:
Good morning, committee members.
The clerk has advised me that we have a quorum. Everybody has been sound tested. I will warn that there are some issues with practically everybody appearing virtually this morning, so we'll go as we go. It's in and out.
I call the meeting to order. Welcome to meeting number 73 of the House of Commons Standing Committee on Human Resources, Skills, Social Development and Status of Persons with Disabilities.
Today's meeting is taking place in a hybrid format pursuant to House order of June 23, 2022, which means some people are participating remotely by Zoom and we have the rest here in the room.
To ensure an orderly meeting, I would ask that all questions be directed through me, the chair. Wait until I recognize you to speak. You have the option of speaking in the official language of your choice. If you're in the room, use the headset. If you are appearing remotely, use the translation icon at the bottom of your screen. If there is an issue with translation, please get my attention. We'll suspend while it's being corrected.
I would also like to advise those who are attending the meeting virtually or in the room that taking pictures or still shots is not allowed.
Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, October 17, 2022 the committee will resume its study on financialization of housing.
We'll begin with our witnesses for the first hour.
Appearing virtually, as an individual, we have Steve Pomeroy, industry professor with the Canadian Housing Evidence Collaborative. From the Federation of Rental-housing Providers of Ontario, we have Tony Irwin, president and chief financial officer, who is in the room with us. From the Minto Group, we have Dan Dixon, senior vice-president, project finance.
Each presenter has five minutes to give an opening presentation and then we'll go to questions from committee members.
We will begin with Mr. Pomeroy for five minutes, please.
You have the floor.
Thank you, Mr. Chair, for inviting me to this important discussion.
In my work as an academic and a researcher in this area, a number of my studies have been cited by other witnesses, particularly around the very dramatic erosion of the low-end rental stock, with a loss of over 550,000 units in the decade of 2011 to 2021, at a time when we only built about 70,000 units of new affordable housing. The loss of existing stock is a critical issue, and that's being lost as a result of the rents moving above affordable levels.
I've submitted a brief to the committee. I don't know whether it's been translated and circulated. I'll simply highlight some of the key points in that brief, which discusses the issue of financialization as well as the state of the rental market and the issues creating the affordability crisis in rental housing.
The analysis revealed that the issues contributing to the ongoing phenomenon of rent-gouging and renovictions, and the dramatic ongoing erosion of these lower-rent options, are pervasive and relate to a wide range of investors, of which REITs are a very small fraction. In fact, as other witnesses have indicated, REITs manage and operate less than 5% of all rental housing in the country.
The behaviours have more to do with the transformation of rental housing into an attractive asset class, which is attracting investment both from large institutional investors as well as many small investors.
Really, the increasing issues are related to an insufficient supply of rental housing, which is a long-term phenomenon in this country. This is being exacerbated by a very significant increase in demand, especially from international students and temporary foreign workers. These are over and above the immigration targets. There is also pent-up demand from young families seeking to purchase a home. Because of prices and macroprudential policies, they can't afford to buy and, as a consequence, they remain in the rental market. We've seen a significant reduction in the home ownership rate in this country as a result of them being unable to move out, create vacancies and create a healthier rental market.
The other key issue relates to provincial regulations of the rental market allowing vacancy decontrol, which is the feature allowing these significant increases in rent. I think that's an issue, obviously, of provincial jurisdiction, but it's one the committee needs to think about.
In terms of the recommendations in the paper, the first one relates to vacancy decontrol and its impact. The recommendation is to request that the provinces revise current rent regulations to, at least temporarily, remove the vacancy decontrol mechanism to moderate the excessive increases in rents while new construction catches up to these historically high levels of immigration creating these pressures. While this is provincial jurisdiction, there is a precedent for this. In 1975, under the anti-inflationary measures, the federal government asked the provinces to adopt rent regulation, and they all did. Subsequently, those regulations were relaxed once the issue had passed. It has been done before.
The second recommendation, given that most acquisitions of existing properties are by various types of investors utilizing CMHC mortgage insurance, is that the committee suggest CMHC establish more stringent conditions to limit rent increases for investors utilizing mortgage insurance to purchase existing lower-rent properties.
