With new condo construction hitting “record levels,” prospects for first-time homebuyers may be improving, but experts warn competition for those units will be fierce.
Wealthy investors looking for a second or third property are common customers for those types of homes. Recent trends show more of them are purchasing properties than first-timers, said John Pasalis, Realtor and broker at Realosophy Realty.
“The majority of investors are mom-and-pop investors, smaller investors,” said Pasalis. “Investors are the one segment of the home buying market that’s actually growing more so than first time buyers and repeat buyers. And in fact, the share of first-time buyers buying homes is declining. And largely investors are taking up that market share.
Robert Kavcic, senior economist at BMO Capital Markets, told Global News “as much as a quarter to maybe a third or slightly more of certain markets are being bought up by multiple property purchasers or investors. So (that is) adding another layer of competition to first time buyers that are actually looking to get into the housing market for a place to live.”
According to a recent TD Bank report, investors accounted for around 30 per cent of all houses bought in Canada last year.
Pasalis said the rising share of investors is having an adverse impact on both the housing market and the wider Canadian economy.
“This reduces the number of homes that can be lived in and purchased, because they’re no longer available to be owner-occupied. And this is having a huge impact on our market, and certainly helping to drive up home prices and wealth inequality.”
Kavcic said the rise in housing investment has coincided with a decline in the share of purpose-built rentals in the market.
“We’ve seen a lot less purpose-built rental investment in Canada simply because investors have backfilled that rental supply by buying up a portion of a new condo development and putting it on the rental market. So in a sense, the individual investor has replaced the institutional or large scale purpose-built rental project.”
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He said that, however, has begun to change with the federal government’s GST rebate on purpose-built rental construction. According to the CMHC’s Spring 2024 Housing Supply Report, purpose-built rental construction in six major markets combined to hit record levels in 2023. Rentals also accounted for a historically high average share of new construction starts.
Pasalis said institutional and corporate investors are a rapidly growing part of the investor market.
“It’s a massive problem when governments are effectively allowing these private real estate trusts to basically buy up houses. (They are) taking our housing stock and converting them to financial assets, making housing less affordable.”
While some believe that getting mom-and-pop investors to put their properties back on the market can increase housing supply in the short term, Pasalis says the first step is to stem the purchases in the first place.
“The first step is you need to discourage the accumulation. Investors should not be the fastest growing share of buyers in the market,” he said.
Measures like making it harder to qualify for a mortgage as an investment, adding land transfer and capital gains taxes and changing the deductibility on incomes from investment properties are measures that could help, he added.
Policy changes should include a focus on making investing in the housing market more difficult for those looking for a quick payout, Kavcic said.
“I don’t think there’s an easy way to just stop investors. I think we’ve seen some measures at the federal level to address short-term speculation. So taxing profits from flipping a property within a 12-month period, for example, is one step to maybe discourage really short term investment.”
He added that while tightening interests rates would affect all kinds of buyers, investors are more likely to be discouraged than first-time buyers.
“For the investor, it hits harder. Because when those expectations (of price growth) change, I think you see the investor demand disappear very quickly and very significantly. Whereas a first-time homebuyer — think of somebody that has a first or a second kid — they still need a place to live, so that demand isn’t disappearing.”
Pasalis said that long-term policy cannot rely on interest rates alone.
“Decide if you want homes to be affordable and a social right… rather than a financial asset for the rich. We need to make that decision. Governments need to make that decision first before you even talk about policy change.”
© 2024 Global News, a division of Corus Entertainment Inc.
