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How the financialization of housing is pushing tenants to the brink of homelessness in Calgary

Published Jun 10, 2024  •  Last updated 5 hours ago  •  13 minute read

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Kim Gillespie sits among half-packed belongings in her southwest Calgary apartment on May 29. Gillespie said rents in her building, owned by Avenue Living, spiked over the past two years, and had she not found another place to live at the end of May, she could have ended up homeless. Photo by Brent Calver /Postmedia

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Kim Gillespie’s world often spins around her, and when it does, her body freezes and tilts as if it were about to collapse.

Gillespie, who is 64, is haunted by vertigo as her movements are constricted by severe arthritis and a degenerative disc disease with seven discs fused in her back.

“I fall like I’m drunk,” she said. “I get the spins even while I’m lying down.”

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In the past two months, she had even more trouble sleeping: her landlord — the private real estate investment trust Avenue Living — raised her rent for a one-bedroom to $1,830, a monthly increase of more than $800, including higher parking and security fees, in two years.

Every month, Gillespie receives $1,700 in Assured Income for the Severely Handicapped (AISH) and $900 in rental assistance from the Calgary Housing Company. “If it weren’t for Calgary Housing, I’d be really, really — pardon my language — screwed,” she said.

But as her rent kept soaring, she found the support she was receiving wasn’t enough.

“I had to rely on different community outreach programs for food,” she said. “I also tried to find somebody to help me with my electrical bill because it would be disconnected.”

Gillespie realized she couldn’t absorb another rent increase. She decided she would leave — as soon as she found a better place.

Her predicament isn’t uncommon.

Rental market hit with ‘doubly whammy’

Rents across Calgary in January leapt by 22 per cent since 2022, touching an average of $1,708 for a one-bedroom apartment, according to Rentals.ca. In May, that rose to $1,736.

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Experts say such pressures felt by a growing number of people are a result of the falling rate of homeownership.

House prices have ballooned as investment in real estate becomes more lucrative, pushing prospective buyers into the rental market. As a result of increased demand for rentals, those on lower rungs of the social ladder who are most vulnerable to such price shocks are being squeezed out of housing altogether.

The problem is a symptom of a shift in the 1980s away from large-scale spending on social housing and towards an ideology that homeownership is a financial safety net.

Government subsidies for buying homes and programs to insure mortgages in the 1990s and early 2000s allowed large swathes of people, including those with lower incomes, to enter the housing market — albeit with high levels of indebtedness — expanding the rate of homeownership.

However, the government tightened the qualification criteria for mortgages following the global financial crisis in 2008. On the other hand, it slashed interest rates to get the market back on its feet, which incentivized investors and existing homeowners, who could leverage their capital, to buy more homes and magnify their wealth. As wage increases couldn’t keep up with the rise in house prices, people without capital were left behind, and for the first time in several decades, homeownership began to fall across Canada.

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Driving the problem has been a historical lack of housing starts for a growing population. Canada grew by 6.1 million from 2011 to 2023 and, in 2022, for the first time, the country swelled by more than a million people in a year.

Meanwhile, Calgary’s population rose by more than 300,000 people in those 12 years. Most of them are newcomers who have arrived in the past few years following a climb in oil prices. City officials estimated in 2023 that 62 people were flowing into Calgary every day, and projected it will add another 110,000 people by 2027.

Steve Pomeroy, housing consultant and senior research fellow at the Centre for Urban Research and Education at Carleton University, is shown in this file photo. Photo by Tony Caldwell /Postmedia

Steve Pomeroy, a Carleton University professor and housing policy researcher, ascribes the surge in population to “a very unmanaged system of immigration for temporary foreign workers and international students.”

“So, what we’ve seen is a double whammy of the massive increase in rental demand — both from pent-up demand by (prospective) homeowners and newcomers,” Pomeroy added.

Even though the construction of rentals in Calgary jumped to more than 5,000 units in 2023 — more than 23 times the average number of such units built between 2000 and 2010 — it’s not nearly enough to accommodate the rising tide of people.

