[00:00:00] Jordan Heath-Rawlings: I would like you to keep in mind that I could find you a clip almost exactly like the one I’m about to play from basically every month for the past several years.
News Clip: Here’s the average price of a home in Canada stands at close to $717,000 up 31% from last year. And that is the biggest annual gain on record.
Jordan Heath-Rawlings: Those numbers should be shocking, but if you’ve been paying any attention, they’re not, we’ve covered Canada’s housing market. So has everyone else, and almost no place in this country has been spared. By now there are hundreds of thousands of young Canadian families who simply assume that they’ll never be able to afford that. And they’ve moved their goal to instead finding a rental unit. That’s an actual house instead of trying to cram kids and a dog into a downtown apartment. So then you would think something like this would be good news.
News Clip: It does. It [00:01:00] will double the availability of rentals by renovating houses to create a second legal rental unit.
Jordan Heath-Rawlings: Here’s where it gets tricky. Core Development is the company that plans to purchase a billion dollars and family homes across Canada’s hottest markets and convert them to rentals. On the surface that could be a positive move, but anytime a company used to develop in condos moves to becoming a landlord at scale, there are a lot of questions.
What kind of rent does Core intend to charge for these units and will it price desperate families out of even the rental market? What kind of landlord service can a developer provide when it is managing thousands of unique homes at once each with their own quirky history, needs, and individual tenants? What does a big corporation entering the housing market with a billion dollars do to the rest of the housing market? And if more rental units are so badly needed across this [00:02:00] country, then why are housing advocates sounding alarm bells at the mention of this plan? It’s hard to imagine Canada’s housing and rental crisis getting much worse, but certainly some smart people are convinced that this plan could do that. Why?
I’m Jordan Heath-Rawlings, this is The Big Story. Rachelle Younglai is the Globe and Mail’s Real Estate Reporter. Hello, Rachelle.
Rachelle Younglai: Hi.
Jordan Heath-Rawlings: So we’ve actually covered this kind of story before from an American perspective, but now that it’s arriving in Canada, maybe you could just take a moment to kind of explain what institutional house rentals are.
Rachelle Younglai: So generally in Canada rentals, home rentals are done by individual investors. So maybe your cousin or your mom, or, uh, or, uh, just a person [00:03:00] with, uh, just, uh, two rental properties and they rent those homes. Um, institutional home rentals, um, is more when a, uh, a larger company takes it on, on a larger scale. So similar to what this company Core is doing.
Jordan Heath-Rawlings: What are they doing, or at least what have they announced plans to do? Because it’s, it’s unclear. They haven’t really done it all yet. Right?
Rachelle Younglai: They have not. They’ve just started. So their short-term goal is to buy 400 properties and turn those into a thousand rental units. So, uh, right now they’ve fought, they’re focusing on Ontario and they’re going to be buying in eight cities. They’ve identified eight, um, mid-sized Ontario cities and they’re starting to buy properties there. So that’s their short-term goal. Their medium term goal is to own about a billion dollars worth of single family [00:04:00] home rental. Across the country, uh, in Ontario, BC, Quebec, and Atlantic Canada.
Jordan Heath-Rawlings: What does Core Development usually do? Like what’s their normal business model and how much of a shift is this for them?
Rachelle Younglai: Well, they used to be in the single family home building business, and then they switched to condo development. And so they’ve been doing most of the condo development for the past few years. They have 14 condo projects in the GTA right now.
Jordan Heath-Rawlings: What I’m wondering about is where they see of the profits in this deal because Canadian housing is absurdly overpriced right now, right. And, and now is, uh, at least for normal people, not the time to buy these homes.
Rachelle Younglai: Yeah. Yep. Correct. Prices are very, very high. Um, and where they’re buying, um, in those, um, mid-size Ontario cities, those prices are up significantly over the last year. So I mean, their plan is to take each property and turn them into two rentals. So [00:05:00] if it’s a detached house they would build or renovate it. So there is a basement apartment unit. So a two bedroom basement apartment unit, and a three bedroom ground floor unit. So they’d be turning one attached house into two rentals.
Jordan Heath-Rawlings: How much money does that generate for them? Or how much are they expecting to get for it?
Rachelle Younglai: Right now they’re there the rent that they’re charging, because if they have started the program. They’re charging around $1,600 for the basement unit and $2,100 for the ground floor unit.
Jordan Heath-Rawlings: And the rental markets in the cities that they’re moving into. What are they like?
Rachelle Younglai: They’re tight there have very low vacancy rates, which is similar to most of Canada. Had a very low vacancy rate for decades because there has been no new apartment buildings being built. So yeah, they’re, they’re, they’re very, very low. Um, and there . Isn’t there, there just isn’t a lot of new product, so yeah, they’re [00:06:00] going to a very tight market.
