Performing housing assets means unaffordable housing.

As recently as November 27, 2023, the Fraser Institute was still promoting the naive theory that "housing prices and rents increase when the number of homebuyers and renters increases much faster than the number of homes available to purchase or rent."

Interpreting housing prices as a function of households competing for structures in which to dwell overlooks entirely a far more important driver of housing price inflation in today's thoroughly financialized housing markets, namely large quantities of capital chasing housing repurposed as financial assets.

The Fraser Institute continues: "Government should be laser-focused on closing the gap between housing supply and housing demand," and suggests the usual policy changes to increase developers' profits: "relax zoning laws, reduce developer fees, and speed up permit processes to help boost housing supply … to address the growing gap between population growth and housing completions."

Developers, however, have long since admitted, because they are in the business of making money, not housing Canada's population, that they are not able to build affordable housing, something only government can do.

In a Sep 10, 2024, interview with CBC radio, Michael Brooks, CEO of Real Property Association of Canada (REALPAC), an association that represents many of the country's biggest landlords, states that, "Look, the private sector can't provide social housing. We do need to make a return," and admits that, "we definitely need the government to be more present on social housing and on affordable housing in a variety of ways. Build it, own it, operate it, including non-governmental organizations (NGOs)."

What he does not admit is that private sector developers continuing to build high-end housing concurrent with government undertaking a massive buildout of social housing will limit the availability and drive up the cost of two precious resources: tradespeople from iron workers to electricians, and all manner of construction materials; the mere presence of for-profit developers in Canada's housing sector drives up the costs to build social housing and therefore social housing rents.

Mr. Brooks argues that repurposing housing as financial assets is socially beneficial because pensioners profit from pension funds "investing" in housing.

"It takes a lot of capital," he says, to aggregate, renovate, and rent out or resell existing housing, continuing, "The big institutional landlords have that capital. It's your and my capital through our real estate investment trusts (REIT) investments, through our pension funds if we're lucky enough to have one."

"Pension funds," he adds, prefer to "invest" in housing, "because it's a stable asset class. There's always been modest growth in it," and he justifies extracting wealth from the productive economy into pension funds because "your pension plan needs a return to pay your pension at some point in time down the road."

I am a pensioner, and the absolute last thing I want is to prosper by mercilessly gouging working people for a roof over their heads.

Mr. Brooks expresses the view that "snapping up" existing houses, condos, and apartment buildings is "not really happening much anymore." This is probably true in the case of apartment buildings built in the 1960s and 1970s because these structures were snapped up in quantity for a few years during the 2010s when mom-and-pop operators holding individual buildings to sell upon retirement aged out and sold to apartment building aggregators.

As for houses and condos, however, 30% of these dwellings that come on the market are still snatched up by "investors."

Mr. Brooks states further that "tenants are out-bidding each other for the right to rent a vacant unit. If you have 10 tenants chasing one unit, guess what? The rent's going up."

This is true in the for-profit universe, but when housing is managed as a public utility, if there are not enough apartments to go around, rents do not increase, not to mention that in addition more are built.

Deeper analysis reveals as well that so many people show up to rent an available apartment in Canada because intertenancy rent increases are so extreme that no one dares to move; so very few apartments become vacant.

With respect to housing aggregators' impact on rents, the following assertion by Mr. Brooks is wishful thinking:

The larger landlords in Canada, many of whom are REALPAC members, own about six per cent of the market of large buildings. At six per cent they're not price makers, they're price takers. Whatever the market would be in a certain city or town, that's going to be the market for available rents.

What actually happens when aggregators acquire decades-old affordable rental units, perform mostly cosmetic improvements, and increase their rents dramatically, is that holders of erstwhile affordable rental units are emboldened to demand higher rents because "rents are going up."

Mr. Brooks claims that "a return on your investment when you buy an apartment building is probably in the three to four per cent range, at least historically it has been," but this is not consistent with Statistics Canada data indicating that for "Lessors of residential buildings and dwellings (except social housing projects)," operating profit margin has increased steadily from 41.3% in 2012 to 47.2% in 2022 over the timespan available for this particular data point.

Operating profit margin for other segments of the service sector during the same period is well under 10% and averages around 4%.

On a related issue, Dr. William Strange, a professor of economic analysis and policy at the Rotman School of Management, does not think that rental pricing software that allows landlords to use mathematical algorithms to "align" their rents is "inherently bad," saying it is technology "that helps assets perform better" and that it "makes sense for investors in Canadian real estate,"

This perspective, framing housing as financial assets as opposed to structures within which people dwell, grants "investors" who hold rental properties license to gouge tenants for the privilege of residing in them.

According to Mr. Brooks, the REALPAC CEO:

It's the government's job to subsidize tenants who are below the level at which they can make rent payments. And we've advocated that in the National Housing Accord, so rent support programs, supportable housing benefit and others, in conjunction with the Canadian Alliance to End Homelessness.

Supports that enable renters to pay so-called "market rate" rents amount to pass-through subsidies; that is, vehicles that transfer cash from public coffers into the hands of rental housing "investors" on behalf of nominal beneficiaries. These dollars do nothing to reduce, but merely prop up, hyperinflated rents. The same is true for first-time buyer subsidies, which land in the hands of house and condo sellers, propping up hyperinflated house and condo prices.

Mr. Brooks comes close but does not quite hit the mark with his final suggestion:

Get NGOs more involved in this sector. They need to be funded on the debt side and they need to find equity. There's no big not-for-profit enterprises in apartment rentals in Canada. We need a bigger group in that market to help it scale. We don't have that right now.

Debt and equity sourced from the private sector to build social housing is a different color lipstick on the same old pig. Any rentier with a hand out for interest payments on debt or a "share of the profits" (equity) from a not-for-profit rental housing provider increases tenants' monthly rents by the "returns" tacked on to satisfy that rentier's demands.

Only low- or no-interest loans by government to not-for-profit housing providers building on public land can solve Canada's housing affordability crisis. Housing is infrastructure. People dwell in it. Using housing as a vehicle to extract wealth from the productive economy can only impoverish society.

"Investment" understood as extracting wealth from the real economy as opposed to financing wealth creation is another word for predation. Extracting wealth and concentrating it in fewer and fewer hands is not investment. It is plunder, and it must end.