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“People can jump on a plane today and arrive tonight,” Pomeroy added. “We can’t create those units fast enough, so this mismatch of excess demand relative to our ability to supply has added this incredible pressure on the rental market.”

Another major factor, experts point out, adding to the growing precariousness of low-income renters is the rise of what they call financialized landlords whose main priority is to maximize the value of their shareholders, sometimes at the expense of their tenants.

“A lot of our rental sector was mainly what we call mom-and-pop landlords — they are family-owned companies that own for instance a 40-unit building. They manage it themselves, they know the tenants, so they tend to be sympathetic to them,” Pomeroy said.

“On the other hand, now you have firms aggregating capital from a disparate bunch of investors that they don’t even know who they are, and they don’t know the tenants themselves, so you’ve moved from a lot of very benevolent landlords to financialized landlords who are basically in the business of generating yield for shareholders.”

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Enter real estate investment trusts

Different types of financial firms have increasingly taken on the role of landlords: Publicly listed real estate companies; asset management firms; institutions, such as pension funds, insurance companies and endowment funds; hedge funds; and real estate investment trusts (REITs).

While all of them have expanded their presence in the housing market, REITs have exploded onto the scene. For instance, such companies have grown from owning no multi-family suites in Canada in 1996 to nearly 200,000 in 2020, making up 10 per cent of the country’s total stock, according to research by University of Waterloo planning professor Martine August. The actual number, she suggests in a report to the federal housing advocate, is much higher.

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“Because there is a lack of transparent ownership data in Canada, these figures are estimates, and they likely underestimate the true ownership by financial firms, which one industry leader puts as high as 30 per cent,” August wrote.

A No Vacancy sign is shown in front of a downtown Calgary apartment building on Aug. 11, 2023. Jim Wells/Postmedia

REITs are companies that own and rent out properties while allowing the public to invest in real estate without actually buying land. Investors purchase stocks of these companies and earn dividends from their investments — and firms invest the money pooled from their shareholders back into their operations.

REITs in Canada were born in 1993 when legislation enabled real estate firms to transform their companies into mutual fund trusts, allowing them to sell their shares to various investors. The arrangement was attractive to many firms since it allowed them to distribute their profits to shareholders through dividends and download the responsibility of paying taxes onto them.

As spending on social housing was drying out — in Alberta, it ground to a halt between 1996 and 2004 — REITs poured into the market. Most of the earliest companies were based in Ontario. However, by the early 2000s, several firms emerged in Alberta.

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Their growth, however, was modest. Investment trusts managing residential units generated a return of generally between three and four per cent in the mid-1990s, according to Pomeroy. “That’s mainly because rents really weren’t going up much on a year-to-year basis for the best part of 20 years,” he added.

However, things took a turn after the global financial crisis of 2008. As investors gobbled up properties and more would-be homeowners spilled into the rental market, the real estate sector became more profitable. By 2017, the historical average return of Canadian REITs managing residential properties since 1996 had reached 14.5 per cent.

New REITs flooded the sector. Calgary, however, saw an increased presence of such companies only recently. They still comprise a relatively small share of the city’s rental housing stock, said Mason Thompson, an analyst at Avison Young. But their slice is widening.

For instance, Avenue Living — a private REIT whose shares are sold through the exempt market — grew its inventory of units by 78 per cent from roughly 8,000 in 2019 to nearly 14,500 in 2023, more than 2,000 of which are located in Calgary.

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The company in 2023 also acquired a portfolio of 703 residential units from QuadREal, another property investment firm, for $176 million, making it the largest real estate transaction in Calgary that year.

Buying up properties

Until recently, REITs rarely, if ever, built housing. Instead, they bought existing units.

“If you build a new building, you have to sit there and wait for three or four years before it’s completed and occupied and then it starts to generate revenue,” Pomeroy said.