The third recommendation relates to the changing pattern of institutional investors and REITs in the residential rental market. Historically, these investors purchased existing assets because they were priced better and had less risk than building new. Recently, many of these investors have moved to new construction. Therefore, rather than eliminating REITs and institutional investors, we should try to direct their investment into the new supply part of the market, encouraging a pivot that's already ongoing towards that nature of investment.
The fourth recommendation is to encourage institutional investors and pension funds —which offer to invest via REITs and other asset management firms—to update and review their ESG investment guidelines to minimize enabling the practice of renovictions and large rent increases in properties in their portfolios. Michael Brooks spoke about an industry code of conduct to address this issue in previous hearings.
The fifth recommendation is that the government amend the national housing strategy to create a funding and financing mechanism that would allow non-profit organizations to purchase existing lower-rent units. By taking them out of the market system, they could de-commodify those assets and preserve the lower rents in perpetuity. This would also take advantage of a desire among the REITs to dispose of some existing lower-rent assets, which I think Dan Dixon will speak about later. That creates a mutual opportunity both to preserve and to take the proceeds from those sales to invest in new construction.
The sixth recommendation is to encourage Immigration, Refugees and Citizenship Canada to review and recalibrate the issuance of international student visas and temporary foreign worker permits to better align with new rental supply and to direct the CMHC to utilize its low financing rental construction financing initiative to encourage and support the construction of purpose-built student housing that would take some of the pressure off the market and the displacement that occurs due to the high number of international students entering the country.
I look forward to the discussion.
Thank you very much.
Good morning. My name is Tony Irwin. I am president and CEO of the Federation of Rental-housing Providers of Ontario, or FRPO.
FRPO has been a leading voice of the rental housing industry for over 30 years. We represent more than 2,200 members who own and/or manage over 350,000 rental homes across the province of Ontario. FRPO is also a founding member of the Canadian Federation of Apartment Associations, or CFAA.
I am pleased to have the opportunity to address the HUMA committee today as you review the financialization of purpose-built rental housing in Canada.
On Tuesday, you heard from my colleague, John Dickie, president of CFAA. John briefed the committee on the various segments of the rental market and how a dollar of rent is split between operating and capital expenses and what is left over as net income. Today, I am going to brief the committee on the cost of major repairs and building modernization of rental apartments.
Our apartment stock is aging in this country. In Ontario, over 80% of existing purpose-built rental stock was built before 1980, making it at least 43 years old. These buildings require significant modernization. Even with regular maintenance, building elements eventually reach the end of their useful life and must be replaced. This includes everything from roofs, balconies, heating systems, elevators, windows, underground parking structures and other building elements. Replacing any one of these could easily cost 20% of the total annual building revenue, and this is before all other expenses.
Figure 3 on page 4 of the joint CFAA-FRPO submission shows real-life examples from four different buildings in Ontario in 2022. A new roof cost $442,000, or 18% of the gross rent for the year in one large apartment building. In other buildings, elevator refurbishment, garage concrete restoration and new windows cost 17%, 48% and 81% of the gross rent respectively. These are significant costs for work that is needed to keep buildings safe and structurally sound or to improve energy efficiency by replacing old windows.
How do we pay for essential building modernization? In Ontario, our rent control system consists of several major pillars, including a maximum guideline rent increase tied to the CPI—this has a hard cap of 2.5%, a level that is significantly below current inflation—and an ability to apply for an “above guideline increase”, or an AGI, to cover a portion of the cost of major repairs.
It is important to understand that the AGI process is highly regulated. AGIs are capped in legislation to a maximum 3% rent increase per year over a three-year period. An AGI application can be made only after the work is complete, and the application must meet all criteria set out in provincial legislation in order to be approved by the Landlord and Tenant Board. In most cases, rental housing providers are able to recover only a portion of the cost of these repairs through AGIs due to the cap.
Some have argued that AGIs should be removed; however, with the annual rent increase guideline cap at 2.5%, and operating costs increasing at a much higher rate, there is no other mechanism to fund large-scale building infrastructure. As I mentioned earlier, 80% of Ontario's purpose-built rental stock was built before 1980. If we are not able to make essential repairs and replace building elements and share that cost with residents, the stock will slowly go out of commission. This is in the context of a significant supply shortage of purpose-built rental housing right across this country.
