clear picture of the scale of institutional investments is the first step for determining how to respond to them, said Jennifer Barrett, a senior planner with the Canadian Urban Institute, a Toronto-based non-profit.
“I think the question of not knowing, onto itself, is an interesting piece to explore,” she said in an interview. “The federal government needs to address the financialization of housing.”
While the extent of institutional investment in Canada’s housing market isn’t clear, individuals who own more than one property hold 29 per cent of residences in B.C., 41 per cent in Nova Scotia and 31 per cent in Ontario, according to Statistics Canada figures released in April. These owners could be mom-and-pop landlords who own a couple of rental properties or larger investors who register homes under a single name.
Industry denies pushing up prices
Despite the lack of hard data, institutional investors recently made headlines in Canada.
Core Development Group, a Toronto-based real estate firm, drew anger last year when it announced plans to spend $1 billion buying single family homes in mid-sized Canadian cities. The company didn’t respond to requests for comment on the state of its investments.
WATCH | Average home prices begin to dip across Canada:
Average home prices begin to dip across Canada
7 days ago
Duration 1:59
As the real estate market begins to cool, some home sellers are getting less than they hoped for. The shift is even being felt in Canada’s priciest cities.
Blackstone, which describes itself as the world’s largest alternative investment firm, with billions spent on single-family U.S. homes, opened a real estate office in Toronto in May to expand on its $14 billion in Canadian real estate assets.
“We expect to continue to be very active in the Canadian market, particularly in areas like logistics, high quality creative offices and life science offices, studios and multifamily residential,” a spokesperson for the company told CBC News via email.
“We continue to have no intention of investing in the single-family housing market in Canada.”
Blackstone owns approximately 0.02 per cent of single-family homes in the U.S., according to company data, accounting for roughly 25,000 units.
“Given our ownership levels, we have virtually no ability to impact market rent trends,” Blackstone said in March in an online question and answer session responding to criticism. “Rents are going up because there is significantly less supply of housing across the globe than demand for it.”
U.S. realities
Private equity investors in the U.S. started buying up single-family homes following the 2008 subprime mortgage crisis and ensuing recession, said Barrett of the Canadian Urban Institute. But the trend did not catch on to nearly the same degree in Canada.
Since then, corporate landlords have acquired an estimated 350,000 homes, according to testimony heard by the U.S. House financial services committee on June 28 probing affordability challenges and private equity.
In the U.S., institutional investors now own an estimated 350,000 houses, according to congressional testimony, and the share is increasing. (Graeme Roy/The Canadian Press)
By 2030, investors could control as much as 40 per cent of the U.S. rental home market, according to data cited by PERE, an industry journal.
Aside from fears about deep-pocketed financiers out-competing regular people to buy homes, tenants renting from big investors have faced a slew of problems, said Madeline Bankson, a researcher with the Private Equity Stakeholder Project, a U.S.-based advocacy group.
Poor maintenance, broken air conditioners in the sweltering U.S. south, a lack of garbage collection, mould, exorbitant charges for late payments, and no one to respond when things break, are among the problems tenants in houses owned by large investors have reported to advocates.
“The model is: increase revenues, decrease costs,” Bankson said.
Fears of a ‘perfect storm’
Unlike average people who usually require a mortgage to purchase a home, equity investors typically buy with cash, meaning they are more insulated from rising interest rates than individuals. Blackstone, for instance, boasts $941 billion US under management.
ReMax’s Christopher Alexander, who closely tracks Canada’s market, worries a “perfect storm” could be on the horizon post-2024, as population growth continues and supply chain challenges hit plans for new construction.
Aside from fears investment firms can out-competing regular people to buy homes, tenants renting from big investors have faced a slew of problems, according to one housing researcher. (Evan Mitsui/CBC)
The rising U.S. dollar compared to Canada’s currency also makes Canadian housing more attractive for foreign equity investors, Alexander said.
“They see we have tight supply and no real solution to it through building; we can’t keep pace, and they see a good climate for long-term appreciation,” he said.
“Investors aren’t thinking about raising their families there; it’s much more mathematical and numbers focused. If you are buying a home to live in, it’s emotional.”
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
