The Canadian Housing Statistic Program (CHSP) has highlighted the activities of investors in the housing market. As we have noted, there are significant problems in how this data has been categorized. Investors include:
- for profit businesses
- individuals not resident in the province
- individuals resident in the province owning a property with more than one residence
- individuals resident in the province owning more than one property
Most people would not consider government-owned properties, vacation properties, and homes with basement suites when discussing investor activity in housing markets. However, what impact people who own rental properties have on housing costs is a valid question.
We have seen the House of Commons recently hold a hearing on the financialization of housing. These hearings focused on affordable housing and multifamily rentals. While we will consider this issue in a future note, for now, we wanted to see if investors in single family homes are really driving up home prices. Would the Canadian housing market be better off if investors were banned from the market in the same manner as foreign buyers?
While there has been no Canadian academic research on this topic, two recent studies in the Netherlands and the US have some interesting observations.
The Dutch study looked at how “buy-to-let investors impact local housing markets and the composition of neighborhoods.” The study was based on a ban on buy-to-let (rental) investments. The researchers found that while the ban increased the share of first-time home buyers, it did not have an impact on house prices. The biggest impact was diversity – homes rented out were occupied by residents who were younger and less affluent than buyers in the same neighborhood. Moreover, rents increased 4% less in neighborhoods where investors were allowed to buy homes and rent them out.
A detailed study on house price growth conducted by Freddie Mac identified four key drivers of the US housing market:
- record low mortgage rates in 2020 and 2021, and the race to beat future rate increases;
- limited supply from underbuilding and below average distressed sales;
- an increase in first-time homebuyers due to favorable age demographics; and
- increased migration from high-cost cities to areas that already had a housing shortage.
Although there has been ongoing concern in the US about the activity of institutional investors in the market for single family homes, “[i]nvestor purchases are only modestly elevated and are of secondary importance to first-time homebuyers.” Investors in the US were not a primary contributor to driving up home prices since 2020.
The key takeaways –rental homes help to diversify neighborhoods and increase the rental stock, which in turn helps to control the increase in rents. Moreover, the purchase of these rentals did not bid up house prices.
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