Hi. Thanks to the committee for inviting me here today.
My name is Martine August, and I'm an associate professor at the University of Waterloo. I'm also the lead for a series of reports commissioned by the advocate on the financialization of housing. I'm here today with the authors of these reports.
We've already been introduced today to the trend of financialization. This refers to the growing role of finance capital and the workings of the global economy in recent decades. This trend is associated with a rise in global and social inequality.
The financialization of housing refers to the treatment of housing as an investment vehicle. It involves the acquisition of mortgages or housing itself by financial firms and by investment vehicles. These are things like real estate investment trusts, or REITs. With this acquisition, they transform housing into a product for investors and provide new access for investors to profits through housing.
In Canada, as the advocate mentioned, this trend is on the rise. Since the 1990s, we've seen the massive consolidation of the ownership of apartments by financial firms. The top 25 biggest financial firms—I'm talking about real estate investment trusts, private equity institutions and asset managers—collectively own 350,000 apartment suites. This is about 20% of Canada's purpose-built rental housing with over six units. This is just an estimate. It doesn't include all financial firms, just the top 25, and it's limited by the lack of transparent data on ownership in this country, as referenced in the last session.
Why does this shift in ownership matter?
Financial owners differ in how they treat buildings because they have a very particular business goal, which is to maximize value for their shareholders. The managers of financial vehicles are structurally incentivized to drive value for investors. If they do not prioritize their levels of return, they will lose share value, they will lose investors and they will reduce executive compensation, which is often tied to performance. This means that in operating housing, financial firms elevate profits above other goals, such as goals for affordability and enhancing tenant quality of life. They instead treat housing as a financial asset.
In order to chase perpetual returns, financial firms often use aggressive property management strategies, which can reduce security of tenure and reduce affordability. They therefore run counter to the realization of the right to housing in Canada.
In multi-family housing, one main approach that these companies use is called “repositioning”, in which buildings are repositioned to make more money for investors. In order to do this, firms can reduce their expenses. This can sometimes negatively affect tenants if it involves cost-cutting or firing superintendents. They can also raise revenues, and raising revenues ultimately comes from the pockets of tenants. They charge more for amenities, add on new fees and, especially, raise rents.
Firms find that they can raise rents more if they have vacant units. This drives them to systematically prefer to remove and displace existing tenants in order to try to get higher rent when the unit is vacant.
Financialization has negative effects on tenants. Displacement, which is caused by this pursuit of vacant units, is a well-documented trend that's harmful. Raising rents increases the economic burden on tenants. Also, the renovations and repairs that are used to drive those higher rents can make life very unpleasant.
All of these things generate stress, anxiety and health problems, and work against the realization of the right to housing in Canada. Beyond tenant-level effects, this trend drives gentrification and intensifies patterns of social and spatial inequality, reducing affordability in our towns and cities.
I'm sometimes asked how I can be so sure that financial firms are unique compared to other landlords. In line with other researchers in the U.S., I have found that financial firms in the city of Toronto file for evictions at higher rates than other types of landlords. It's two and a half times higher than owners of single buildings and one and a half times higher, even, than similarly large private chains.
We can see them filing more evictions after buying a building. Looking at 10 years of data, a colleague and I found that after financial firms buy a property, eviction filings triple going forward. If the previous owner filed 10 per year, financial firms filed 30 per year going forward. This is based on the analysis of 700 transactions over 10 years.
I've also found that in Toronto, financial firms charge higher levels of rent, regardless of neighbourhood and regardless of building quality. These findings show that, yes, financial firms here in Canada are driving up housing costs, worsening affordability and intensifying housing insecurity through higher levels of eviction filings. This underlines the need for federal government action to better regulate this industry, to protect tenants, to secure affordable rents and to stop the treatment of housing as a financial asset.
Thank you.