REITs get criticized for being part of the housing affordability problem, but it turns out they aren't
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That's one reason why real estate investment trusts (REITs) have stepped in over the past two decades, injecting capital to upgrade buildings and units and, in the process, improving the quality of life for many tenants.
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For example, University of Waterloo professor Martine August has said financial firms, which include REITs, raise rents to increase investor returns, making housing systematically less affordable.
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But new research from Canada Mortgage and Housing Corp. (CMHC) tells a different story. In two studies covering the country's three most expensive rental markets, Toronto, Vancouver and Montreal, it found no evidence that REITs charge higher rents than other landlords for comparable units.
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Just as important, the REITs' share of the purpose-built rental stock is too small to give them market power to raise rents across the board. They must compete in the open market, charging what tenants are willing and able to pay.
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In Toronto and Vancouver, CMHC economist Wahid Abdallah used building-level rental data, ownership records and neighbourhood characteristics to compare REIT-owned properties with similar ones owned by non-REITs. After controlling for location and amenities, key factors in rent levels, he found there was no statistically significant difference in rents.
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REITs own roughly 10 per cent of the rental stock in each of those cities, far too little to set market-wide rent levels. Their holdings are often concentrated in amenity-rich, gentrifying neighbourhoods, which may fuel perceptions of displacement. But gentrification, while controversial, is not inherently negative.
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