In Ontario alone, FRPO-commissioned reports conclude that we need over 300,000 net new rental units over the next decade to address the supply gap, and AGIs are an essential component that makes Ontario's rent control policy framework viable to operate rental buildings.
The current housing affordability challenge in housing, both rental and ownership, is fundamentally a supply problem. We are not building enough housing, including purpose-built rental housing, to keep up with demand. The right policy approach to tackle this challenge should focus on incentives to drive more public and private investments in construction of new rental projects across the country. Policies that further restrict capital investment in a sector grappling with a significant supply shortage will only make matters worse.
Thank you for your time. I look forward to your questions.
I would like to thank the Committee members for inviting me to appear today.
[English]
My name is Dan Dixon, and I'm the senior vice-president of project finance for the Minto Group and Minto Apartment REIT.
I'm here today to represent Canada's five largest publicly traded real estate investment trusts that focus on apartment rentals in Canada and on policy matters relating to housing affordability. For convenience, I will refer to these REITs as the REIT group.
The REIT group members have a multi-decade history as housing providers. We play an important role in housing Canadians, and we are proud of what we do. We provide homes to approximately 120,000 families and households across Canada. Our average rent is $1,394 per month. While we offer apartments at a range of prices to satisfy the housing needs of all Canadian renters, 53% of our homes are affordable at rental rates that are less than 30% of a renter's median income, the standard set by CMHC for affordability.
Although we run large, visible organizations, we make up a small part of the rental stock in Canada. With approximately five million renter households in Canada, the REIT group's 120,000 suites represent fewer than 2.5% of all rental suites in Canada.
The REIT group believes in the progressive realization of the right to adequate housing as set out in the National Housing Strategy Act. We have proactively met with the federal housing advocate to ensure and improve our understanding of the rights, duties and obligations of all participants in the housing sector.
In this regard, the UN framework referenced in the National Housing Strategy Act is helpful and clear. Governments are accountable to their citizens for the realization of the right to adequate housing. Governments are also responsible for putting frameworks in place to ensure a functioning housing market and that businesses in the private sector are important players. In Canada, the private sector delivers over 96% of all housing.
As businesses, our strategy is to meet the needs of our residents while taking care of our employees and the environment. REITs are required to pay out 100% of their taxable income to their unit holders as distributions, where that income is taxed in their hands. The distribution of that income currently provides our unit holders with a yield on their investment of approximately 3%.
As we go about operating our businesses, we recognize that our apartments are homes that provide comfort, safety, convenience, pride and a sense of community. We regularly survey our residents and take their feedback seriously. We compete with each other and with the other 4.9 million rental apartments in Canada for tenants to choose our buildings.
We support CMHC's call to build 5.8 million new homes by 2030 to restore affordability. The private sector will provide the vast majority of these homes. The total REIT sector in Canada, including apartment REITs and diversified REITs, has over 230,000 homes in its development pipeline. That is the equivalent of one full year of housing starts in Canada at a time when we desperately need housing supply.
To develop these homes, we need access to the capital markets. That requires a stable and predictable regulatory environment. We agree with many of you on this committee that the government should focus its support on those one in 10 Canadians in core housing need through a mix of social, supportive, co-operative and subsidized housing. There are tools the government could use to encourage more of that.
The most affordable housing is existing housing. That's why we support a national acquisition fund to acquire existing, affordable rentals and keep them affordable in perpetuity. There are a number of buildings in our portfolios that would be good candidates for this fund.
Among the housing rights itemized by the UN is the right to choose one's residence, to determine where to live and the freedom of movement. Fulfilling that right requires a robust and functioning private housing market. Public real estate investment trusts are a vital tool in the tool box for providing choice and value in housing for Canadians.
Thank you for your time. I look forward to taking your questions.
:
Thank you very much, Mr. Chair.
I hope my sound quality is good for the interpreters. Again, thank you to them for the work they do.
Thank you to our witnesses for being here today.
I live in an interesting community. It's the Don Mills corridor. From about Overlea to Fairview Mall along the corridor, about 100 buildings are going up in the next 10 years. Because of that, we've seen a lot of change with old buildings, for example. The buildings I grew up in, 7 and 11 Rochefort, which are two buildings next to each other across from the Science Centre, are being torn down and high-rise buildings are being put up. We have 100 towers going up.
