Is It Time To Blame Investors For High Housing Prices?

Here’s a new one: why don’t we “blame” the current housing prices on the natural forces of supply and demand in a free market?

Meh.

What fun would that be?

We need a scapegoat!  A so-called boogeyman.

In fact, we’ve always needed one…

It’s been eight years – June 10th, 2015, to be exact, since I wrote a blog post here on TRB called “The Blame Game”

Eight years ago, I offered the following culprits that could be responsible for high housing prices.

1) The government.
2) CMHC
3) The Bank of Canada
4) Lenders
5) Realtors
6) Society
7) Buyers
8) The Free Market

Wow, this was so, so long ago.

Not only that, the average home price coming into that year was $566,611.

Don’t shoot the messenger, but it was $1,189,736 last year.

Indeed, eight years ago!  And yet not long after I wrote “The Blame Game” and named those eight sources for blame, society found a new culprit and one that remained an evil-doer for quite some time:

Foreign buyers.

This culprit was a fan-favourite for years, off-and-on.  And while we did find a few sexy targets for our frustration and real estate envy (AirBnB comes to mind…), the scorn for foreign buyers didn’t die down enough to avoid a “Foreign Buyer’s Ban” for two full years – a campaign promise by a government seeking office!

Yes, blame.

It’s been a regular theme in the real estate market and thus it’s been a regular theme on TRB.  So much so, in fact, that I was going to skip Prime Minister Justin Trudeau’s comments from October whereby he blamed high housing prices on investors.

As I said: I was going to.

But then last week, I saw this article in the Toronto Star:

“Investors Now Own More Than 50% Of Toronto’s New Condos – And Experts Say They’re Driving Up Housing Prices For Everyone”
The Toronto Star
December 2nd, 2023

(sigh)

I couldn’t leave this topic unexplored.

Not only that, my dad paid me a visit on Sunday (after I had written the intro to today’s post…) and said a couple of things that made me want to pen this topic even more.

What did the soon-to-be 77-year-old oracle have to say?

Well, two things of note, but ironically, two things that sort of contradicted each other.

On the topics of Doug Ford, the Greenbelt, Bonnie Crombie, home prices, home security, the employment market, interest rates, and a host of other things all jumbled into one (and that was just in the foyer upon arrival! 😂), he said:

“I never heard of this ‘the government needs to build housing’ stuff before recently.  Not when I was a kid in the 50’s and 60’s, not when I was a young businessman in the 70’s and 80’s, and not even a couple decades ago.”

But then moments later, after I said that I didn’t care how housing was built, so long we got shovels in the ground, he said:

“Did you see The Star this weekend?  Half of all condos are owned by investors?  That’s not natural.  The system is broken.  There’s something wrong here.”

Perhaps those two statements don’t directly contradict one another, but once you dig into our “housing crisis” a little, you soon see that you simply can’t have it both ways.

The Toronto Star article from this weekend was a classic tale of woe, always beginning with somebody who puts their name on the affordability crisis, just to make it seem more real:

From the article:

There are a lot of assumptions, unknowns, and grey areas in these stories.

What is a “good salary,” for example, but also how much is a down payment.

Then there’s this:

“We think maybe we’ll just rent here forever, but then you’re at the whim of your landlord,” she said. “You see some landlords own 10 properties and here we are with a good income unable to buy an apartment. People deserve to buy a home if they want to.”

Define “deserve.”  And do so in less than a seventy-page thesis.

First though, define “whim of your landord.”  As we have explained many times here on TRB, the Landlord & Tenant Act, combined with the Landlord & Tenant Board, has made the province of Ontario a haven for tenants, and an absolute nightmare for landlords.

But the protagonist of this story isn’t wrong about the fundamentals of our market: Toronto is expensive, it’s become more expensive, and it’s becoming truly unaffordable for many.

However, the comment, “people deserve to buy a home if they want to” doesn’t detail the more important parts.

What house?  How much?  How big?  A red-brick Georgian tudor in Rosedale?  Or a condo in Ajax from which one may commute?

When?  What age?  In what market?  And for how much?

I don’t have the answer to the Toronto housing crisis, but I sure am willing to poke holes in the rhetoric.

This is a great article and I implore you all to read it, but one last section before we move on:

Around 80 per cent of pre-construction condos are sold to investors as condos have proved lucrative, appreciating by hundreds of thousands of dollars in the last 15 years, Desjardin’s Desormeaux said. Because of this, they’re now driving the type of housing stock being built in Toronto, which are not designed for families in mind.

Right.

Of course.

But when you consider how condos are built and financed in Ontario, there’s simply no other way.  This is the only way these things will actually get built.  So if investors aren’t buying them, they aren’t built, and if they aren’t built, then our housing crisis is worse.

But that doesn’t stop this type of opinion from growing like a weed:

“To Revive Canada’s Economy, Housing Prices Must Fall, Property Investors Must Take A Hit”
The Globe & Mail
October 28th, 2023

Hang on.

So we want investors to finance all new construction in Toronto but then we want them to “take a hit” as well.

From the article:

There’s probably no way around it: to revive the economy and overcome the housing crisis, property investors will need to take a hit, at least in relative terms.

The author lost me somewhere around the title of the article, but he surely would have lost just about everybody when he began to talk about “planned economies in the Soviet Bloc.”

