In a major move that’s shaking up “business as usual” in Canada’s rental market – and one that’s certainly not without its vocal critics – a major Canadian condo developer is purchasing $1-billion worth of single-family homes for rentals.
Toronto-based condo giant Core Development Group has its sights set on growing a newly adopted business model that's based on the widespread rental of single-family homes, beginning with the strategic purchase of detached homes in eight markets across Ontario.
This year, Core quietly began purchasing properties in Cambridge, Hamilton, Peterborough, London, Barrie, Kingston, and St. Catharines, and will soon drop more dollars on properties in Guelph.
The goal is to expand into Quebec, British Columbia, and Atlantic Canada by 2026, resulting in a $1-billion portfolio of rental units. Essentially, the decade-old developer will become a very powerful landlord for tenants across the country.
Though the move is new to Canada, the institutional rental model has been widely used south of the border for some time. Its arrival in Ontario comes in a climate of high emotions and growing frustration at the current state of Ontario’s increasingly out-of-reach housing market (not that anyone needs the reminder).
Not surprisingly, critics have been quick to slam the move. Ever since the Globe and Mail broke the story yesterday, social media has been flooded with hundreds of angry and quizzical reactions. Opponents claim that the developers are profiting from the housing crisis by jacking up rental prices, or removing even more of an extremely limited supply of single-family homes from the market.
"If we accept that the huge run-up in real estate prices (50% in 12 months in some Ontario regions) is partially driven by a severe lack of supply, the idea of a corporation buying up 2500 homes in the next couple of years further impairs supply, making it even harder for first-time homebuyers and that fact is starting to become a problem for the future of our country," says Ron Butler, owner of Toronto's Butler Mortgage. "Any reduction in housing inventory eaten up by a corporation works against first-time homebuyers."
John Pasalis, President of Realosophy Realty took to Twitter yesterday, sharing a similar sentiment. “Firstly, when we think about the type of rental properties we want, it’s far more desirable to have new rental supply filled by PBR (purpose-built rentals) because it’s not only permanent rental supply, it also doesn’t have the negative side effect of inflating single family home prices,” Pasalis tweeted.
“The second, and arguably more important reason is that whether policy makers like it or not, the vast majority of people want to own their own home,” he adds.
The worry is that the deep-pocketed investors will outbid middle-class Canadians who are desperately trying to enter the housing market.
“We aren’t participating in bidding wars; I think the thought is, because we have all this institutional money that we will outbid anybody to buy a home,” says Corey Hawtin, founder of Core Development Ltd. “But we have really strict buying parameters, and we will never out-pay the end-user because we can. Buying a home becomes an emotional experience, and we appreciate that. The types of homes we’re buying are in a state of disrepair, and a lot of bidding wars don’t seem to happen around those homes. If we notice ones attracting bidding wars, we just won’t participate.”
Though it may be tough one for some to embrace off the bat, Hawtin says the move will actually better serve the needs and wants of today’s housing market by offering much-needed rental supply.
“Lots of families and young professionals want to live in a single-family house with a backyard and avoid elevators and common public areas but are tired of unprofessionally managed expensive options,” says Hawtin. “We are doing our small part to offer a product that is safe, relatively attainable, energy efficient, and professionally managed.”
While Hawtin says that 81% of millennials don’t want to rent an apartment; they’d rather rent a single-family home, critics aren’t convinced that the Canadian dream involves remaining a renter. “Canada is trying to attract and retain the best and brightest people in the world and if those people can’t afford to buy a home of their own, are they going to settle for renting a home for the long term? Some might, most will not,” said Pasalis in a tweet.
Rather than profiting off the relentless housing crisis, Hawtin says Core Development Ltd. is actually doing social good on a variety of fronts. He says this includes anything from adding more rental supply to the market and diversity to neighbourhoods, to providing safe units that meet all standards, and are professionally managed.
“We are offering relatively affordable rental products, because we are splitting the house into two units, so rental income and rental expenses are split two ways,” says Hawtin. “Furthermore, we are renovating houses that have significant plumbing, electrical, and fire hazard issues, and often missing fire escape exits in case of an emergency. Our firm is adding secondary units that are fully permitted, inspected by all city departments, and safe for residents to live with their families.”
Hawtin drives home the assurance offered by institutionalizing the rental industry. “You’re renting a home from a professional the way you would an apartment that is professionally managed, so there is the assurance that things are going to run efficiently,” he says. “We are bringing institutional management to the rental market for a better experience.”
Pasalis acknowledges that – while he calls the whole thing a “terrible trend” – it has some appeal for renters. “The flip side of course is that this trend is good news for renters,” he writes in another tweet. “As more homes move from being owner occupied to tenant occupied, rents fall (or rise very slowly).”
Hawtin says Core is purchasing property in desired spots to call home – both now and in the future.
“We chose markets where there is very little new supply, but where there is a lot of demand,” says Hawtin. “Low vacancies and all markets are growing on a population front, they house a variety of employers, and are growing cities without roofs to accommodate that growth.”
While Hawtin may see things from community enhancing, point of view, critics slam the entire model as self-serving. "Individual rental investors who buy one house at a time can often afford to offer reasonable rent or even attractive rent with the hope of price appreciation; Core needs to make a 15% net profit on its rentals from Day One just like any huge company, therefore higher rental rates are effectively guaranteed," says Butler.
No one wins other than Core, he says.
“We acknowledge the critics and that there is frustration in the market in general – it’s hard to buy a home and it’s becoming less and less attainable,” says Hawtin. “But that’s not a dynamic that we’ve caused. We need more supply on both the rental and purchasing front to change this, and to do so in partnership with the government. There needs to be an easing of regulations and fast-tracking of timelines. There’s much better ways to impact supply in a means where the private sector and public community can both win.”
In the meantime, Core Development is purchasing these homes at a rate of about 15 per month, says Hawtin.