“So that’s not very attractive, it doesn’t give you any income to then pay back to your shareholders — for that reason, (REITs) preferred to buy existing assets because they brought an immediate cash flow.”

While every company operates its inventory of units differently, many aren’t proponents of affordable housing.

As August points out in her report, Residential Equity — whose portfolio was acquired by Canadian Apartment Properties in 2004 — in its 1998 investment prospectus welcomed the relaxation of rent controls in Ontario, stating new legislation would allow them to raise rents, and “the cost of certain capital expenditures, which otherwise would be borne by RESREIT, may be passed through to tenants for reimbursement over time.”

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Some prefer a housing crisis.

While rents were falling during the pandemic, Montreal-based Minto REIT assured its shareholders in its 2020 annual report that “the housing crisis in Canada’s major urban centres that existed before COVID will re-assert itself, particularly as immigration picks up, post-secondary institutions return to on-campus learning, borders are re-opened, and workers return to the office (at least part-time).

“The housing affordability gap continues to grow and will ultimately benefit the multi-residential rental sector,” the report stated.

Closer to home, Avenue Living, on its website, tells potential investors the city has a “limited supply of rental units relative to demand, leading to strong rent growth and historically high occupancy rates,” further adding “robust population growth, high development costs, and extended construction timelines have led to household formation strongly outpacing housing developments.”

Savings drained to pay bills

Syed Ali lives with his wife and their three children in Avenue Living’s Wyldewood Estates, a residential complex of more than 300 units in Heritage (not the same complex as Gillespie’s).

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In two years, Ali saw their monthly rent for a three-bedroom apartment jump from $1,415 to $2,350. Ali, a quality control instrumentation specialist, has been waiting for his next assignment for four months after completing his latest project in B.C. He says the family is draining its savings to pay their bills.

He has also been driving for Uber and relying on the income of his wife, who works in administration at the Calgary Board of Education.

“There’s too much stress,” Ali says. “And it’s very hard to pay rent and utilities on top of that.” He says he has tried downsizing to a two-bedroom unit but, owing to his children, landlords have told him he wouldn’t qualify for an apartment smaller than a three-bedroom.

Avenue Living’s senior vice-president of marketing, Tammy Cho, said in an emailed statement, “This situation is not unique to Avenue Living. The costs of operating properties have significantly increased in recent years, which include utilities, taxes, insurance, labour, materials, and interest costs.

“In our standard operations, we regularly conduct assessments at each building to identify upgrade requirements that prioritize resident safety and comfort. The costs of these improvements, like most things, are increasing so these costs are factored into rental fees.”

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Cho added that 95 per cent of the building’s work orders are completed within three days, and residents can also convey their issues via a “24/7 call centre.”

“We follow up on each request with a survey to maintain open communication for residents,” she said.

However, Ali can’t square the company’s response with its cutback on management and security. In the two years since the company acquired the property from another investment trust called Morguard, garbage bins have become smaller and overflow with litter.

Meanwhile, he said, security personnel are no longer present at the property and management staff are in the office only a couple of days a week.

Sandra McCrone stands outside her southeast Calgary Wyldewood Estates apartment building for a story on renting in the city on Friday May 17, 2024. Gavin Young/Postmedia

Another resident, Sandra McCrone, said the buzzers in the buildings are no longer working, “so, everybody now just lets anybody in — it doesn’t matter.” She said she has also seen homeless people curl up in the stairwell during the winter.

Such problems aren’t restricted to Avenue Living. Calgarians in the past have also complained about safety issues in apartments owned by other REITs.

Skimping on personnel isn’t uncommon among some investment trusts. Policy Alternatives economist Ricardo Tranjan blames such cost-cutting tactics on their business model. “With a common business, the measure of your profit is anchored on something concrete,” he said. “But this is different.”

