For many years now there has been a large group of people who claimed that the primary reason Canada’s housing market was overheated was due to investors buying multiple homes to rent out while they occupied a primary residence. The issue of contention for a large portion of that period was the nationality of these investors and whether or not they were living in the country. Turns out there’s not a whole lot of relevance to that, but the numbers of people who are buying homes as an investment is relevant when you look only at the number of transactions they are behind.
19% of transactions being completed by investor buyers is a significantly large number, especially given the shortage of homes in Canada based on the nationwide population. But what is interesting about the report is that it found that similar percentages have been the norm all the way back to 2014. That is long before the cries of an overheated market and protests against investors of all sorts were at the forefront, nor was there a perceived ‘housing crisis’ like there is now.
We know that real estate agents understand the ebb and flow nature of the business, and that certainly applies to big-picture numbers like these ones but also at the micro level where it applies to how much new potential clientele is out there for realtors to get into touch with and ideally make commissions from working with these people. That’s why our online real estate lead generation system here at Real Estate Leads is such a wise choice for new realtors who understand the current working environment and want to leverage what they can to get an advantage.
But back to our main topic and the discussion of to what extent investors are having an affect on the housing market in Canada. The 19+% number is one that has rapidly outpaced other types of buyers during the COVID-19 pandemic.
2017 Surge
The report found that it was in 2017 that the share of residential investors surged and that was exactly when home prices in cities like Vancouver were skyrocketing, a surge that has continued year after year right to where we are now at the start of 2022.
These findings came from microdata being collected from various sources and analyzed, including info from the big Canadian banks and credit reporting agencies. What came out of it all was an algorithm to match the datasets with an eye to categorizing mortgaged home purchasers into three distinct groups – 1st-time buyers, repeat buyers and investors.
Admittedly there were and will always be limitations in the report with capturing correct data on all investors, or those with multiple mortgaged properties. That is because it only examines domestic data, so foreign buyers would only be accounted for if they had obtained a Canadian mortgage. The data also did not take into account home purchases made by corporations or if those properties were purchased with cash. All of this means the number of investors could be underreported.
Resulting New All-Time Price Highs
While it’s true the federal government has been proactive in trying to regulate the housing market, home prices have hit new all-time highs in many markets across the country. This of course means housing affordability moves back to the forefront of what is public interest, and in a very cyclical way the blame on foreigners and investors returns too.
The study is also included in the first official policymaker-backed reports that demonstrate how investors play a significant role in Canada’s housing market. Among other notable finds in it:
- A 2016 BC Provincial Government study found foreign investors accounted for some 10% of Vancouver home sales over the course of 5 consecutive weeks during that year
- With home prices continuously outpacing increases in disposable income, there have been major negative impacts on 1st-time homebuyers
- A separate BoC report found that since 2015 the share of first-time homebuyers has been declining to new lows each year
All of this is of course along with investors seeing the largest gain in their share of home purchases during the COVID 19 pandemic. To counter this somewhat though we need to keep in mind that investor-purchased homes are a critical source of homes for the country’s rental supply – something else that is very much needed in the same way better housing affordability is.
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It also acknowledged that while investors can be a significant source of instability in the market, they’re also an important factor in adding rental supply.
