Canadian Real Estate: How Investors Are Fueling a Condo Crisis—and What You Can Do
Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
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Government incentives fuel investor condo ownership, but opportunities exist for savvy buyers.
Canadian real estate, particularly condos, is being increasingly monopolized by investors. The latest data from the Canadian Housing Statistics Program (CHSP) at Statistics Canada reveals that up to 85% of condo apartments in Ontario’s largest census metropolitan areas (CMAs) were owned by investors in 2022. Government incentives designed to promote homeownership have inadvertently empowered investors, leading to a housing affordability crisis. First-time homebuyers, who were initially supposed to benefit from these incentives, are now struggling to compete in a market increasingly dominated by corporate entities.
The Scale of Investor Ownership in Ontario’s Condo Market
The investor appetite for Ontario condos has grown at an alarming rate. In 2022, investors owned 43.5% of all condo apartments in the province—up from the previous year. What is even more revealing is the investor stranglehold on new construction: 65% of newly built condos that year were purchased by investors, leaving first-time homebuyers and those seeking to move up the property ladder scrambling for limited supply.
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While most assume that big cities like Toronto would be the epicentres of investor activity, the data reveals a broader geographic spread. The highest concentration of investor-owned condos is not in Toronto but in London, Ontario, where a staggering 85.5% of all condos are owned by investors. This is closely followed by Windsor (64.4%) and Kitchener-Cambridge-Waterloo (60.7%). These are college towns where the demand for student housing has traditionally fueled rental demand. But the landscape is shifting. Changes in student policies, such as reduced international student enrollment or the rise of online learning, could significantly reduce demand for rentals in these areas, creating a potential surplus of investor-owned units without tenants.
Toronto’s condo market, often considered the most competitive in Canada, saw its investor share rise by 1.6% in 2022, bringing the total to 38.9%. While this may seem modest compared to smaller cities, the real concern lies in the proportion of new inventory being absorbed by investors. Approximately 73% of new condos in Toronto are now in investor hands, leaving a dwindling number of opportunities for individuals seeking to buy their first homes.
Corporate Investors: Reshaping the Housing Landscape
The growing influence of large corporate investors in Canada’s condo market cannot be understated. These investors are not individual landlords or small property owners; they are large-scale entities pooling capital to buy entire buildings or significant portions of them. By acquiring condos wholesale, these investors can run them like apartment complexes, often renting out units to tenants in bulk.
What makes this shift even more significant is the role of tax incentives in driving investor behaviour. For years, municipal tax structures in Ontario have favoured condo buildings over rental properties, with condo buildings often facing lower tax rates. This has led developers to strategically classify large apartment complexes as condo buildings to reduce their tax liabilities. In effect, what should be rental properties are being reclassified as condos, encouraging investor ownership.
The CHSP report highlights this phenomenon, explaining that tax incentives allowed developers to avoid higher taxes by splitting apartment buildings into distinct condo units, even though the properties were effectively functioning as rental buildings. These incentives have created a loophole, further encouraging investors to snap up condo units, exacerbating the housing crisis for those hoping to own a home.
Federal Incentives: A Policy Misfire?
The Government of Canada’s (GoC) policies were initially designed to help first-time buyers, but recent mortgage reforms have widened the scope of these policies to include all buyers of new construction—investors included. The GoC’s 30-year mortgage plan, for instance, was marketed as a way to make homeownership more accessible by extending mortgage terms and reducing monthly payments. However, this program has quietly expanded to include investors, further tilting the scales in their favour.
With access to state-backed, low-interest, long-term financing, large corporate investors now have even more firepower to dominate the condo market. While this may appear to benefit the overall housing supply by encouraging new construction, it leaves first-time buyers at a severe disadvantage. These policies effectively enable investors to acquire properties at favourable rates while individual buyers are left to compete with deep-pocketed corporate entities.
For policymakers who initially believed that these incentives would help first-time homebuyers, the results suggest otherwise. Instead of creating a more level playing field, these measures have amplified investor dominance, pushing homeownership out of reach for many Canadians. In some cases, investors who now hold a majority of new condo inventory in markets like Toronto are benefiting from government programs designed to foster homeownership. This raises serious concerns about the efficacy and fairness of current housing policies.
