Photo: Roman / Adobe Stock
When it comes to home ownership in Canada, investors account for a chunk of mortgaged purchases, according to a new report by the Bank of Canada (BoC).
In a recently-published staff analytical note authored by Mikael Khan and Yang Xu, the BoC studied data from three buyer types that are associated with mortgage-financed homes in Canada — first-time homebuyers, repeat homebuyers and investors.
Housing Market News Alerts
Sign up now for news alerts on the Canadian housing market
Mortgage underwriting information sourced from federally-regulated institutions and credit bureau data was used in the BoC report, which was compared to data from the Canadian Real Estate Association (CREA).
Since 2014, investors have made up 19 per cent of home purchases
The investor category was broken into two groups of purchasers with multiple mortgaged properties, which includes those who bought an investment property while maintaining their primary residence, and those who have purchased a new residence to live in while converting their existing home into an investment property.
As the investor dataset includes only mortgages that originate from Canadian financial institutions, the BoC explained that the study captures mostly domestic buyers. Purchases from foreign buyers would be included only if the purchasers received a mortgage in Canada, the report noted.
With this factored into account, investors have made up 19 per cent of mortgaged home purchases since 2014.
While housing investments may include recreational properties, such as cottages, the BoC explained that this “inclusion does not alter our results in a material way.” The organization analyzed the share of investment purchases made in non-urban regions. For the investors who live in 11 major cities across Canada, their purchases in non-urban areas accounted for only four per cent of all of their investment transactions since 2014, the BoC concluded.
First-time homebuyers — which comprises those who have a first-ever mortgage appearance on their credit file — are the largest group of homebuyers in Canada, accounting for one-half (50 per cent) of home purchases since 2014. Repeat homebuyers — borrowers whose new mortgage is associated with the discharge of a previous mortgage — have made up 31 per cent of buyers since 2014, the report said.
Investor purchaser share grew in 2017 and 2021
Between the three buyer types, the BoC noted that there was a “high degree of co-movement,” when it came to the annual growth of home purchases, especially for investors.
“Interestingly, while purchases from all three groups have seen a rapid increase during the COVID‑19 pandemic, this is most pronounced for investors,” said the study. “The last time growth in the investor category outstripped that of first-time or repeat homebuyers was in 2017— during a period of exceptionally strong house price gains in Toronto and surrounding areas.”
Graph: TransUnion, regulatory filings of Canadian banks and Bank of Canada calculations (Bank of Canada)
As a result of these trends, the BoC reported that the share of purchases by investors grew in 2017 and 2021. By city, investors accounted for 21 per cent of purchases made in Toronto, 20 per cent in Ottawa-Gatineau and Calgary, and 19 per cent in Hamilton.
By comparison, the share of purchases by first-time homebuyers has been on a downward trend since 2015, hitting a new low in 2021. This could be a result of the rate of rising home prices that has outpaced disposable income during the last six years, the report stated. Activity by repeat buyers has slightly increased.
Investors could be “source of instability,” but provide source of rental housing
Within the group of existing homeowners, investors have seen the largest gain in their share of home purchases during the pandemic, the BoC noted. With an increased presence of inventors in the market, the BoC said that this has contributed to strong demand and that “may reflect a belief that house prices will continue to rise in value.” Compared to other types of buyers, investor demand may also be more sensitive to shifts in market sentiment.
“By exacerbating so-called boom-bust cycles in housing markets, investors could thus be a source of instability for the financial system and the economy more broadly. At the same time, investors are an important source of housing rental supply,” said the report.
“We need to do further research to examine the delicate balance between adding to rental supply while removing new builds and resale supply in a housing market that already has supply constraints,” it added.