We've also noticed the larger REITs coming in over the last decade. I believe Mr. Dixon said they're about 5% of the supply across the country. We've noticed an ongoing pattern. This is not something that's isolated.
Compten, I think, was the REIT where there were constant applications for above-guidelines rent increases because there were changes in the building such as elevator maintenance and things that tenants didn't want. Those percentages really go up. There were new parking spaces being placed in different buildings. If I have to go and visit my aunt, for example, because she needs groceries, I have pay now to go and see her. If a PSW comes in, they have to pay for parking. There are other things like the separation of hydro and the downloading of the insurance to these companies.
I guess my question is for Mr. Dixon, as the representative of one of the larger REITs in Canada.
Obviously, as publicly traded companies and large corporations, the bottom line is the bottom line. You have to look for ways to increase revenue.
Do the REITs participate in practices—some of those other services and those pieces I've mentioned—that may not actually impact rent directly, but are more to help boost profits?
Thank you to the witnesses.
This is an important study. In fact, I believe this is the last meeting. We are addressing the research reports on the financialization of housing that were published by the Federal Housing Advocate, and we’re taking a serious look at the issue of financialization of the market, including corporate ownership of single-family homes, and the effects of real estate investment trusts on the rental housing market.
So we’re here to assess the impact of financialization on national housing strategy programs, as well as on the development of affordable housing—I’m talking about housing that doesn’t cost $1,500 a month for a studio—that will remain affordable over the long term.
My question is for Mr. Pomeroy.
The Federal Housing Advocate was quite clear in her 2021–2022 annual report. According to one of her recommendations to the government, “[t]he National Housing Strategy must target its programs to prevent the financialization of rental housing and ensure that its programs do not contribute to the financialization of housing.”
Do you agree with this important statement by the Federal Housing Advocate?
:
Thank you for the question. I will respond in English, if that's okay.
Yes, I think there is a need. As the industry representatives have indicated, they are very good at building supply. They can't create housing at affordable levels, simply because it doesn't make a business case and it doesn't make sense. Therefore, it very much is the role of governments to bring in mechanisms, whether that be cheap financing, capital subsidies or ongoing housing allowances, to improve affordability for low-income households that otherwise won't be met by the market.
I think the national housing strategy is certainly the instrument that could and should do that. Currently, even though it is now identified as an $85 billion initiative, most of that funding is in loans, not actual contributions and grants. If we really want to meet the needs of very low-income people, the national housing strategy will need to be significantly enhanced with higher levels of capital contribution and ongoing subsidies.
That's not just a federal role. Certainly the housing allowances are part of the bilateral part of the national housing strategy and could be delivered in collaboration with the provinces which cost-share those ongoing housing allowances. That's critical if we're going to meet low-income housing needs.
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At that time, in terms of rent increases, again, in the 1970s we had a significant number of federal programs that supported rental construction. We had the assisted rental program and the multiple unit residence building mechanism, as well as significant funding for social housing, so we had quite a high level of production of rental housing—the peak years of rental production. We were creating sufficient supply that we maintained relatively healthy vacancy rates, and that stopped significant increases in rents at that period in time.
It was only really after the mid-1990s—and there is a chart in my paper that tracks rental construction—and starting in 1990 that we saw a significant reduction in rental supply, because all of those federal programs ended and the federal government ceased its funding of social housing effectively on December 31, 1993. We moved from a period of high supply and healthy vacancy rates to a period of low supply, tight vacancy rates and upward pressure on rents.
The only offsetting feature, as I talk about in the paper or the brief, is that during that period we had fairly good access to home ownership. Interest rates were coming down. Incomes were rising, employment was rising and, between 1996 and 2006, 800,000 renters became owners. That had the same effect as building 80,000 rental units a year. Even though we weren't building much, we didn't see the effect of that lack of building. It was really a delayed effect, which is now catching up with us. It's really that historical period that matters if you think about things today.
