While several academic studies have recently cautioned against investment firms in the rental market, Canada’s national housing agency says real estate investment trusts (REITs) have higher rents for “sound reasons” and rent control may stifle supply.
In an article released last month with two separate reports on REITs and rent control, Canada Mortgage and Housing Corp. (CMHC) deputy chief economist Aled ab Iorwerth said some concerns about the financialization of rental housing appear “misplaced,” and more large-scale private and institutional investment in construction is necessary for affordability.
While one report found REITs charge above-average rents, Iorwerth said there are usually “sound financial reasons” for this. He also wrote that rent control could discourage private investors from building more rental housing.
The publications came on the heels of a number of studies that found “financial landlords,” such as REITs hiked rents and pursued evictions more aggressively than other landlords.
The CMHC publications have raised concerns from some housing researchers who fear the agency has departed from its mandate to promote housing affordability.
Critics argue the findings are misleading, saying they omit past CMHC research, disregard relevant studies, have inconsistencies and fail to critically examine the impact of REITs on renters.
Martine August, an associate professor at the University of Waterloo whose research focuses on the financialization of the housing market, said she found the reports “extremely concerning.”
“It has such a substantial impact on the public perception of this problem and justifies the role of these firms in our housing market, when you have all sorts of advocates and researchers who are pointing to a problem,” she said.
Iorwerth said the agency wants to increase housing supply while protecting tenants.
He said the research may not support existing ideas about REITs, “but our job is to get the data out there, get the research out there. People want to react to the research, react to the data, that’s fair game.”
The CMHC found REIT rents in Toronto and Vancouver are about two-to-five per cent higher than properties owned by other landlords, but the gaps “largely disappear” when adjusted for location, timing of purchase and operational differences.
In Montreal, it said, REIT rents are 25 per cent higher, but REITs often buy in neighbourhoods with early signs of gentrification and “when controlling for this strategy,” the difference drops.
August said by comparing REITs to all other landlords, including other financial landlords, “they’re not going to see as big of a difference.” Her research found financial firms as a whole had substantially higher rents than other landlord types.
“By choosing to just focus on REITs, it really doesn’t show the impact of financial ownership, and actually really minimizes it,” August said.
Iorwerth said CMHC focused on REITs because “a lot of the challenges, complaints, observations” are about them. He said the report used economic analysis and has received support from some industry leaders.
David Amborski, a professor at Toronto Metropolitan University’s School of Urban and Regional Planning, defended the study, saying while REITs raise rents in renovated buildings, it’s “another question” whether they influence the entire market.
The rent control study included research from international reports on rent control, including three that mentioned Canada. In the article, Iorwerth wrote the research showed that rent controls decreased supply and reduced housing quality.
However, Ricardo Tranjan, a political economist and senior researcher with the Canadian Centre for Policy Alternatives, said the study itself noted the impact on new construction is not clear. The report also did not cite CMHC’s own 2020 study on rent control — an analysis of major Canadian cities from 1971 to 2019 that found no evidence that rent control reduces rental construction.
Not engaging with the “most robust” and “most relevant” statistical analysis in Canada in recent years seems “disingenuous,” he said.
Iorwerth said the 2020 CHMC report’s approach was too broad, and the new report only examined more in-depth studies.
The recent study also said rent controls could discourage tenants from getting better jobs because they “leave more money in tenants’ hands” and that removing rent control could reduce crime as higher-income renters buy security products.
Tranjan and John Pasalis, president of brokerage and market data platform Realosophy Realty, pointed to these findings as evidence that CMHC’s priority is not affordability.
Pasalis added that the CMHC contradicts itself in the article by “banging the drum” on needing more supply but warning of an “oversupply” of condo rentals.
“On the one hand, they’re arguing supply is important to lower prices. Once lower prices are coming … they’re flagged as a negative side effect that will hurt future supply.”
Carolyn Whitzman, a senior housing researcher at the University of Toronto’s School of Cities, said CMHC strayed from its mandate to focus on the needs of low- and moderate-income Canadians in the early 1990s, and because of this, “an entire generation” of affordable housing experts left the agency.
Iorwerth said CMHC’s current position is being concerned about “affordability for everybody in Canada.” While social housing for low-income households is “entirely appropriate,” there’s also an affordability challenge for middle-class Canadians, he said.
“For that, we need more housing supply across the board. We need more purpose–built rentals, REITs. We need more home ownership,” he said.
