Canada’s Latest Real Estate Investor Report Isn’t Just Bad—It’s Reckless

Large institutional investors are an almost insignificant share of Canadian housing. That was the takeaway from a new Statistics Canada (StatCan) report examining the influence of institutional ownership of rentals in 2022. Even more shocking is the agency just discovered that Canadian real estate is the most perfectly competitive market in the world. All they had to do was improvise a methodology and use a timeline that makes no sense. 

About Today’s Data

Before we discuss the investor data, let’s make sure we’re all on the same page—no data nerd left behind! The agency uses the Herfindahl-Hirschman Index (HHI), a regulatory model of competition. It quantifies competition by squaring the market share held by every firm in an industry. For those who forgot their bankster to English dictionary at home, it turns market competition into a number from 0 to Galen Weston. Kidding. It ranges from 0 (perfect competition) to 10,000 (a perfect monopoly).

The agency used the US Federal Trade Commission’s (FTC) HHI threshold to show where trade concerns typically mount: 

• Less than 1,500: Non-concentrated
• 1,500 to 2,499: Moderately concentrated
• 2,500 or greater: Highly concentrated 

The US FTC believes an HHI above 1,800 warrants investigation. For context, Canada’s banks range between 1,800 and 1,900, and the country’s manufacturing has an average HHI of 4,500. It’s effectively an oligarchy. 

StatCan applied this concept to analyze the institutional ownership of rental properties. Due to their scale and power, this investor class skews markets faster than mom & pop investors. The fallout is a more aggressive rise in the cost of living, creating an economic drag due to the concentration of non-productive spending. Their risk profile is very different from a mom & pop investor, who doesn’t get subsidized capital and bailouts if they fail.

Calculating the HHI would typically require measuring the number of homes each company controls. However, Canadian real estate is more opaque than any tax haven, so there’s no count of units owned by institutions. “Therefore, the assessed value of the properties serves as a proxy variable for the number of units,” explains StatCan economist and the author of the report, Joanie Fontaine.

The agency’s improvised methodology shows Canadian real estate may be the world’s most competitive industry. Seriously. 

Canadian Real Estate Is Perfectly Competitive, No Concentration?

What investors? All 12 Census Metropolitan Areas (CMAs) examined had HHIs of below 1,500—a lot lower. London, ON is the worst offender with an HHI of 133.9, less than 10% of the way to a concentrated market. Toronto (6.1), where investors buy roughly 70% of pre-construction, is a nearly perfect market. It’s only behind Vancouver (6.1), where the market is so free that taxpayers are bracing for a bailout. So. Much. Competition. Perfect, actually. 

The study concludes “the existence of potential competitiveness among landlords in the CMAs studied, despite the significant presence of institutional investors in some of the CMAs.”

Their share of total assessed value of housing in 2022 ranged between just 2.9% and 6.0% in the provinces studied. When looking at “houses” (freehold, non-apartments) they only own between 0.1% and 0.4% of housing. 

Adam Smith, the godfather of capitalism and free market theory, famously noted that land is a “natural monopoly” because its supply is physically fixed. You can’t manufacture more of it to satisfy a free market. Land-based resources inherently can’t be in perfect competition. However, you don’t need to know that to understand that StatCan made a wrong turn at Albuquerque.

Canada’s Premium Property Skew

There are a few problems here, the most obvious being the distribution. In Ontario, rentals owned by institutions had a median assessed value of $187,000 in 2022. Contrast that with $260,000 for all rentals, and $306,000 for owner-occupied rentals. One takeaway is that institutions are concentrated in the lower-end (a.k.a. affordable) side of the market. More importantly, it’s a red flag for using assessed values as a competition proxy. 

Let’s do a quick example for the under-caffeinated. There are 3 rental homes, each owned by a different owner. Their assessed values are the same as the above medians (convenient, I know). The owners are named Institution, Average Investor, and Mom & Pop. Don’t make fun. Their parents weren’t creative and a little lazy, but at least they didn’t go with something like Brad Bradford. 

By property count, they each have a third of the market (not units, though, since we don’t know). When using assessment values, Mom & Pop are the supervillains, dominating 40% of the market. Institution, with a meagre 24.8% market share, needs 39% more properties to catch up to Average Investor, and 64% for Mom & Pop. Fire up a few billion on the printing press, Institution needs subsidies. You know—to make things affordable and competitive, right? 

