Prime Minister Justin Trudeau tours a rental housing development in Vancouver on Feb. 11, 2019.JONATHAN HAYWARD/The Canadian Press
Mark Kenney is the president and chief executive of Canadian Apartment Properties Real Estate Investment Trust (CAPREIT).
The solution to the housing crisis is simple: We need more homes, of all kinds.
At Canadian Apartment Properties Real Estate Investment Trust (CAPREIT), we are part of that solution. We provide rental homes for Canadians. However, we have a simple problem.
In the 2021 mandate letters, Prime Minister Justin Trudeau asked the ministers of housing and finance “to expand Canada’s housing supply” and “review and consider possible reforms to the tax treatment of REITs.”
These priorities are in conflict. A REIT, like us, is essentially a form of mutual fund. Investors buy into REITs, and the resulting funds are used to build rental homes. Like shares in a publicly traded company, investors’ stakes in REITs earn dividends and go up and down with the market.
Despite representing just 3 per cent of the national rental housing market, REITs are important vehicles for efficiently allocating funds into housing development – building more homes.
By pursuing the review and possible tax reforms, the government is discouraging investment in REITS. That has unintentionally turned off the taps for REITs to build and expand housing supply, as the shadow of possible reforms has created market uncertainty. It’s exactly the opposite of what Canada needs right now.
And when that happens, our firms are also at risk of decapitalizing and becoming susceptible to potential takeovers by foreign and private equity players. Such privatization would mean losing a certain measure of public accountability. Private companies are not accountable to everyday shareholders, and their operational and financial details are not made public.
Such privatization would also mean another Canadian success story sold away.
REITs are no loophole. They were created in Canada in the 1990s to encourage investment in real estate by small retail investors. Many Canadians hold REIT units in their RRSPs. Unitholders in REITs receive distributions from the REIT and pay taxes on that income at their marginal tax rate, just like “mom and pop” landlords do. If they sell, they pay the applicable capital gains tax, just as if they owned a rental property outright.
According to a 2022 study by EY, the federal government receives approximately the same revenue from REIT owners as it would with a corporate model, and losing REITs might actually reduce government revenues.
And what about affordability for renters?
The majority of our apartments meet the CMHC’s definition of affordable, meaning rents are less than 30 per cent of local median renters’ household incomes. Pensions and private landlords, which dominate the market, have higher average rents than REITs. On average, privately owned condos rent for almost $1,000 more per month than purpose-built rental apartments. And as speculative investments, these units are more likely to be sold and the tenants evicted.
Purpose-built rentals are more stable and affordable for tenants, and Canada needs to prioritize their construction. The best way to do so is through REITs.
To advance our goals, we formed an industry group this year, Canadian Rental Housing Providers for Affordable Housing. This group comprises the five largest publicly traded residential REITs in Canada.
We also want to protect affordability – permanently – by selling affordable rentals to non-profits, co-operatives and community land trusts. To do so, we’re proposing a national acquisition program to protect affordable homes at one-third to one-half the price per unit of new construction. With just a billion dollars in upfront investment, the government could triple or quadruple its progress to date in securing permanently affordable homes. It’s a model with broad support across party lines.
We’re requesting the government expeditiously comfort the market by promising to not pursue a new tax treatment of REITs and by delaying no further its review of housing as an asset class.
We’re ready to work together, each doing our part, to meet the moment. We just need the government to make it clear that they want us here.