Investors are taking over an increasing share of the housing market, making it more difficult for non-investors to buy a home, say reports by the Bank of Canada and Statistics Canada. The recent federal budget included several measures to slow down speculation in the market, but most observers say rising interest rates, rather than government action, will likely have a larger impact.

Statistics Canada says multiple-property owners possess nearly one-third of all residential properties and the top 10 per cent wealthiest owners control about one-quarter of residential housing value. The Statistics Canada study applies to Ontario, British Columbia, Nova Scotia and New Brunswick and is based on data from 2000.

The report includes properties that are used for rental income as well as recreational properties, some of which are also used for rental income. It says, “Owners seeking additional properties contribute to increased competition in already tight real estate markets, making it more difficult for prospective homeowners to purchase a home.”

Most of the multi-property owners have two properties, and most own two single-detached homes. In most cases, the properties are in the same census metropolitan area, indicating that the owners want to be close to their rental properties.

Individual multi-property owners account for between 30 and 40 per cent of the property stock in the four provinces studied. Businesses, government and other entities owned 10 per cent or less of the stock, says Statistics Canada. Most of these properties were held by corporations, it says.

“Both income and housing wealth are concentrated at the top, even among owners,” says the report. “When ordering individual owners by their yearly incomes, the top 10 per cent of owners in Ontario and British Columbia each had yearly incomes above $125,000…When ordering individual owners by the value of their real estate holdings, the top 10 per cent owned between 24 per cent (New Brunswick) and 29 per cent (B.C.) of the sum of all residential property values in each province.”

A recent Bank of Canada report for all of Canada found that investors account for more than one-fifth of home purchases in Canada, based on 2021 figures. “Since 2014, investors have made 14 per cent of home purchases in Winnipeg, compared with, at the high end, 21 per cent in Toronto over the same period,” says the report. “We also note an upward trend over time in the share of home purchases by investors in nearly all major cities across Canada.”

The report says that during the pandemic, growth in the number of investors has outstripped activity by first-time and repeat homebuyers.

“The increased presence of investors in the housing market has contributed to strong demand and may reflect a belief that house prices will continue to rise in value,” says the Bank of Canada report. “Investors’ demand for housing may also be more sensitive to shifts in market sentiment than that of other homebuyers. By exacerbating so-called boom-bust cycles in housing markets, investors could thus be a source of instability for the financial system and the economy more broadly.”

Governments at all three levels are taking aim at real estate investors with an assortment of taxes and regulations.

In the recent federal budget, there’s a proposed two-year ban on non-resident purchases. It targets corporate foreign buyers, but students, temporary workers and those with permanent residence in the country would be exempt from the ban. 

“We suspect the direct market impact of a temporary ban on foreign buyers will be minimal,” says Robert Hogue of RBC Economics. “Non-residents own less than two per cent of the housing stock in most markets – with recreational areas (exempt from the ban) typically seeing the higher rates – so their influence tends to be localized at best.”

However, foreign buyer taxes are popular with the provincial governments and Ontario and Nova Scotia recently announced increased or new non-resident buyer taxes.

Another federal budget item is a speculation or flipping tax on homes that are purchased and sold within 12 months. Again, there are exemptions, for situations such as changes in the family or relocation. 

“This is a worthy measure that addresses a legitimate issue, but one wonders if the 12-month period will just hold back re-listings a little bit longer than otherwise would be the case, especially in a rising-price environment,” says a note from Robert Kavcic and Douglas Porter at BMO Economics.

Beginning in May 2022, assignment sales will be charged GST/HST on the purchase amount net of the initial deposit amount.

Several municipalities have already implemented or are considering a vacant home tax to discourage speculators from leaving properties empty in cities where rental vacancy rates are low.

Hogue says that while the measures to slow down housing speculation are not game-changers, he believes the breadth of measures announced in the budget – including several moves designed to increase housing supply – will make a difference. And with mortgage interest rates on the rise, home sales are already tracking below last year’s levels across the country.

The Bank of Canada report says investors are an important source of housing rental supply and says more research must be done to “examine the delicate balance between adding to rental supply while removing new builds and resale supply in a housing market that already has housing constraints.”