When it comes to rental housing, we’ve done one thing well in B.C.—figure out who to blame for our failures. We’ve pointed the finger at speculators, landlords, developers, even everyday homeowners. If we showed half this determination in removing the barriers to sufficient supply, our housing shortage would be long forgotten. Instead, we are so good at scapegoating that we’ve run out of culprits. So we recycle them.
This time, it’s institutional investors (again). In his January 12 announcement of a $500-million Rental Protection Fund, Premier David Eby singled out “speculators and large corporations, such as real estate investment trusts” as the bogeyman. That kind of talk is politically expedient because speculators and large corporations don’t vote. But it’s also highly misguided.
REITs are not the problem
For starters, real estate investment trusts (REITs), especially those listed on public stock exchanges, offer small investors and pension funds an inexpensive and convenient way to invest in property. By doing so, REITs can provide low-cost, long-term capital to invest in the rental housing continuum. When REITs became popular in the early 1990s, both academics and practitioners praised their ability to democratize real estate investment and improve housing affordability. Today, 42 countries have REITs, with $80 billion in market capitalization in Canada alone. Despite their prevalence worldwide, REITs have apparently unleashed their wrath only here in B.C. We’ve been so uniquely unlucky that we need a knight in $500 million worth of shining armour, to be “financed prior to March 31, 2023.”
Never mind that institutional investors are relatively small players in the local rental market. Last year in Metro Vancouver, they accounted for just 12 per cent of apartment building sales. And of 35 sales that the Goodman Report tracked for the second half of 2022, only three were to an institutional buyer.
To save existing rental buildings from REITs’ vicious claws, the Rental Protection Fund would allow for the purchase of those properties and prevent their redevelopment. Let that sink in for a moment—amid a severe housing shortage, the B.C. government is spending $500 million of taxpayer money not to build additional housing, but to stop people who want to build it.
No matter how counterproductive, such thinking isn’t new. Red tape and intrusive regulation restrict housing supply, which hikes prices and rents, creating a false bogeyman—which generates more red tape and regulation, further restricting supply, and so on. Rather than switch gears, our leaders double down on failed policies, to the detriment of renters, homeowners, and investors alike, but to the benefit of bureaucrats and politicians.
A bad deal for renters
By obstructing redevelopment, the Rental Protection Fund will hurt new renters and worsen housing affordability for newcomers. But it will also hurt even the current occupants of the acquired buildings, the very people the policy is supposed to help.
First, provincial and municipal renter protection and relocation programs, , already accomplish what the Fund aims to do. Second, the presumed renter protection only works if someone can stay in the same unit. Above all, there wouldn’t be any need to protect renters, if we had adequate housing supply to begin with.
But don’t take my word for it. For proof that our current housing policies are a total failure, just look at the Rental Protection Fund announcement. Citing a BC Housing report, the announcement claims that 14,546 rental units were “registered” in 2022. Sure, but registration with BC Housing is mandatory for all housing projects before building permits are issued and certainly before construction starts.
So don’t hold your breath: given our years-long permitting and regulated-to-death construction process, these units are years away from completion, if at all. Provincewide, the most recent BC Housing Annual Service Plan Report projects a mere 3,000 units of public housing completions annually for 2022/2023 and 2023/2024. The expected private rental supply coming is at similar levels—about 1,532 units a year in Metro Vancouver over the next 4 years, according to Zonda Urban data. Either way, we’re nowhere near 14,000-plus rental unit completions anytime soon.
More to the point, counting future private rental supply in the announcement of a program designed to prevent private supply is peak irony. The Fund’s stated goal is to halt redevelopment of existing properties. Also, in its original proposal for the fund, the B.C. Non-Profit Housing Association (BCNPHA) wanted “to enable non-profits to buy apartment buildings…before institutional investors can acquire them,” essentially asking for a right of first refusal on any potential transaction. If that happens too, there’s no chance we’d see even the meagre projected 1,532 annual completed new rental units in Metro Vancouver. No investor would incur the due diligence and cost, only to hand over the project to a civil servant spending taxpayer money.
And of course, landlords—not institutional investors, who play a part in our rental market —would be the real victims here. Telling landlords how and to whom they can sell would make the already daunting task of owning and maintaining a rental building that much more difficult.
The bottom line: the Rental Protection Fund is really a Rental Destruction Fund. We’ve been trying hard to micromanage and regulate every conceivable aspect of our housing market. The outcome? The number of purpose-built rental units in B.C. hasn’t changed much since the early 1990s, while the population has grown by 50 per cent. Failed policies have led to more failing policies.
We need to reverse course by making it easy, cheap, and quick to build and maintain housing in this province. Permitting and construction regulation must be vastly simplified and limited to health, safety, and impact on neighbours. Arbitrary land restrictions have to go. And we must densify where it’s most needed and least disruptive. If we do all this, competition for renters would protect them, far better than a $500-million government-run fund ever could.
Andrey Pavlov, PH.D., is Professor of Finance, Beedie School of Business, Simon Fraser University.
This article first appeared in the Goodman Report and is reproduced here with permission.