As he closely watched the global economy in the summer of 2014, Paul Finch, in his capacity as the newly-elected treasurer of the British Columbia Government and Service Employees’ Union (BCGEU), became concerned. Convinced that the price of oil was about to drop drastically, he approached his executive board with an ambitious proposal. They needed to take all the money they had invested in fossil fuels and move it elsewhere, immediately.
Initially, the idea – which Finch says involved approximately $22 million in general reserves and their strike fund remaining in Canadian equities – was voted down.
“Then I came back to them in the fall of 2014. The decision was reconsidered, and approval and discretion was given by the executive to fully divest – and we did,” he says.
Within months, the price of oil had dropped to $40 a barrel.
“We made a lot of money off that crash,” he recalls.
When it comes to understanding rental affordability and the housing crisis in B.C., there’s a lesson to be learned in this story, says Finch.
The way he sees it, the Canadian resource sector (particularly the Canadian energy sector) had been underperforming relative to the rest of the economy since 2005. The situation then worsened in 2010 when the U.S. began to become more independent in fossil fuels, he says, which then “kind of made the Canadian fossil fuel sector irrelevant in comparison.”
When the 2014 oil price crash then occurred, the value of the Canadian dollar also crashed against the value of the U.S. dollar. This meant that Canadian real estate was essentially 20 per cent off for foreign investors (who often buy in U.S. dollars), which in his opinion was one factor that contributed to a corresponding jump in rents and real estate prices. Other factors he identified include increased mortgage lending, profit-driven financial institutions that sought to fuel a speculative frenzy in the market and a lack of comprehensive real estate regulations and land-use policies.
Why is housing overvalued?
It’s all part of a wider socioeconomic picture that began decades earlier, adds Patrick Condon, an author, expert in sustainable urban design and professor at the University of British Columbia.
Throughout North America, since the 1980s, real wages have essentially remained flat while productivity – that is, the measured value of how much a wage earner produces – has doubled, he says.
“It has led to a lot of money that used to go to workers ending up going to investors, and the investor class has got a surfeit of money now. And the globe only has a limited amount of assets,” says Condon, who estimates this amount that has moved from wage earners to the investor class to be in the trillions of dollars.
“So everything’s overvalued now. Stocks are overvalued, gold is overvalued, Bitcoins are overvalued, financial instruments of all kinds are overvalued. And, importantly, the biggest reservoir of investment value is urban land. This is globally, not just in B.C. So when you’re looking at it that way, it’s just a pool of opportunity for investment for everybody.” And it’s not just foreign investors that have benefitted, he adds, as housing investment income has become part of many people’s retirement plans.
Condon believes that the pandemic has only exacerbated this trend, because central banks and other financial institutions have responded to the crisis with a willingness to pour massive amounts of money into the economy to prevent investments and asset classes like real estate from collapsing. This coupled with the efforts of central banks to keep interest rates low and other measures to keep credit flowing has further increased the flood of money going into real estate, which is seen as a safe or profitable option, despite the uncertainty of the pandemic.
“Increasingly people need a place to put their money, right? Like if you have money, what are you going to do with it? You can put it in the stock market, which is a total shit show right now, you can put it into real estate, you can put it in bonds – bonds don’t pay anything, or you can just keep it in cash under your bed, like those are really your only options right now,” says Marc Lee, a senior economist with the Canadian Centre for Policy Alternatives (CCPA).
“So for people who are looking to make money in larger pools of capital, owning a rental building is good because you have this sort of steady stream of income that comes in every month in the form of rent.”
What does this all mean for Nanaimo’s rental affordability?
On a practical level, as investors pour money into real estate, supply diminishes and the value of land skyrockets, along with demand for building supplies and labour.
As demand rises, so do prices, prompting landlords to put properties on the market that they may have otherwise continued to rent, which then creates a tight rental market. As renters are put adrift, they often face rent increases well above inflation as landlords hike rents either in line with the increased demand or to cover their high mortgage payments.
