A condo construction site in downtown Toronto on May 25, 2023.Chris Young/The Canadian Press
Real estate investment is a way of life in Vancouver, with investors – people who don’t reside in the homes they own – representing close to half of the condo market.
In recent years, Toronto has pretty much caught up, with a 28 per cent increase in all investor-owned condos from 2019 to 2022. Vancouver held steady, with a 10 per cent increase in the same time frame, according to new data from the Canadian Housing Statistics Program. In 2019, the CHSP began releasing data on properties that were “not owner occupied.” According to the new release, 43 per cent of Toronto condos are investor-owned. In Vancouver, it’s 46 per cent.
In raw numbers, Toronto’s investor-owned properties outnumber those of Vancouver. In 2022, Toronto investor condos numbered 140,435. In the city of Vancouver, the number was 47,585.
“The Toronto pattern seems to be converging with the Vancouver pattern of [investor] condo buying,” says Andy Yan, director of Simon Fraser University’s City Program, urban planner and data analyst. “There are buyers who are going for seconds and thirds while others don’t even have a plate.”
Investors aren’t only active in the condo market. Prof. Yan found that the University of B.C. area had an unusually high rate of investor ownership of detached houses, at 54 per cent. UBC is within the wealthy Point Grey district known as Metro Vancouver A. That compares to investor ownership of 19 per cent of detached houses for Vancouver overall.
There are problems with an investor-fuelled housing market. Such homes can sit empty for long periods or be used for lucrative short-term rental. Both issues have added to the housing affordability crisis.
Policies by the province and local governments have been introduced in recent years to address both issues, but there is still room for improvement. Last week, Statistics Canada also released new data on short-term rentals. Comparing that data to Canada Mortgage and Housing Corporation and census rental stock data, Prof. Yan found that 1.4 per cent to 3.1 per cent of Vancouver housing units in 2021 were short-term rentals that could have been used as long-term rental housing. That represents 2,392 homes.
The Statscan study looked at entire units rented for most of the year on platforms such as Airbnb and VRBO. If returned to the rental pool, these rentals would have added 1.2 per cent to 5.55 per cent additional rental stock in Toronto, says Prof. Yan. That is 6,628 units that have potential as long-term dwellings.
“This still needs further research, but it points to how short-term rentals have the potential to erode the rental stock in certain Canadian cities,” said Prof. Yan.
There is also the problem of investors driving up prices and creating instability for the entire housing market, a dark side to investment buying that is playing out in Toronto right now, say industry experts. New condo sales are at a low not seen since the 1990s, according to a new report by Benjamin Tal, deputy chief economist for CIBC Capital Markets, and Shaun Hildebrand, president of Urbanation. That’s a problem, because investors drive presales and presales determine construction financing.
“The trend of increased investor ownership of housing answers two questions: Is the financialization of the housing stock in many parts of Canada continuing? And does housing as an asset class continue to compare favourably with other forms of investments in the national and global economy? The answer to both is yes,” said University of Toronto’s Prof. David Hulchanski, who studies issues around housing and inequality.
A condominium development by St. Thomas Developments Inc., at 88 Queen St. East on Jan. 2, 2020.Fred Lum/The Globe and Mail
“The key to understanding the current version of the ‘housing crisis’ is the fact that housing assets are now at the core of the national economy. This drives up house prices and rents, makes access to home ownership difficult, and increases the risk of economic instability. Canada’s housing system needs serious reform as it is mainly a system for increasing the wealth of some while increasing the housing distress of many,” he said.
The CHSP report only looks at homes that are not owner-occupied, but it doesn’t reveal the extent of the presale, or preconstruction sales that have driven Toronto’s condo market in recent years.
John Pasalis, president of Toronto’s Realosophy Realty, a brokerage that does data analysis, says there was a major acceleration of preconstruction condo investors in Toronto, with buyers willing to pay 30 to 40 per cent more for a preconstruction unit than a resale. That’s because, he says, a preconstruction unit requires less of a down payment and staggered payments, and then buyers can either flip the unit or rent it out and sit on it for a few years. But once those buyers stopped buying in the last several months, the system started to crack, he says. Investors are now trying to unload units that have put them in a negative cash flow, with costs higher than the rents they can charge.
“When you have an investor-driven market, prices end up getting ahead of where they should be, right? And this is what we’ve seen across the world during the financial crisis when it’s driven by investors. It’s the exuberance that drives prices higher than what they otherwise should be and what they rationally should be,” he says. “There’s the expectation that prices are just going to keep going up forever.
“And now that prices have been relatively flat for the past three or four years in Toronto, no one wants to buy preconstruction condos any more, and many people with existing units are actually trying to sell them. So, we have a record number of condos on the market right now, and this is largely what’s driving it.
“There’s this assumption that prices are going up 8 to 10 per cent a year, and the second you remove that condition, people stop buying. People stop building. So, in some ways, it kind of is a Ponzi scheme that falls apart when prices aren’t increasing rapidly. And we’re starting to see the negative side of that.
“I mean, obviously we need more supply,” adds Mr. Pasalis. “But again, one of the conditions of supply is rising prices, at least for preconstruction condos.”