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When you look at the costs that go into building rental projects and how that squares with being able to provide affordable housing, you've had many witnesses here—whether it was on Tuesday or today—talking to you about the challenges in getting purposeful rental projects built that can also be affordable. It is a big challenge to navigate that.
Whether it is looking at the fundamentals around how long it takes to get projects approved, or the different government fees and charges.... We're seeing, certainly in Ontario—I speak about that, since it's my primary jurisdiction—policy changes to help make that better by giving discounts and deferrals on government fees and charges, because they recognize that's something they can do to help get projects going.
Ultimately, when it comes to affordability, what we're saying is that we require all housing types and all partners at the table. There's a huge need for non-profits and co-ops. We work with a lot of organizations. Habitat for Humanity does great work. We need them at the table doing what they do. We need to be doing what we do. There's an ability, whether it's through different government subsidies, grants or supports—Open Door in Toronto, for example—to get buildings built with affordable components in them.
Inclusionary zoning is a topic that gets a lot of attention. There's an assumption that we oppose that. The response is that we understand what that policy tool is intending to do. As long as we can get the density required to make the project economically viable, we can make that work.
:
Through you, Chair, yes, international students have become a very, very significant factor in demand. We saw over 650,000 international student visas issued last year. They do displace people in the local rental market.
While a non-profit organization working in collaboration with the university could potentially utilize current programs of the national housing strategy, it's not something that's promoted or encouraged. Given the limited funding, most of them would choose to use their funding for low-income households.
There is a displacement effect. If you build a 1,000 units of student housing, that would stop the displacement of a 1,000 units in the local, low-rent market. It's a very indirect way of impacting on that affordability need. The more important piece is the way that student housing is configured, and there are a number of projects that have been built in Waterloo and in Ottawa. I think they have one in Hamilton as well. You have four students sharing a unit with private bedrooms and bathrooms, and a shared living area.
The rent per square foot of that type of product is very, very high and very, very lucrative. I think there is an opportunity to stimulate and encourage the construction of student housing. It could be done completely through private sector, or it could be done in collaboration with universities, if they happen to have land that they could identify for a site to do that. It would have a hugely impactful effect on displacing this pressure that students are putting on their local market.
:
Thank you for the question.
Through you, Mr. Chair, supply is the solution to our problem. With our population growing by a million people in 2022, we absolutely need to build more homes. There are programs, as I discussed, that can help with the supply. The challenge with new supply is it takes many years to come online. With approval timelines and construction timelines, it is a minimum of five years before any project of any size comes online.
Looking to preserve existing affordability is an idea that can have immediate impact. CMHC came out with their MLI Select mortgage insurance product last March. I think it's an excellent product by design, where there are enhanced terms for affordability, accessibility and sustainability. However, based on the feedback that I have heard from big lenders and from other borrowers, the vast majority of the MLI Select that is being issued today is for sustainability. It's not for affordability. I think the issue is that the criteria in that product is set too high. You have to put 40% of the units of an existing building at the affordable level before you get any benefits. The loan benefits do not equate with the loss of economics.
That doesn't mean the project is bad. In fact, I think the project is great. We just need to find the right mix between economic incentives and social incentives. I think if we drop that number to 20% or 10%.... Ten or twenty percent of almost every building is a lot better than 40% of no buildings.
:
Through you, Chair, an affordability metric like 30% is a relative metric. It depends on people's income, so it varies across income bands.
I think moving to a more explicit affordability criterion, as the U.S. has used for many years.... They defined affordability relative to a percentage of median income. A very low income is up to 30% of the median, which is a very low level. There is some analysis from colleagues here in Canada. The HART initiative is actually developing that same kind of metric in Canada.
I think we need to think more carefully about how we define affordability levels when we are asking both non-profits and developers to include affordable units in their projects. Currently, in the national housing strategy, it gets a little bit confusing because they have a number of different streams of funding that all use different definitions. For example, the RCFI definition, which uses 30% of household income for all households, is twice as high as the MLI Select criterion that Dan Dixon spoke about, which uses 30% of renter income, because renter incomes are half that of owners.
If we are concerned about renter affordability, we do need to examine the metric and come up with more a precise and also an absolute number. Rents below $1,000, rents below $800—we need some number as opposed to percentages of income because they mean all things to all people.
The committee will resume its study on the financialization of housing.
