New report on affordable cities calls investors to action on the financialization of housing in Canada

 

SHARE’s new report seeks to stimulate a discussion among institutional investors about how their residential real estate portfolios may impact housing affordability and what actions they can take to address these impacts.

Housing affordability is a crisis in Canadian cities – a crisis that is exacerbating economic inequality. The level of core housing need among renting households is ...

over three times higher than among homeowners.  There are no neighbourhoods in the Greater Toronto Area or Metro Vancouver where a full-time minimum wage worker can afford to rent a one- or two-bedroom apartment.

As the housing crisis deepens, the growing presence of institutional investors in the rental real estate market – a phenomena often referred to as the financialization of housing – is coming under scrutiny.  In Investors for Affordable Cities, the latest report from the Shareholder Association for Research and Education (SHARE), we shed a light on why housing affordability is an issue that investors must address in their portfolios and how they can align residential real estate investments with responsible investment policies.

The financialization of housing is controversial because institutional investors have been associated with practices that drive up rents across cities. Investors pursuing value-add or opportunistic strategies may acquire older buildings and then seek to “reposition” them, displacing existing tenants to make renovations aimed at attracting new tenants who are able to pay higher rents.

In cities across Canada, debates surrounding what is affordable are casting a critical light on whether the development of much-needed new purpose-built rentals is addressing or intensifying housing inequality.

These types of issues generate risks for institutional investors. On one hand, institutional investors face reputational and operational risks when their housing investments are associated with evictions, tenant displacement or driving up local rents. The Alberta Investment Management Corporation (AIMCo), for instance, was the subject of intense scrutiny when tenants in buildings it co-owned in a low-income neighbourhood in Toronto declared a “rent strike” to protest rising rents in 2018. In Vancouver, where opposition to new housing developments has contributed to project cancellations, a coalition has formed to oppose a proposal from a REIT to build rental housing, calling it a “massive bomb of market housing, be it market condo or market rental, onto a community that’s really suffering a housing crisis.”

On the other hand, rising housing costs contribute to increasing levels of inequality and a shrinking middle class. This can create systemic risks for investors stemming from stagnating economic growth, declining consumer demand, and increasing economic and social instability.

The good news is that there are opportunities for investors to change the course of housing affordability as it pertains to their portfolios. At the fund governance level, investors can embed housing affordability into responsible investment policies to provide a solid framework for investment decision-making.

At the asset allocation level, investors can designate a portion of their funds to affordable housing– either directly investing in assets or allocating to affordable housing funds.

Finally, at the stewardship level, investors can incorporate housing affordability into their asset manager selection and monitoring criteria, and into their engagement with portfolio companies. For example, investors can ensure that their investments in publicly-listed vehicles such as Real Estate Investment Trusts (REITs) are accompanied by engagements that address affordability. Last but certainly not least, institutional investors can add an important voice to policy discussions in support of meaningful measures to advance housing affordability in Canada.

On Oct. 19, SHARE hosted an online forum on responsible investing and the financialization of housing, and introduced the Investors for Affordable Cities report. A recording of the event can be found here.

SHARE’s ongoing work on housing affordability and responsible investment is generously funded by our partners at the Catherine Donnelly Foundation and the Vancouver Foundation. For more information about the report, please contact Tamara Herman at therman@share.ca