More than one third of Toronto’s condo market is owned by people who do not live in the units, but prefer to rent them out, use them as secondary residences, or leave them empty instead.
The situation is not as drastic as Vancouver’s condo market, where about half of all units in the city are investor-owned, but it’s still a significant share of the condo market.
The findings are the result of a recent data release by Statistics Canada, as part of the federal government’s new Canadian Housing Statistics Program (CHSP). The program was launched in response to a lack of data on housing and as a result experts and academics have been digging deep into the data sets and helping residents understand the markets in which they live. The recent new data batch sheds light on the scale at which condos are being purchased for straight out investment.
Toronto and Vancouver, the two hottest and least affordable markets, have particularly benefited from the data. Vancouver-based planner Andy Yan, director of Simon Fraser University’s City Program, analyzed the data set for the top five most populated municipalities in the GTA, for the Globe and Mail. He’d conducted similar analysis on such condos in the Vancouver market.
Markham has the highest rate of not-owner occupied condos at 38.7 per cent, followed by Toronto city at 37.9 per cent, Mississauga at 35.6 per cent, Richmond Hill at 31.6 per cent, Brampton at 29.9 per cent and Vaughan at 29.7 per cent. The average for the Toronto area is 36.6 per cent of condos that are not owner-occupied.
The analysis fits with the findings of John Pasalis, president of Toronto’s Realosophy Realty Brokerage and analyst of the Greater Toronto Area. Mr. Pasalis believes most Toronto condo investors buy pre-construction and hang onto them for rental income or flip them after completion. The other major investor type are those who move into bigger places but hang on to their condos for rental income because of strong demand. Mr. Pasalis has found that Toronto condo prices rose significantly since the federal government introduced new mortgage “stress test” rules in 2016. Because first-time buyers were shut out of the detached house market, they turned increasingly to the condo market, driving prices up.
In January, 2012, the average price for a condo was $321,475 and after the new stress test rules, prices climbed to $429,407 in October 2016 – a 34-per-cent increase. By April, 2018 the average price rose to $559,343.
Mr. Pasalis sees the new government data program as “a big step forward.” He says work by Vancouver researchers such as Mr. Yan, and Josh Gordon, assistant professor of public policy at SFU, has shut down any doubt by government agencies and others, that non-resident buyers were having an impact on the markets. Prof. Gordon recently released a study that used the CHSP data to show a decisive relationship between non-resident ownership and high house prices in the Vancouver area. Prior to the new data, the Canada Mortgage and Housing Corporation [CMHC] had held the position that non-resident ownership had little impact on the affordability crisis. Mr. Pasalis is now considering how he might use the data for his own GTA analysis.
“The fact that [the CHSP data] has forced CMHC to take back their long-standing position on non-resident purchases in Vancouver is noteworthy,” he says.
Mr. Yan says the new data is crucial to the dialogue around housing and in determining public policy.
"Data projects like the CHSP are critical in nurturing, building, and informing Canadian liberal democracy and a modern housing system,” Mr. Yan says.
Mr. Yan and other academics and experts have waited many years to get their hands on reliable data. Now that the data are finally being rolled out, he has a wish list for the agency that’s not in any way complete. So far it includes numbers on investor-owned condos that are operating as rentals, the source countries of the investors, the patterns of investor ownership by neighbourhood and the age of the buildings preferred by investors.
Statistics Canada chief Jean-Philippe Deschamps-Laporte says that while he can’t comment on how the data sets are being used, he is very pleased that the agency’s work is being embraced by academic researchers. For the past two years, the agency has been approaching data collection in an entirely new way, by looking at administrative information, including Canada Revenue Agency information, land titles and property assessments, in order to answer questions about home ownership, rental housing, and other key questions.
The agency works closely with all levels of government in every province. There are quality assurance controls in place and the error rate is extremely low, says Dr. Deschamps-Laporte, who is chief of analysis and dissemination of the new Ottawa program.
“We are confident in the data we publish,” he says. “When we see these people using [the data], I feel that maybe we are on the right path. In no way is it perfect, in no way are we publishing information on all the questions, but over the two years out of a five-year development phase, we have the room to address future emerging questions as well.
“Better decisions are what we are after for all parties. Particularly in B.C., there are a number of policies that have been rolled out. And even at the federal level, housing has been a consistent topic in the last three or four budgets.
“All these policies need the proper data to be designed appropriately. It is our hope that this information can be used by different levels of government to make the right decision.”
A question that lingers for academic Josh Gordon, who’s an assistant professor at SFU’s school of public policy, involves foreign ownership of housing over time. For example, the agency could look a properties purchased for more than $1-million in recent years and determine what percentage had been bought by people who’d paid less than $50,000 total in Canadian income taxes. Such data would give Canadians in unaffordable markets a clearer picture of the decoupling of local incomes from the housing market and the role that high-income low-income-tax-paying non-residents play in driving up prices.
“Long story short, what is needed is better ‘flow’ data on foreign ownership over time and this could be achieved by looking at the non-resident data that have already been gathered and trying to figure out when properties were purchased through title or transaction records,” Prof. Gordon says. “They could potentially sample something like that in certain jurisdictions to make the task more manageable.”
In fact, Dr. Deschamps-Laporte, who has a PhD in economics, says that the agency is particularly interested in non-resident ownership of Canadian housing, as well as income tax reporting. In September, they will be releasing data at the municipal level, although he couldn’t reveal any details.
In the past, the agency relied on household surveys in order to collect housing data, but surveys don’t work when the homeowners are non-residents. It’s required a new strategy.
“One of the flagship components of this program is analyzing non residents,” he says. “For instance, we want to know if people are born in this country. Statscan, with agreements with the provinces and territories, has access to hospital data, and we can [determine] if a person was born here. So we are integrating all these sources.
“Why would I need that data to analyze housing? Well, it’s quite important, if you are asking questions about residency. So there are these new sources.”
It’s a new day for data collection for another fundamental reason, he says.
“To be frank, we are dealing with hundreds of gigabytes of data, and if you go back 10 years, the processing capacity to deal with this enormous amount of information was simply not there, so there are advances in computing and methods.”
As for the revelation that Toronto and Vancouver markets have a hefty share of investor-owned condos, Mr. Pasalis and others agree that it’s not an ideal situation if purpose built rentals aren’t coming online at the same time. Investor-owned condos often sit empty, or underused, and are easily utilized for short-term rental, all of which takes away from local housing. And even when rented out to locals, investor owned condos aren’t secure rental housing.
Purpose-built rental buildings offer far greater security because they aren’t at the whims of market forces. Investor-owned market condos are susceptible to shifting markets and their use as rental stock can ebb and flow, Mr. Pasalis says.
“I definitely see it as problematic that virtually all of the rental stock built in the GTA over the past 15 years has come from condominiums versus purpose built rentals.
“It’s problematic for a number of reasons. Firstly, those tens of thousands of units are not permanent – many of the condos that are currently used as rentals now are being sold to end users, which shrinks the pool of rental units.
“Finally, if condo prices take a bit of a hit in the near future, we could very well see a decent number of mom and pop investors rush to dump their units, which could make what would have been a modest cool down into a more severe decline.
“End users don’t rush for the exit when prices dip a bit, but investors are less tied to their units so are more likely to take their cash and run if they see a decline in the near future.”
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