The first part of our investigation into Nanaimo’s rental affordability showed that average market rent for a two-bedroom apartment has increased by 59 per cent in the last five years and shows no sign of slowing down, as wages have stagnated.
Housing prices in B.C. also reached record highs last year, and unit sales across Vancouver Island increased by 80 per cent.
This, combined with an average vacancy rate that has fallen to one per cent in Nanaimo, as estimated by the Canada Mortgage and Housing Corporation, and a pandemic that has constrained the wages and employment of many workers, has created a desperate situation for renters.
This stark rise in real estate and rental prices, along with extremely low interest rates, has only served to attract investors to places like Nanaimo, says Jason Winton, vice president of Colliers Mid-Vancouver Island.
“Definitely the apartment market, the appetite for investment is very strong, especially in a town like Nanaimo, which is kind of coming into its own, in a way, as far as it’s been under the radar for so many years,” he says. “Associated Press ran with an article [recently] about how our population is now over 100,000 in the City of Nanaimo, and I think that got a lot of attention from real estate investment companies and trusts.”
Generally, a real estate investment trust, or REIT, is a company that purchases and manages income producing real estate assets for the purpose of generating a profit for investors, including pension funds. Their real estate assets can include apartment as well as office, retail and even government buildings. Though real estate investment trusts have been around for a number of decades, tax incentives encouraged their growth starting in 2008.
While some REITs have big player investors like the Weston family, other types of private real estate investment groups bring in capital from small-scale “mom and pop” investors who may not have the millions to buy an entire apartment complex, but still want to invest and profit from real estate, explains Winton.
Who are the big real estate investors in Nanaimo and how are they affecting renters?
Out of the mix of REITs in Nanaimo, the largest is Starlight, that Winton estimates has approximately 823 units in their portfolio. They also own thousands of units across the province, including in major cities like Vancouver. The Toronto-based company, dubbed “Canada’s biggest landlord,” say they now own 60,000 apartment units across Canada
Though the attention and investment Nanaimo is attracting sounds positive, some renters have concerns about what effect it will have on affordable housing in the city.
A constituent recently contacted Nanaimo-Ladysmith member of parliament Paul Manly’s office to ask about Starlight’s acquisition of two apartment buildings on Millstone Avenue in Nanaimo, says Laurie MacMillan, Manly’s communications manager. Looking into the company, she noticed the address of the 90-unit complex, called Riverbend Terrace, listed in their portfolio.
The address was related to a case she was familiar with, one in which a local mother and her partner had lost custody of their newborn, but regained it when they managed to find a cheap rental at Riverbend.
“They had to go through a long series of steps with the ministry in order to regain custody, and one of those steps was having a place to live. And that was the place that they lived,” she says. “It concerned me because they’re certainly not the only ones in that situation where they didn’t have stable housing and they had to find it.”
MacMillan says that same couple would not be able to rent at Riverview given the current rental rate there, and that both she and Manly have concerns that poverty and affordable housing can be a factor in apprehending children.
“That housing was really one of the last enclaves of very affordable housing in the city,” she says.
When she moved in three years ago, Riverbend resident Lynne Waldi says her rent was $725 for a one-bedroom suite, but noticed that when the tenant upstairs in an identical unit gave his notice they were advertising his apartment for $1,150.
“It’s not that long for a $400 increase,” she says. “It looks nicer, but not that much.”
Waldi says she was told by the new property manager that they planned to do some renovations, but was not informed that any renters would be required to leave.
“But I know that is one way they can get somebody out,” she said. “It’s kind of shitty, being on eggshells like that, you’re paying your rent and doing everything you’re supposed to do and are still worried.”
In early February, Manly submitted a private member’s motion calling housing unaffordability a “national crisis”, saying that “corporations, numbered companies and real estate investment trusts (REITs) are investing billions of dollars into residential housing stock with the goal of extracting maximum profits” and called on the government to remove tax exemptions on REITs unless they are being used to protect affordable housing units, among other actions.