No, seriously.  That was part of his argument.

The more I read, the less I understand.

Do we want to live in a planned economy?  No?  Okay.

So we don’t want the government to build and control all housing?  No?  Oh, alright.

So we do want the private sector to build housing?  Right.  And how is it built?

Oh, yeah, I forgot.

So why then do we get opinions like this from the highest office in the country?

“Prime Minister Justin Trudeau Blames Investors For ‘Commodification’ Of Housing”
Toronto.Com
October 26th, 2023

There’s the word: blame.

Right in the very middle of the headline.  Right where your eye wants to go first.

Here are the choice quotes from Mr. Trudeau:

“There are many factors that have gone into the housing crisis that people are facing right now. Whether it’s just the growth of our economy or the growth of our population. Whether it’s the success of our communities, or whether it’s under-investment by previous governments in housing over a very long time that requires us to step up in very strong ways right now,”

“But we do know that one of the factors that is challenging for so many people is the commodification of housing (and) the fact that people are using homes and houses as an investment vehicle — particularly corporations using homes as an investment vehicle — rather than families using them as a place to live, grow their lives and to build equity for their future.”

Look, we all know the game.  Politics.

He’s on the way out and he’ll do and say just about anything at this point, so this attitude comes as no surprise.

“Under-investment by previous governments in housing over a very long time” is a great way of saying, “It’s not my fault!”  And while he’s not wrong, since no government has ever invested “enough” in housing, in my opinion, it’s still a poor look.

But this just takes us right back to the start.

Who is going to build housing?

If it’s the private sector, then we can’t expect it to be bought exclusively by “families using them as a place to live, grow their lives, and to build equity for their future,” because, sadly, these aren’t the ones who can afford it.

As I wrote last week, the cost of building homes is extravagant!  Some 20-30% of the cost comes in the form of taxes, fees, levies, and monies paid to the three levels of government, and the land on which to build homes has never been higher.  Labour and materials aren’t far off their all-time highs, so who is going to buy these new homes if not investors?

If we somehow “banned” all investors tomorrow, housing starts and completions would halt.

Then what?

No, seriously, I’m asking…

I don’t need to rebut Mr. Trudeau’s comments from October because Murtaza Haider and Stephen Moranis, who are now well-known and well-read real estate analysts, did it for me in this article:

“Trudeau’s Bashing Of Real Estate Investors Shows Lack Of Understanding About Housing”
Financial Post
October 30th, 2023

I really liked the sub-title which read:

Trudeau should be the lead cheerleader in attracting investments to the housing sector, not the enemy

But not everybody sees it that way.

From the article:

Trudeau believes housing has been commodified by investors and corporations that use “homes as an investment vehicle — rather than families using them as a place to live, grow their lives and build equity for their future.”

The prime minister’s comments, which reflect his understanding of the housing crisis, or lack thereof, should alarm Canadians, especially those facing acute affordability challenges. Canada Mortgage and Housing Corp. (CMHC), the federal government’s housing agency, believes 5.8 million homes must be constructed by 2030 to restore housing affordability. CMHC further estimates, rather conservatively, that this construction will require more than $1 trillion.

If it doesn’t come from investors, where will $1-trillion-plus come from in the next eight years?

Great question!

But who among us has the answer?

If the prime minister truly believes housing investors are part of the problem, Canada’s housing woes are likely to worsen, and the targets to restore affordability will certainly remain elusive. Vilifying investors is why investment in housing in this country has been lacking for decades. His comments do not help at a time when the nation desperately seeks housing investment on an unprecedented scale.

Trudeau could have been justified in his critique of investors if he had identified alternative funding sources. But he didn’t.

Let’s face it, housing is a commodity. Homes are bought, leased and sold. Every housing transaction involves an exchange of money. To suggest anything but is a disservice to the nation’s unmet housing needs.

True.

But logic, reason, common sense, empirical evidence, and often science are all thrown by the wayside in today’s world when feelings are more important.

It just doesn’t make any sense.  Everything is contradictory.

And while I’m not going to defend Doug Ford for what probably amounted to some shady dealings concerning the Greenbelt, I am going to suggest that I’m almost at the point of not caring if “the rich get richer” in the pursuit of building homes in Canada.  The CMHC stated last month that we’d need about $1 Trillion to “restore affordability” in Canada, or to build 744,000 houses per year!  Who is going to build this?  With what money?  Where?  When?  And how?

We’re not going to build on the Greenbelt and we’re not giving sweetheart deals to developers with track records of building.  Got it.

We don’t want investors to buy pre-construction condos.  Okay.

We do want condos to be built, even though they are financed by banks who want to see 80% of units pre-sold, usually to investors.  Okay.

We can’t afford to eliminate the 20-30% of the cost of building new houses that goes to the municipal, provincial, and federal governments.  Of course.

We have banned all foreign buyers.

We’re going to ban AirBnB’s.

We have a vacancy tax.

We have a luxury tax.

Oh, and now Housing Minister, Sean Fraser, believes: “If you are an adult working in Canada, you should be able to buy a home.”  No mention of your income, age, savings, credit, or where you want to buy, or what and for how much.

Does any of this make sense?

No?

But we’re still upset with investors, even though they’re housing millions and millions of Canadians who rent their homes?

I actually think this makes less sense now.

Either that, or I’ve simply got a case of the Mondays….