Institutional investors have become convenient scapegoats for those seeking a simple explanation for the housing affordability problem. The assumption is that if they didn’t own these properties, more homes would be available to prospective buyers. The reality, however, is much more complex. Certainly, there are some fund managers who view housing purely as an asset play, but others see it as a way to solve a structural problem and have been actively building rental housing to fill the gap.
Amherst provides an interesting example. The firm was active in mortgage securitization before the financial crisis and successfully navigated 2008, pivoting to large scale investment afterward. Sean Dobson, Amherst’s CEO, has expressed that he would rather facilitate mortgages to help his tenants become homeowners than be their landlord, but the current regulatory regime in the U.S. makes that impossible.
Amherst constructs its own rental homes and focuses heavily on infill development and small-scale, individual renovations. It also has a modular division, Studio Built, with a factory in Texas that produces more than 600 rental homes a year, and partnerships with other factories in the southeast that can each build another 200 homes annually. This approach makes infill and renovation housing more competitive with greenfield track-home construction. There are likely valuable learnings here for Build Canada Homes on how to implement modular development effectively.
Amherst attributes part of the current housing challenge to the policy response in 2008. The post-crisis mortgage crackdown established stricter lending standards, which helped prevent fraud and limit small-scale speculative activity but also excluded a large number of creditworthy borrowers from the market. According to Amherst, this created a pool of prospective homeowners who were effectively shut out of traditional mortgage financing.
In a recent interview, Dobson noted, “Going from a 740 to a 640 credit score takes two missed payments… Getting back to 740 takes five years.” Amherst considers many of these individuals to be good credit risks. Their average income is around $100,000, yet their credit scores often prevent them from qualifying for a mortgage. Dobson also pointed out that a significant portion of Amherst’s client base is made up of single mothers whose credit scores may have been impacted by divorce. His broader question is a simple one: if government policy restricts Amherst’s activity in the housing market, what happens to the tenants who rely on these rental options?
A key takeaway is that Amherst is responding to changes in underwriting policies that pushed many creditworthy borrowers out of the market. Canada would be well served to examine where similar dynamics may be at play here. While we did not experience the same market failures as the U.S., we nonetheless pursued aggressive reforms following 2008. There were certainly excesses that needed addressing, but much of the response stemmed from the Department of Finance’s efforts to encourage greater competition among mortgage insurers and OSFI’s zeal to prevent bank failures. Perhaps part of the affordability conversation should also consider the costs of regulation itself.
Parkland is another interesting participant in the built-to-rent space, with a focus on townhouse development. By stacking units vertically – creating a form that resembles dense single-family homes with minimal private lot space – Parkland can secure zoning approvals while lowering land costs. The firm’s approach centres on “missing middle” housing, offering a product that is less expensive because it avoids the building-code labyrinth that drives up the cost of traditional apartment building construction.
The challenge for the Parkland model in Canada lies in the artificial distinctions between residential and multifamily construction. Developments with more than four units are considered multifamily and become eligible for CMHC financing. While some developers have found creative ways to reach 5-unit structures, a simpler solution may be to develop a financing structure specifically designed for this type of rental housing. These smaller-scale developments are easier to get approved, faster to build, and less likely to face less resistance from neighbouring residents.
Independent Opinion
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