Jordan Heath-Rawlings: What do housing advocates have to say about, uh, this both as a move by Core Development Group and I guess as, as precedent for this approach coming to Canada?
Rachelle Younglai: Housing advocates are very unhappy about this move. They’ve been tracking what they call the financialization of apartment units, uh, and which is when big institutional investors go and buy apartment buildings, uh, and then make small changes to those units and then, uh, jack up the rent. And so they see this as an extension of that. So the financialization of single family homes, detached houses, and, um, they are concerned that their, Core is starting to turn single family homes and turning single family home to a financial plan.
Jordan Heath-Rawlings: I’m going to ask, I guess, kind of an unpopular question that’s the reverse of [00:07:00] that. If these rental markets are so tight and we certainly hear, um, things in Toronto and, and many other big cities around Canada about, you know, the apartment units that are usually for rent are tiny and not fit for families. And these seem to be, you know, thousands of single family, rental units coming on the market. And why is that a bad thing?
Rachelle Younglai: Yeah. I mean, you can look at it that way too, but that that’s what Core says it’s doing is that it’s offering affordable housing and larger units for people who can’t afford to buy a house where people who don’t want to live in a 500 square foot apartment. And so they are adding supply, especially if they’re tan taking a house and turning it into two rental units.
Jordan Heath-Rawlings: So where does it cross the line, I guess, from turning into bringing more rental units on the market and, uh, crossing that line in terms of being a bad thing when it happens at scale?
Rachelle Younglai: Well, I mean, it depends if you are a homeowner [00:08:00] and you want to buy a house and you see a company with significant funding, uh, lots of institutional money behind it. And they’re competing against you to buy that house. So Core is taking supply supply out of the market. They’re taking supply, housing supply. If you, if you are a home buyer wanting to buy they’re taking that supply out of the market. It’s hard to know, right. In, in, in, in Canada, because it’s, if they’re starting at such a small scale, but if we get to the point where, uh, uh, the rents are, uh, they raised the rents to a point where it’s unaffordable. Then, then that’s, that’s that doesn’t help with providing affordable housing to even people who can’t afford to buy.
Jordan Heath-Rawlings: Are there any regulations that would guide them in terms of how much of the market they can own, how much they can charge, you know, anything that’s in place as sort of guard rails on something that, you know, as I mentioned, I might agree with on a small scale, [00:09:00] but does seem like it could get quickly out of hand.
Rachelle Younglai: No, I mean, I would think that pricing would keep them out of the market to some extent, I mean, at the going rate for a whole house, um, in a lot of the smaller cities in Ontario is over $500,000. So that’s a high bar for entry, but no, there are no rules about, um, there, there are no rules about how much you can own.
Jordan Heath-Rawlings: In the bigger picture. I mean, you also wrote this week about the ever rising percentage of homes in Canada that are controlled by investors. Now, would this qualify as a percentage of that and how quickly is that rising?
Rachelle Younglai: So that data is a bit incomplete. So we can’t really say that it’s been, we can’t look at it over a longer, a long period of time. We only have a data from 2015, that data shows that around 20% of all home buying, uh, is, is being done by someone [00:10:00] that already has a mortgage on another property. So, um, that the Bank of Canada defines that as an investor. Um, if you look at Core in that context, Core is a very, very, very small part of that. It’s, they’re not even, I mean, if you compare the number of properties they have bought so far this year, uh, which. I believe 75 properties. It’s just such a tiny number compared to how many home resells, uh, have taken place so far this year. I mean, it comes up to about 0.06% of all sales in Ontario.
Jordan Heath-Rawlings: If this continues to proliferate as a strategy. And I realized there’s all sorts of reasons that it might, or it might not. What could it do to the actual real estate markets in the cities where, you know, Core for now, but maybe eventually other companies will enter.
Rachelle Younglai: That’s difficult to know, um, that I spoke to one economist, David Rosenberg, who believes that [00:11:00] if homeowners are forced to rent and there are no longer able to compete, uh, in the home buying market that would help take some of the froth out of the market. So that would essentially take out competition and helps slow the increase in home prices. He thinks that it could slow down home price increases, that’s one side. Um, it could also increase home prices because you have a well-capitalized investor like Core or any big investor going in and able to buy houses, properties without restrictions. So they, they just have deeper pockets then than you and I or, or any, any home buyer. So in that respect, it could increase home prices.
Now, Core has said that they don’t get involved in bidding wars. So that’s what they’ve said so far. And I don’t think it would make sense for them to get into a bidding [00:12:00] war on houses that are over $500,000, $600,000.
Jordan Heath-Rawlings: This is going to sound like a joke question, but it’s really not. How do you buy a house in Canada without getting into a bidding war right now?
