Individual investors and private corporations own about 90 per cent of Canada's purpose-built rental apartment units and most markets with a higher concentration of individual investors have lower average rents, according to a new report from the Canada Mortgage and Housing Corporation.
The report found that individual investors typically charge lower rental prices and are more prevalent in less expensive centres like Quebec, whereas more expensive markets like Vancouver, Edmonton and Halifax had fewer individual investors. The national average rent for a two-bedroom apartment owned by individual investors was around $871. Apartments of the same size owned by corporate owners averaged out at $1085 and units owned by pension funds had the highest national averages at $1467.
The exception was Toronto. Despite being one of the most expensive rental markets in the country, the city was in the top seven cities with the highest share of units owned by individual investors at about 50 per cent. However, the report found a smaller disparity in rental prices across different kinds of ownership in the most expensive markets. So, having more individual investors has had little impact on affordability in Toronto, where the average overall rent was $1327.
Gustavo Durango, senior economist at CMHC and author of the report, said the disparities between rental prices in different markets with a concentration of individual investors could be explained by the kinds of buildings available in those cities.
"It confirms what we already know, which is that markets with lower rent tend to be markets where the average rental building is older than average and tend to be smaller. In Toronto, on average they have newer buildings with newer amenities and they tend to be larger and have swimming pools and such, which lead to a higher rent," said Mr. Durango.
Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, said the lack of impact of individual investors on the cost in Toronto just reflects the high demand for rental properties in the city.
"In the big cities, where the issue is affordability, the question is whether or not the conditions are right for an increase in supply," said Mr. Tal. "We may see an increase in purpose-built rental units but in the GTA, it won't be the case because of rent control. You will see the condo space continue to take over there."
The first of its kind, this report looks to fill a "data gap" that was pointed out to the CMHC by academics and industry stakeholders, particularly having to do with ownership of rental units. The data in the report is based on a new set of questions that were added to the CMHC's 2016 Rental Market Survey after a series of consultations.
"This is a big first step we took with this report," said Mr. Durango. "Once we start filling in gaps you start finding other interesting questions worth pursuing."
For example, in the Prairies and Atlantic Region, real estate investment trusts (REITs) own a larger share of the rental market, despite accounting for only 7.9 per cent of the share of rental units nationwide. They have a major presence in cities like St. John's, with a share of almost 50 per cent of the rental stock there, and over 20 per cent in Edmonton, Saskatoon, Regina and Calgary. Why REITs were more represented in those particular markets was a question Mr. Durango hopes to eventually answer.
The CMHC also looked at foreign ownership of purpose-built rental units and found that they accounted for a fairly small share of the national market, coming in at just 2.4 per cent as of 2016. Toronto, Vancouver and Edmonton were among the cities above the national average in this area with the highest share being 4.4 per cent in Toronto. Canadians living outside of the country were also lumped into this group.
"Purpose-built units are a long term type of investment. Much of this foreign money is not looking for capital appreciation over years. That's not for them,"said Mr. Tal.
Mr. Durango said these findings were in line with the findings of the report looking at foreign ownership of condominums that the CMHC put out in November, 2016. That report said that foreign ownershp in Toronto and Vancouver, which had the highest rates in the country, came in at only 2.2 per cent and 2.3 per cent respectively.