The Impact on First-Time Homebuyers and Renters
The consequences of investor dominance are severe, particularly for those trying to enter the housing market. With such a significant share of the condo market controlled by investors, first-time buyers are facing reduced opportunities to purchase homes. The limited supply of condos available for sale has driven up prices, making it even harder for individuals to afford property. This is especially problematic in cities like Toronto and Vancouver, where affordability was already a challenge.
Beyond the affordability crisis for buyers, there is a parallel crisis brewing for renters. Many of these investor-owned condos are rented out at market rates, often at prices higher than purpose-built rental units. As a result, renters are also being squeezed, forced to pay premium prices in an investor-controlled rental market. With limited housing options and high demand, both renters and potential buyers are finding themselves at the mercy of investor-driven market dynamics.
The Solution: A Strategic Approach for First-Time Buyers and Investors Alike
Despite the challenges outlined above, there are practical strategies for first-time homebuyers and current homeowners that can help them navigate the investor-dominated housing market. While the current landscape may seem daunting, a proactive approach focused on financial planning and alternative investment strategies can turn the tide in favour of savvy investors and prospective homeowners.
1. Focus on Building a Solid Down Payment
First-time homebuyers should prioritize saving a sufficient down payment before entering the housing market. By waiting and building a larger down payment, buyers can increase their purchasing power and reduce the overall loan amount required. This can help mitigate the financial risks associated with fluctuating home prices and rising mortgage rates. While the dream of homeownership may be delayed, the long-term benefits of financial stability will be worth the wait.
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2. Consider Private Real Estate Investment Trusts (REITs)
Rather than rushing into homeownership in a highly competitive and investor-dominated market, first-time buyers should explore investing in purpose-built multifamily rental apartments through private real estate investment trusts (REITs). These REITs allow individuals to gain exposure to the real estate market without the burden of homeownership. With Canada’s rental market benefiting from a severe shortage of rental properties and an influx of immigrants, private REITs are positioned to provide stable returns. Investing in rental properties through REITs not only offers portfolio diversification but also shields buyers from potential market downturns, including falling home prices and rising mortgage resets.
3. Current Homeowners: Sell, Rent, and Invest in REITs
For current homeowners, the potential for rising mortgage rates presents a unique challenge. With mortgage resets expected to rise from 1.95% to over 5% in the coming years, many homeowners will find themselves overstretched and at risk of financial hardship. A viable solution may be to sell now, rent, and invest the proceeds in private REITs that focus on purpose-built multifamily rental apartments. This strategy offers financial flexibility and capital growth while avoiding the burden of increasing mortgage payments. With rental apartments likely to benefit from Canada’s growing population and limited supply, REITs present a sound investment alternative.
Conclusion: Investing in the Future
As the Canadian real estate market becomes more dominated by large investors, first-time homebuyers and current homeowners face significant challenges. However, by focusing on financial preparation and considering alternative investment strategies like private REITs, both groups can still find opportunities to participate in the market without being overstretched.
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Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
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Disclaimer
The information provided is for educational purposes only and does not constitute financial, investment, legal, real estate, estate planning, wealth planning, financial planning, tax planning, insurance, or any other financial-related advice. It should not be viewed as a recommendation to buy, sell, or hold any financial products or assets. All investments, including stocks, bonds, private equity, private real estate, alternative assets, and precious metals, carry inherent risks, including loss of principal. Markets are unpredictable, and past performance does not guarantee future results. Diversification may reduce risk but does not ensure protection against loss. Real estate and precious metals are subject to market volatility, economic conditions, and illiquidity. Alternative investments, such as private equity, private real estate, and private debt, often involve complex legal structures, longer time horizons, and higher risk, requiring careful consideration and professional advice. Insurance, estate planning, wealth planning, real estate, and tax planning decisions, as well as any financial strategies, must be tailored to the unique circumstances, goals, and risk tolerance of each individual. Tax and legal implications vary by person and jurisdiction, and changes in laws can affect outcomes. It is crucial to consult with licensed financial, legal, tax, insurance, real estate, and mortgage professionals before making decisions. Forward-looking predictions are the opinion of the author and do not constitute financial advice. By using this information, you acknowledge it is general in nature and not a substitute for personalized advice, and you agree that the authors and affiliated entities are not liable for any financial losses or consequences from reliance on the content provided.
References
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