In TREB’s 2019 Market Year in Review & Outlook Report one stat that is catching eyes is from the rental market section. In this section, TREB reports that of investor owned properties, 27% of owners let the home sit empty and another 18% have investment properties that are currently empty. This information means that of the percentage of homes owned by investors, which a CIBC report in April 2018 put at 48% of new builds, 45% are empty. As the city debates its housing supply problem, learning that 45% of investor properties are empty is an incredible revelation.
In this blog we have previous discussed how historical housing growth has more than kept pace with population growth (that article here), and construction has out paced need as well, as shown by the graph below. Despite this, housing supply remained tight and unused units seemingly had to be the answer. With this information from TREB, we now better understand the magnitude of the problem and can calculate the impact these units if filled would have on the market.
Source: Better Dwelling, Six Housing Sense
To see this impact we can review two scenarios. The first scenario would be if investors were not allowed to maintain unused units, thus making these units available on the rental market. In this scenario, 45% of the investor owned homes would be available for rent. For this example, we will assume that the 48% investor ownership rate of new builds from 2017 was constant over the past three years.
Source: Better Dwelling, BILD, TREB, Six Housing Sense
In adding these units to the rental market captured by TREB, we see that rental capacity surges in all three years, growing 20%, 21% and 16% respectively. In real terms, nearly 7,500 units would have been available in 2016, nearly 8,000 in 2017 and over 5,800 in 2018. With rental prices having ballooned and vacancy rates hovering around 1%, these additional units would have helped to control prices while providing the housing supply the city requires.
The other scenario for analyzing the impact of these purchases is to assume these investors would not have been permitted to buy the homes in the first place. If investors were forbidden from maintaining empty residences, the 27% of investors who do not attempt to rent out their investment property would release those units back to the market (admittedly, in theory).
|Year||# of New Builds||Released Purchases||Resale Number||% of Total Sales|
Source: BILD, Six Housing Sense, *As of November data
In this scenario we see that preventing these 27% of investors from buying their properties would not have had a massive impact on the market; however, at a time of tight supply it would have released a meaningful amount of homes to other buyers. This is also assuming that none of the resale homes sales were purchased by investors who also would have been impacted, which would have added even more homes to this total. Either way, adding a few thousand homes back on to the market would have helped ease the supply problem and had an impact on controlling the runaway prices.
Especially in a tight housing market, allowing homes to sit empty is something any city/region should be guarding against. Our quick analysis showed that adding these homes back into the housing stock, instead of holding them like a stock portfolio would have a real impact on the rental market and helped to ease the sales market. For both scenarios the data shows the issue is not so much on the amount of supply that is being built, but how that supply is being used.