Rachelle Younglai: Yeah. That’s yeah, that’s a, um, yeah, that’s a good point. Well, some of the properties that they’re buying are duplexes and triplexes and there isn’t as much demand for those, but that’s a really small part of their portfolio. Um, they said that they are able to do some off-market deals. So they know a lot of sellers in those cities know that they’re looking so they can quickly do deals. I mean, you know, you’re right. You’re right. I mean, most people go into a bidding wars now to buy a property. So yeah, they, they are involved in some, but, um, they said that it’s not, most of them are not.
Jordan Heath-Rawlings: There’s been a lot of reaction, um, to your piece and you know, to the media, that’s come out of it with, you know, as we [00:13:00] talked about advocates speaking up, what do you think a, and I’m asking for your opinion here. I know that there’s no easy answer to it, so, you know, feel free. To say whatever you feel, but what do you think the average Canadian, who is hoping to get into the home market, you know, in the next two or three years and is saving for that down payment right now. What should they think about, uh, you know, what this says about what’s happening to the market?
Rachelle Younglai: I have heard from readers and people who are trying to buy a house or want to buy a house. And they’ve, they’re, they’re very upset about this development because. They see it as a big company with a lot of resources taking supply of the market. Taking the home that they could buy right out of the market. So what should they think about this development? I mean, if it, if it, if prices slowed down the way David Rosenberg thinks they might slow down, then maybe the Core Development would be [00:14:00] good for the market because it would slow prices down. Um, but if they add to the competition or increase the competition, then and prices go up, then it’s, um, it’ll be harder for them.
Jordan Heath-Rawlings: What’s it like for you covering the housing markets in Canada? Uh, over the last, you know, 18 months or two years. I mean, I could ask, you know, a decade or more, but like just, we’ve done several episodes since back before the pandemic of just how quickly prices have risen. And the discussion of whether it’s a bubble or whether it’s not a bubble. And then every time we come back to this story, uh, somebody else is looking to get rich off the housing market, you know, it’s, uh, it’s quite a beat these days.
Rachelle Younglai: Yeah, no, it’s been, it’s been really crazy. And there, you know, there are a lot of people who were very upset and very angry because they can’t buy. And when they try to buy they’re continuously out-bid. Um, and, um, and people who, uh, earn over, uh, you know, people who earn, earn high, high salaries, they [00:15:00] can’t get into the market because they don’t have a high enough down payment. Like I said, it’s a, um, it’s a very intense beat. And it’s a very, you hear lots of, um, frustrations from, from, uh, home buyers and homeowners and, and, and renters for sure.
Jordan Heath-Rawlings: One of the things we’re talking about a lot these days is the specter of a summer or fall election, uh, based on the folks who you’re talking to about this story and other stories, do you think controlling the housing market or, or changing it in some way is going to be an election issue and, and how so?
Rachelle Younglai: Well, I thought it was going to be part of the federal budget and they’ve the federal government did very little in that. Um, Uh, so yeah, I, I do think it’s going to be part of the conversation because the home prices have gone up so much and so quickly, and, um, and rents are so high. Uh, in, in the major cities and where the major jobs centers are like Toronto and Vancouver. [00:16:00] Um, that, yeah, I think, I think that, um, uh, people are, or the lawmakers are forced to think about these issues and how to, um, um, make housing more affordable.
Jordan Heath-Rawlings: I know, uh, you’re not supposed to speculate, but if I talk to you again, two years from now, do you think Core Development will be the only Canadian company in this business?
Rachelle Younglai: It depends, we’ll see how they do, they were just, they just started. And so if, if a lot of, if, if people are renting their properties and they’re able to expand and, and, and, and bring them this model to other provinces and do well, I think a lot of bigger, a lot of big investors will be interested and they’ll try to, to copy Core. Um, Yeah, I mean, and they’re going into markets where, where rent is, the rental vacancy rate is super low, so they, they’re not having a hard time finding people to rent their places.
Jordan Heath-Rawlings: I guess we [00:17:00] will have to see. Rachelle, thank you so much for talking to us about this today.
Rachelle Younglai: Thank you.
Jordan Heath-Rawlings: Rachelle Younglai of the Globe and Mail. That was The Big Story, you can find more big stories, including, yes, plenty of coverage of Canada’s housing crisis, at thebigstorypodcast.ca. You can find us always every day on Twitter at @TheBigStoryFPN, you can email us, same deal, always, every day. I check the email every morning, I read them personally, thebigstorypodcast, all one word, all lowercase, @rci.rogers.com [click here!]. And as ever, we are in your podcast player, be it Apple or Google or Stitcher or Spotify or Amazon Music or PocketCast or CastBox. And I forget the rest. I used to keep a list, but I don’t anymore. I just assume we’ll be there.
Thanks for listening. I’m Jordan Heath-Rawlings, we’ll talk tomorrow. [00:18:00]
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