The Chimera of the Mom-and-Pop Landlord

Senior economist Ricardo Tranjan from the Canadian Centre for Policy Alternatives (CCPA) provides an insightful analysis of the concentration of Canada’s rental units in his remarkable new book, The Tenant Class. The book breaks the rental supply down into four segments: 12 percent of renters occupy nonmarket housing, 38 percent rent non-purpose-built units from private landlords, and the remaining half rent from corporate and financial landlords.

Despite the media’s focus on Canada’s so-called “small landlords,” Tranjan observes:

The widespread notion of “struggling landlords” is a grave mischaracterization of the rental market. In fact, Canada’s landlord class comprises wealthy families, small businesses, corporations, and financial investors. Rent revenue increases their wealth and political influence, allowing them to extract more income from more tenants, amass more wealth, and do it again.

The private rental market generally refers to individual landlords who own one or a few rental properties. It can be challenging to keep track of the total number of units as they can include not only private homes and condos but also their individual rooms, garages, basements, and closets. But the concentration of wealth in this market is increasing too.

The book calculates that units in the private rental market account for roughly 38 percent of the overall rental market. Tranjan estimates that multiple-property owners have an average net worth of around $1.7 million. As he notes, these owners are hardly “scraping to get by.”

Statistics Canada estimates that the relatively small number of homeowners, who have invested in multiple units, account for nearly one-third of total home ownership.

In 2021, half of the dwellings in the downtowns of Toronto, Montreal, and Vancouver were condos. But, as Statistics Canada notes, more than half of these condominiums were owned by investors — comprising a total 840,045 units overall. These investors have, on average, managed to obtain up to a 30 percent increase in the value of their assets while renting them out to desperate tenants in Canada’s major cities.

Corporate Landlords and Financial Landlords

Among Canada’s purpose-built rental housing units, the concentration is even more enormous. In 2017, Canada Mortgage and Housing Corporation (CMHC) economist Gustavo Durango noted: that “Roughly 90 percent of purpose-built rental apartment units in Canada are owned by individual investors and private corporations.”

The book breaks the concentration down further. Tranjan estimates that 22 percent of the country’s rental housing units are owned by small business landlords — individual investors and joint ventures. On average, these landlords own 44 units each nationally and up to 151 each in Toronto. The remaining 28 percent of units is split between corporate and financial landlords. Typically, corporate landlords own and manage rental properties as part of a larger real estate investment portfolio, while financial landlords are entities such as pension funds, insurance companies, and investment trusts.

According to University of Waterloo professor Martine August, Canada’s twenty-five largest landlords, split between corporate and financial landlords, held about 330,000 units in 2020 — nearly 20 percent of the country’s private purpose-built stock of rental apartments. These include rental juggernauts like Starlight Investments, CAPREIT, Boardwalk REIT, Skyline Apartment REIT, Killam Apartment REIT, and Mainstreet Equity.

Since 2020, in turn, there is every reason to believe this concentration has gotten worse. As August wrote in Policy Options, “In some communities, financial firms have effective monopolies over the local market.”

How They Make Their Millions

These corporate and financial landlords are upfront about where their revenue comes from — by extracting rents from squeezed and beleaguered tenants. In the final quarter of 2022, CAPREIT, with over sixty-seven thousand units, was named one of Canada’s safest dividends. As noted by BNN, the company itself explicitly stated the source of its profits. “A record 24.3 percent average rent increase on turnover.” This increase is above average, but not by much. A report by CMHC found that after a tenant moves out of a two-bedroom apartment, the average rent increases by 18.2 percent.

Despite the claims of Canada’s landlord lobby groups, rent hikes have almost nothing to do with “increased expenses,” maintenance costs, or utility rates.

Starlight Investments has openly declared its intention to profit from the rental shortage in Canada. “We think there is a definite housing shortage, or almost a crisis level in Canada,” said then CEO Dale Drimmer in 2019, “and the good news for investors is there is no easy solution in sight.”

Similarly, last year, Hazelview Investments vowed to “create value” by massively hiking rents. “We believe the key to creating value will be identifying companies with pricing power that are able to raise rents on new leases and pass-through higher rental rates on existing leases.”

In 2012, fellow behemoth landlord Timbercreek listed “evictions,” as one of its strategies for hiking rents. As quoted to Canada’s human rights tribunal the company’s “value-add repositioning” program starts by reducing expenses and then “stabilizing revenue” through methods such as “improving the quality of the tenant and tenant profitability,” as well as implementing “stronger disciplinary measures for problem tenants, including evictions.”

“We Only Want the Earth”

In a recent report, Canada’s central bank tracked the flow of capital, focusing on 2008 to 2022, away from productive investment and into housing speculation, housing debt, and rental housing. This reallocation of capital was marked, the report notes, chiefly by the growth of real estate and rental and leasing (RERL) firms, “high-yield debt markets,” the mortgage-backed securities made famous by the 2008 meltdown, and by ever-rising rents. Crucially, the bank notes, none of these entities are really reaping their returns from housing as such — they’re reaping their returns chiefly in areas where “land is scarce” — from their monopoly over a portion of the Earth.

The CCPA likewise notes:

In Canada, housing prices have been driven higher largely by land appreciation; it is not uncommon in major cities for the structures built on land to comprise just a small sliver of the value of a property. For example, between 2007 and 2018, real estate in British Columbia doubled in value, appreciating by nearly $1 trillion in inflation-adjusted terms, the vast majority of that a result of higher land values.

This is “ground rent” — profit that reflects investor’s state-sanctioned monopoly over a natural resource. Land prices are, naturally, monopoly prices. And they make housing unlike any other investment item.

As the New Economics Foundation notes: “Most capital assets depreciate in value over time due to natural wear and tear but land tends to appreciate.” This is, in large part, as they observe, because “The permanence and inherent scarcity of land make it a good asset for the storing of value.” Liberalized credit markets across the Western world since the 1970s, they further note, “have also incentivized banks to favor property-related lending over other types of loans and so contributed to keeping property and land prices up.”

This helps to explain why, just before the pandemic, Statistics Canada found that $8.752 trillion or 76 percent of Canada’s $11 trillion national wealth, was caught up in real estate. It also helps to explain why Statistics Canada found, in 2016, that the top fifth of Canadian households own 63 percent of Canadian real estate’s net worth, while the bottom 40 percent own just 2 percent. Among properties that are not principal residences, the top quintile owns 81 percent of the net worth.

As land values rise, more people are left struggling to find affordable housing. This creates an opportunity for landlords to exploit their tenants by increasing rents at an exorbitant rate, thereby securing a steady stream of passive income. It’s a vicious circle and landlords always win.

The “rental crisis” is not simply a scarcity problem, it’s also a policy failure. To ease the crisis, the most parasitic wing of the capitalist class — landlords — must have their power broken. Large cities everywhere should follow the lead of Berlin and expropriate their most powerful landlords. These vast holdings should be turned over to public housing for human need and not for speculation. And once the inevitable elite backlash occurs, doubling down on such expropriations should be the way forward, with no concessions made.