In the current overheated dog-eat-dog race to buy a home in Canada, we probably shouldn’t have been shocked by the wave of outrage triggered by a big property developer’s plan to buy thousands of detached family homes and rent them out.
Nonetheless, many in the real estate business have been surprised by the reaction — including those at Core Development, the very company that is planning to sink $1 billion into buying, fixing up and renting out around 4,000 ground-level suburban homes across Ontario, B.C., Quebec and Atlantic Canada over the next five years.
“I really am shocked,” said Faran Latafat, president of single family developments at the Toronto-based Core Development, which has historically focused on building condos.
While interested in making a profit, like any other business, when Latafat announced the company’s plans, she was convinced Core was effectively performing a public service, answering a need by creating more affordable rental homes in places where people wanted to live.
“For each single-family rental house that comes on the market, two rental units are provided, thus doubling the rental supply,” she wrote in an email after we had spoken by phone.
Those who follow the real estate market say it is hard to unravel all the reasons for the scale of the anger shown this week. But that anger is unmistakable in many media reports that followed the announcement — and in reader comments at the bottom of those reports.
For anyone who understands what drives the property game, an op-ed in the Globe and Mail Thursday referring to Core as “profit-mongers” bordered on the absurd. Whether you call it “mongering” or something that sounds nicer, earning a profit is at the indispensable heart of creating housing in Canada.
Earning a profit is why builders constructed the home most of us live in now. It’s also why giant real estate investment trusts buy or build most Canadian rental apartments — and have for years, said BMO economist Robert Kavcic.
What’s different this time is that Core’s new proposal involves buying up ground-level single-family homes that, just now, people are frenzied to own.
With a push toward densification, ownership of the old-fashioned house with a garden has become an object of desire whose appeal is only increased by a shortage of such properties. In some ways, it is a psychological fixation unfamiliar in places like Hong Kong, New York or many large European cities.
“From a psychological perspective, it’s the wave of young families pushing up against something — partly because of these policies — we don’t have enough supply of,” said Kavcic.
It is similar to the big move by corporations toward stocking up on farmland that exploded nearly a decade ago; the switch from private ownership to rented land came as a shock to those who had imagined the family farm as sacrosanct.
As Canada’s urban populations grow, people find it difficult to face a change that has already happened elsewhere in the world.
“It’s not that families can’t afford housing here,” said Kavcic. “It’s just that the housing they can afford doesn’t look like their parents’ or their grandparents’.”
Several experts, including Carl Gomez, Toronto-based chief economist for the U.S property company, the CoStar Group, said that what Core is doing is not entirely new, even in Canada. Companies like Parkbridge have already begun buying up land in recreational areas such as Wasaga Beach, Ont., and leasing it back to residents.
In the U.S., where house prices are lower and capital is more available, Gomez said, the practice of buying up and renting out single-family homes is common. In Britain, the tradition goes back more than a century, with colleges like Oxford and Cambridge earning income as landlords in cities around the country.
The reason why Core is planning to buy and build its houses in mid-sized Ontario cities, like London and Guelph, is that property prices for single-family homes in large centres like Toronto are just too high, said Gomez. Even after breaking them into multiple money-earning units, the return on profit simply isn’t enough to compete with the prestige prices of owning a traditional house.
From houses to condos
Still, that hasn’t stopped a number of developers from trying to buy up single-family homes, replace them with multi-family homes and then sell them off as condos in desirable big-city neighbourhoods.
Helen Wojtowitsch has lived in Toronto’s Bloor West Village for 53 years, next door to a small house she says developers want to turn into a condo.
She said she feels there just isn’t space for a multi-family home on that single lot — and neighbours have put up posters and collected signatures in an effort to stop the development, saying it threatens the character of the neighbourhood.
Yet urban development experts insist that what Core Development is doing is just what Canada’s crowded cities need.
Covered by a sprawl of single-family homes built back when ordinary wage-earners could afford them, staggering price increases in recent years mean those same neighbourhoods are being transformed into elite districts where ordinary people can simply never hope to buy a whole house.
Longtime private real estate analyst Ben Rabidoux has sympathy for those who fear the effect and the price competition for single family homes when giant corporations get into the business, earning not just rents but the speculative increase in value of the properties.
But he also understands the plight of renters who might actually benefit from corporate owners over smaller landlords.
“What you end up with is a lot of mom-and pop-investors who, because the cash flow in single-family properties is not great, they are banking on [price] appreciation,” said Rabidoux, who runs North Cove Advisors. “And they are more likely to sell when you get a strong run-up in prices and that upends the people that are renting.”
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