To assist the interpreters, I want to kindly remind all members and witnesses to introduce themselves and to please speak slowly for the benefit of the interpreters.
You may speak in the official language of your choice. Translation services are available here in the room and virtually using the globe icon at the bottom of your surface.
I would remind those appearing not to take screenshots while the meeting is in session.
As well, if there's a breakdown in the translation services, please get my attention and we'll suspend while it is corrected.
Please direct your questions through the chair.
Today we have, from Comité logement Rosemont, Jean-Claude Laporte, community organizer; from the Parkdale Neighbourhood Land Trust, Joshua Barndt, executive director; and from the Skyline Apartment Real Estate Investment Trust, Krish Vadivale.
Welcome to the committee.
We will begin with Monsieur Laporte for five minutes.
:
Good day. Thank you for inviting me to appear.
I must apologize in advance, because as soon as I’ve finished my presentation and answered questions, I’ll have to leave you, as I’m currently attending a convention.
I would like to begin by thanking the member for , Alexandre Boulerice, as we have him to thank for letting us know about this study by your Committee. That allowed us to submit our brief, which I hope you have read. Normally, the member for , Ms. Soraya Martinez Ferrada, is also present. I wanted to mention her, as the eastern part of the Rosemont neighbourhood is part of her riding. I’d also like to thank the member for , Ms. Louise Chabot, who sent us an invitation to appear. In closing, I would also like to thank the clerk and the interpreters, whose services are essential.
Speaking of translation, I’d like to point out that there’s still a contradiction, in French and English, between the terms “logement social” and “logement abordable”. In French, “logement abordable” means anything and everything, unfortunately, whereas the term “logement social” is clearer. It refers to cooperatives, non-profit organizations or low-cost housing. However, in English, we say “affordable housing” to refer to both social housing and affordable housing. So, when discussing social housing, it would be better to say “social housing”, as this is more in line with the types of housing in question.
To discuss the financialization of housing, we still need to establish some clear guidelines, because housing isn’t just any old thing. I think we all agree that housing is a right. Canada is a signatory to the UN’s International Covenant on Economic, Social and Cultural Rights. As housing is a right, it must be financially accessible, healthy and safe. Being safe doesn’t just mean that it’s well located and there’s no danger of being mugged, it also means that you’re not at risk of being evicted by a developer because they want to make more money by raising rents or by some other means.
This whole definition of housing, as written in the International Covenant on Economic, Social and Cultural Rights, corresponds to the definition of social housing. It’s not expressly stated, but, if we look at the definition of social housing, we see that it’s accessible, healthy and safe housing.
If we say that housing is a right, then it’s not a commodity; and if it’s not a commodity, we must treat it as such. But by financializing housing, we do treat it like a commodity. So, if we say that housing is a right and not a commodity, then we must fight the financialization of housing in all its aspects, whether in terms of taxation, subsidies or construction assistance. All public money, the funds managed by the government, must be invested in social housing. This will put the brakes on speculators who cause housing crises and harm tenant households, mainly those on low or modest incomes.
The aim of the financialization of housing is to make investments to make money. This runs counter to the right to housing. The government has a duty to discourage such dubious practices and, above all, to put obstacles in the way of the people who engage in them. In this sense, Canada’s national housing strategy should focus on funding social housing, rather than spreading itself too thinly, as is currently the case, and stop funding developers whose sole objective is profit. Since the money available is not unlimited, we must prioritize government investment in social housing to help low and moderate income households.
Thank you.
Good morning. My name is Krish Vadivale, and I'm the vice-president of finance for Skyline Apartment REIT, which owns and operates over 22,000 apartment units and employs over 1,000 Canadians from coast to coast. Skyline is also a direct member of the Canadian Federation of Apartment Associations, or CFAA. I have been a member of that board since 2019, and in the most recent year, served as its chair.
I also happen to be the chair and president of Victoria Park Community Homes, one of Ontario's largest privately run, non-profit housing providers. It owns and manages over 3,000 affordable homes across Southern Ontario, and is currently endeavouring to build an additional 200-plus affordable homes in Hamilton, Ontario.