A little on the bonkers side. However, the bigger distribution problem is stock vs flow.

Stock Vs Flow 

In economics and finance, it’s important to differentiate stocks and flows. Stocks are the value of all assets at a point of time, and flows are the value of assets during a period. For example, stocks would be the value of every gas station, residence, warehouse, farmhouse, henhouse, outhouse and doghouse in an area. Flows would be the value of those items added in a year.

This study clumsily relies on stock, using the total value of all properties purchased ever. The rise of cheap capital in the low-rate, post-Global Financial Crisis era, which sparked institutions into chasing yields in housing, is never considered. It treats every home sold on the market in the same way, as though every year has always been the same. It doesn’t matter that Gen Z didn’t have the same opportunity for ownership; their share was on the market in 1960. 

While the agency didn’t provide raw data needed to calculate a pure “flow” HHI, they left a smoking gun in their caveats: when isolating rental properties built since 2011, institutional investors owned a staggering 63.1% of the assessed value in Nova Scotia and 61.5% in New Brunswick. This isn’t a competitive market; it’s a corporate hijacking of the supply in those regions. 

Previously released Ontario investor data provides even more data points to show there’s a bigger problem. 

In Ontario, non-owner-occupying investors grew their share of housing from 20.2% to 20.9% between 2020 and 2023. The province’s housing stock grew 3.1% over the period, but its share grew over double that rate (+6.7%). In absolute terms, the province saw net growth of 191,130 homes, and these investors saw 43.4% of that growth. If you already owned a home, no biggie. If you’re competing with them, you have really stiff competition. 

The most important issue is the marginal price pressure investors provide. Prices aren’t set by all consumers, they’re set by a marginal buyer. That’s the person actually making the transaction, not the person who did it 20 years prior. Whether it’s real estate, stocks, or any investment—only a small number of transactions set prices. A group of money launderers can represent a small share of buyers. However, if they concentrate in one area, what they paid becomes the comps for everyone else. It doesn’t matter if a buyer knows what’s happening; they’re competing against buyers that don’t. 

StatCan was so close to hitting this, but fell short. Though clearly not because they didn’t understand the issue. 

“Nevertheless, there could be concentration in some market subsegments, such as in specific neighbourhoods or for certain types of dwellings,” notes the agency. They further gloss over a note that market coordination can amplify pricing pressure. However, organized coordination isn’t the biggest problem—it’s unorganized coordination through comps. The vacant units held by institutions, which are better vacant than taking a cut for valuation, now set the pricing narrative for all landlords. 

Bubble Contagion: How Speculation Spreads Like A Virus

The problem is amplified through an economic concept called bubble contagion. As market pressures rise in a small area, the existing consumers are pushed further out. Regions with fewer amenities see prices rise, as people discount fundamentals and try to find a place wherever they can. 

When a person can’t find shelter to rent in their price point, it doesn’t matter that 1 in 19 rental units in Toronto are vacant. They’re in a game of chicken, the winner is whoever holds out longer—the institution with a vacant unit or the person who needs a home. In natural competition, it would sort itself out. When policymakers back the vacant units, prospective tenants get to pick between paying higher rents, homelessness, or moving to a new city. In cities like Toronto, that’s turning into a critical failure as policymakers support the vacant units, and have yet to realize the region’s young people are fleeing. Often leaving Canada as a whole. 

Now, to clarify, there’s no reason to assume StatCan is being malicious. It’s a similar circumstance to the Bank of Canada’s claim that 50% of home buyers were first-time buyers, back in 2022. When we asked about a methodology quirk, they clarified, to which I conceded: They were right—50% of transactions were first-time home buyers. Assuming you exclude corporations, institutions, foreign financing, all cash buyers, and private mortgages. 

StatCan is taking the same approach. It’s like they watched Gen Z get punched in the stomach, and then provided a detailed report. A report that shows how many people weren’t punched in the stomach over their lives.

Neither of them is technically lying, but the data is worse than useless. It provides a false data point that dismisses a very real problem that the researchers just didn’t fully understand.