REITs and Starlight Investments in particular have also recently been the subject of tenant complaints and legal action.
In 2018, more than 100 tenants in four Victoria apartment buildings filed complaints to the Residential Tenancy Branch, citing safety and well-being concerns after years of renovations, which included disturbed asbestos, hallway floors left unfinished for more than a year, tarped-over windows and balconies left without railings.
Renovations are still ongoing, though they are now fairly minor, says resident Dorothy Wood, who lives in one of the Starlight buildings on Douglas Street.
“The developers are pushing it to the limit and it’s generally kind of miserable, but you can tolerate it. At least they’re not jackhammering next door,” she says. She believes the initial renovations, which she describes as noisy, invasive, and lengthy, were aimed at unofficially pushing some residents out.
“They were going for different residents, right? They want to get rid of the old ones and get new ones in there that don’t have any expectations, that’s the way these developers work,” she says. “Raise the rents. Fix the obvious cosmetic things.”
The dispute is now over and a settlement was reached, she adds.
When it comes to renovations of their existing rental assets, Starlight says they seek to look at the condition of the building to see “what enhancements may be required to create the best rental experience for our tenants,” says Josh Kaufman, the vice president of development and construction in Starlight’s Canadian real estate arm. “And that could be anything from renovation of suites, improving common areas, investing into the grounds, whether it’s below grade or on surface, things we can do to better enhance the buildings.”
A representative from Starlight that deals with their existing rental assets could not be reached for comment.
Who is responsible for Nanaimo’s rental affordability crisis?
From an industry perspective, the political focus on REITs is baffling, says Michael Brooks, CEO of the Real Property Association of Canada or REALPAC, a trade association that represents institutional real estate, large real estate companies, large pension fund investments and REITs, among others.
“This real estate investment trust thing is… I don’t know who came up with singling them out,” says Brooks. “But any private sector owner has an incentive to maximize rental income, period. I mean, I don’t know why REITs are picked out of this.”
On this point Finch agrees, saying he’s skeptical of blaming REITs or any other financial vehicle that is just investing in real estate.
“They’re just doing what they’re allowed to do. So, I mean, is the problem what they’re doing? Or is the problem the lack of regulation? In my mind, the problem is always the lack of regulation. Why would you say that this one particular investment vehicle is subject to special restrictions that no other investment vehicles are restricted to?” he says.
“The problem is clearly not REITs, the problem is the lack of government regulation of this entire sector. And it’s a neoliberal ideology that somehow non-regulation produces better market outcomes, which just isn’t true.”
Broadly, Finch says the BCGEU have analyzed the issue and identified a number of measures that can be taken on both a provincial and municipal level to tackle the problem.
“The provincial government bears primary responsibility for the housing crisis. The provincial government could enact vacancy control tomorrow if they wanted to, but instead, they’re just allowing rents to skyrocket,” he says. “There’s a stale logic to this idea that supply is going to fix the problem. But the reality is that only affordable supply will fix the problem.”
The CCPA’s Lee also believes that vacancy control, which ties rent increases to the unit rather than the renter, is a necessary measure to “remove the incentive for these real estate investment trusts to try and sweep in and buy up buildings on the cheap and then clear people out.”
He says we also need a major build-out of affordable housing.“Too much of the conversation is about how we incentivize for-profit developers to build for-profit rental housing. When instead, it’s not rocket science. We’re just assembling some 2x4s here,” Lee adds. “If you can get the land piece together, then it’s actually not necessarily that hard.”
When the BCGEU divested their funds out of fossil fuels in 2014, it was not only an ethical choice, Finch says, but an economic one that effectively doubled the union’s assets within six years.
Their next move was to take a portion of those earnings to purchase 58,000 square feet of land in Burnaby, next to the SkyTrain, where they plan to build a new office space as well as a childcare space and 300 housing units, of which at least 50 per cent will be below-market affordable. Any profits that are made on the project will be recycled into further housing initiatives, and Finch says he hopes the project will prove just what is possible when it comes to affordable rentals.