I would like to begin by addressing what, in my opinion, is a fundamental truth to the landscape of rental housing in Canada. The rate at which rents are increasing today is largely driven by demand for rental housing outpacing its supply.
Before contemplating solutions to this problem, I think one must first understand the causes.
On the demand side, you have a growing population, driven largely by immigration, dovetailed with stricter rules for mortgage qualification that came into force over the past decade. This makes home ownership less attainable to first-time buyers, so they rent.
On the supply side, which is where we operate, you have increasing costs of operation and increasing costs to build. You have a growing “not in my backyard” syndrome, or Nimbyism, with respect to new developments, especially those of the non-profit type. You also have increasingly hostile sounding political rhetoric aimed at the largest providers of rental housing.
To unpack these points further, with regard to operating costs, the breakdown of how $1 of rent is allocated by cost, as presented in the brief submitted to this committee by CFAA, is largely consistent with our own financial measurements. Additionally, over the past three years, we have seen double-digit percentage increases in insurance costs, increases in the cost of labour, and mortgage rates have almost doubled. In contrast, over those same three years, the maximum allowable rent increase for most units in Ontario has totalled just 4.3%.
These factors make building new rental housing projects less attractive, which results in less new rental supply. Over time, the lack of supply drives up market rent at all price points. If the goal is to increase supply, one must either incentivize new housing supply, or remove or reduce current disincentives, including the risk of negative outcomes like vacancy control, which would surely dry up supply.
I would like to conclude with four points.
First, I'll address the concept of financialization. Skyline investors currently receive a 4% yield on their investment. Some of our public market peers pay out less than this. By comparison, for the past few months, the five-year Government of Canada bond yield has hovered at just about 3.5%, which is a near risk-free investment.
Said more simply, rental housing providers are not more financialized than any other investment, especially when evaluated on the trade-off of risk for return. Moreover, if we truly were overearning in economic terms, the rental housing market would already be saturated to a point of economic equilibrium, which we clearly do not see today.
My second point is that at the end of our last fiscal year, Skyline's in-place average monthly rent across Canada was just $1,276 per unit, per month, which on an annualized basis would be just over $15,300. CMHC's definition of affordable housing is rent that costs less than 30% of a household's pre-tax income. This would mean that the average Skyline unit would be considered affordable to households earning a little more than $51,000 per year. According to StatsCan, the average renter household had an income of $54,800 in 2021, which would mean that many of Skyline's units are affordable to many renters today.
My third point is that at Skyline, we value our tenants. We do not conduct renovictions and we never have. Conversely, in recent years, Skyline has gone as far as to create a tenant relief program that provides rent relief to tenants in our portfolio who have fallen on hard times. In 2022 alone, our tenant relief program saved over 200 tenancies.
Finally, at 22,000 rental units across Canada, Skyline would qualify as one of Canada's largest landlords, yet of the five million rental units available in Canada today, we own only four-tenths of 1%. That's not four out of every 100 units, but four out of every 1,000.
If the end goal is to have a rental housing landscape that is dynamic and provides Canadians with choice, both in terms of location and amenities, but is also largely affordable, large operators like Skyline Apartment REIT should be part of that solution, and we want to be.
Thank you for your time.
I want to sincerely thank the witnesses.
Mr. Laporte, I especially want to thank you. It's been a wonderful discussion. I'm very grateful to you for accepting our invitation, even if it was last minute. Also, we did, indeed, receive the brief you sent the committee, so thank you.
This past week, when we were talking about the impact of financialization, a witness from the Canadian Federation of Apartment Associations said in his remarks to the committee that only a tiny percentage of renters in Canada were renovicted. I see my colleague Ms. Ferrada just reacted to that statement. In your opinion, Mr. Laporte, how would you describe the experience of people in Rosemont with renovictions?
:
I'll give you a very specific example, one that might not mean much to people from outside Montreal. There was a case involving a renoviction on Saint-Zotique Street, in the heart of Rosemont, and we were helping those renters fight for their rights. Initially, everyone agreed to fight to stay in their units, but the new owner had more than one trick up their sleeve. Ultimately, only three of the 21 or 22 households or individuals who'd been there from the beginning are still living in their units.