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Shareholders change the rent equation

Ricardo Tranjan, Senior Researcher at the Canadian Centre for Policy Alternatives, poses for a portrait at his office in Toronto, Ontario, August 16, 2018. Photo by Tyler Anderson /National Post

Imagine you’re a landlord, Tranjan said, and the cost of owning and operating a unit is $1,000. You charge your tenant an extra $300 as profit. That’s how landlords normally measure success. But with shareholders in the mix, the metric has shifted. “Now it’s about how much more I could make because as a shareholder, you can sell your shares and go to my competitor,” Tranjan added.

Cho said the interests of her company’s shareholders align with its tenants. “Our investors value consistent returns over time, rather than short-term profit,” she said in an emailed statement.

“Our business requires sustainable consistency, which means that taking care of our communities and ensuring that people want to live in them are critical elements of our business model.”

Cho also pointed to its recent capital investments in Wyldewood Estates, particularly in the roofing of the buildings.

“In upgrading the roof system, we will be increasing the insulation for the building, reducing heat loss, and reducing our carbon footprint,” she added.

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“In addition to the roofs, we are replacing windows and installing a new boiler, among other maintenance initiatives. Together, these investments are approximately $19 million, and will add at minimum an additional 25 years to the building’s lifespan.”

Can the market create affordable housing?

The puzzle of falling affordability doesn’t just involve such financial firms, Pomeroy said. It’s systemic: As developers compete for land and raise values, the costs eventually borne by investors who buy the properties will flow to the people who live in those units.

Canada Mortgage and Housing Corporation, in a 2022 study, stated the country will need to add 3.5 million homes by 2030 to “restore affordability.”

“What they were saying is, if we massively oversupply the market, we will end up with a bunch of housing that’s 30 per cent less expensive than it is today,” Pomeroy said.

“The reality is that the market doesn’t work that way: If the market can’t sell the units, it won’t start building them. And CMHC, as the mortgage insurer, won’t provide insurance for the financing that would let them build in the first place.”

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An oversupply also works against the interest of a developer. “A developer would think, ‘I’m not going to build this unit and sell it today for 30 per cent less than I can get.’ That’s just how a rational economic person would think,’” Pomeroy added.

Instead, he argued, to make housing more affordable, the government must support more non-profits in buying land, helping them to offer rental units at a cheaper rate.

What shocked McCrone and her neighbours was the government did support their landlord. Avenue Living in 2022 was granted a loan of $120 million for retrofits from the Canada Infrastructure Bank — a federal crown corporation that finances infrastructure projects.

Residents were angered at their landlord for large rent increases even after receiving federal money.

Cho said Avenue hasn’t exercised the loan despite it being approved.

“These loans include conditions where the money can only be used towards approved projects, such as retrofits that improve energy efficiency,” she added. “While we have been approved to access loans from the CIB, we have not done so at this time.”

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Kim Gillespie stands outside of her southwest Calgary apartment building on Wednesday, May 29, 2024. Gillespie said rents in her building, owned by Avenue Living, spiked over the past two years, and had she not found another place to live at the end of May, she could have ended up homeless. Brent Calver/Postmedia Photo by Brent Calver/Postmedia /Brent Calver/Postmedia

After two months of fearing she would end up on the streets, Gillespie was jubilant. Almost every landlord she spoke with had rejected her because she relied on disability support. But in May, she found a one-bedroom unit managed by a private company called Broadstreet Properties that isn’t a REIT — in Chestermere.

“They didn’t look down on me,” Gillespie said.

“The place is brand new,” she added, her voice rising.

“My rent is going to be $1,649.

“At least, now I’ll save 200 bucks with parking.”

We know the rising costs of groceries, mortgages, rents and power are important issues for so many Calgarians trying to provide for their families. In our special series Squeezed: Navigating Calgary’s high cost of living, we take a deep look into the affordability crisis in Calgary. We’ve crunched numbers, combed through reports and talked to experts to find out how inflation is impacting our city, and what is being done to bring prices back to earth. But, most importantly, we spoke to real families who shared their stories and struggles with us. We hope you will join the conversation as these stories roll out.

This week: Priced Out: The Rising Cost of Housing

Still to come: 

• The Cost of Doing Business

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