You can see that there's money to be made. Initially, the new owner told renters that they would get three months' free rent or help with their moving costs. Then the owner increased the offer to $15,000 to get the renters out. You can understand that those people were really fed up and stressed by that kind of harassment. Eventually, they couldn't take it anymore, and most of them decided to move out and take the $15,000. They might have even gotten more than that, since negotiations were still under way.
Based on what a renter told us, the rent for a two-bedroom apartment went from approximately $700, which is quite unusual, to approximately $1,300 or $1,500. That might not seem like much to someone in Toronto or Vancouver, but the market in Montreal and across Quebec is different. Indeed, it's a good thing that our renters don't have to pay the kinds of rents being charged in a number of cities across Canada. That said, no matter the reason, it's inhumane to put people through that. I understand investors, but—
:
Thank you very much, Mr. Chair.
I thank the witnesses for their presentations.
Just to pick up on what Mr. Laporte was saying, while I think that in Quebec the situation that he highlighted there is important to note, what's also interesting is that what's happening in Quebec is also happening elsewhere.
In a previous presentation by Dr. Nemoy Lewis, of the School of Urban and Regional Planning at Toronto Metropolitan University, he testified that:
A financialized landlord is a purchasing company that is privately held—an asset manager—or a publicly traded company—[i.e.] real estate investment trusts—that acquires rental properties at scale and applies financial logic, metrics and priorities to generate returns to shareholders and investors.
In his study, he looked at a 27-year period in Toronto. He found that this sort of financialized landlord engaged in 40% of the transactions in terms of turning over properties. Real estate investment trusts accounted for 7%, a smaller percentage, which is noted. However, he went on to say:
REITs do apply the same acquisition and management practices, which...we know, undermine Canada's duty to fufill [the] housing rights for all Canadians.
What's interesting to note in his particular study is that he focused on where the acquisitions were made, and then he also did a comparative analysis in the demographics and found that this was concentrated in targeting the Black population. In his study, he found that “[f]inancialized landlords account for actually 72.86% of all those units that have been transacted in those particular geographies”. The most important point in here, and I'm now coming to it, is this:
...in terms of displacement problems and financialized landlords. We examined evictions in the city of Toronto over the last four years, between 2018 and 2021. There were approximately just under 63,000 evictions in the city of Toronto. Financialized landlords accounted for 42% of those evictions. In terms of evictions for non-payment of rent, financialized landlords filed just under 80% of those evictions.
He goes on to provide further data. It seems to me that this is not really matching up with some witnesses that say, “Hey, I'm a REIT, and we don't do any evictions”. Financialized landlords, some might say, are not engaging in these practices, yet the data from independent studies shows otherwise.
I guess my question to Mr. Laporte is this. You mentioned some of the challenges that you face in the city of Quebec, and that you are seeing evictions taking place. The bottom line is this: Should housing be treated as a commodity or should housing be treated as a basic human right, as a place where people can acquire a home, a place where they can actually feel safe and that they are able to afford?
:
Thank you for your question.
Indeed, the study you quoted is interesting. I'm inclined to say it's a rhetorical question, because quite simply, if we say that housing is a commodity, it's no longer a human right.
Having a roof over one's head is the foundation for a decent life, one where you can start a family and thrive. Without it, the rest disappears. People wind up with physical and mental health issues and have significant difficulties raising children, who, in turn, have trouble at school.
Stable housing is essential, no matter where in the world you live. I truly understand that investors want to make money. In the current system, they're doing great, but it shouldn't come at the expense of others.
:
No, no offence is taken, because I think you see housing from a human perspective, and I think that's why, perhaps, you thought my question was rhetorical. Some people don't necessarily see that; they see it as an investment tool. Thank you for that.
I want to ask a next question with respect to the private sector. Some people will say that the NDP, for example, or those who want to address housing as a basic human right, somehow don't support the private sector, which of course is not true.
In the situation where we are at the moment, with our housing crisis, some witnesses, such as ACORN, have said there should be a moratorium on the acquisition of these older apartments that come into the market, which end up being turned over.
I see a signal from the chair. Quickly, given the current crisis that we're faced with, should we be stopping the acquisition of the housing that comes onto the market from being turned over for financial purposes, at least until we can get a handle on the crisis, and should the private market do new construction?