The country's five largest publicly traded apartment landlords, with a suite count of more than 120,000, have launched a public relations offensive to promote the industry in the face of calls for real estate investment trust taxation from the Liberal federal government.
Canadian Rental Housing Providers for Affordable Housing, which has created the website ForAffordable.ca, includes the five largest REITs in the country by market capitalization: Ottawa-based Canadian Apartment Properties, Calgary-based Boardwalk, Halifax-based Killam Apartment, Ottawa-based InterRent and Ottawa-based Minto Apartment.
"Canada is experiencing the worst crisis of housing affordability and supply in a generation. Put simply, there just haven't been enough new homes built to match the country's population growth. That is making housing less affordable for an increasing number of Canadians," said Mark Kenney, president and chief executive of CAPREIT, in a statement announcing the new group.
"Governments across Canada are looking for solutions to this historic challenge, but some of the discussion around solutions has been driven by misperceptions about how REITs do business," he added.
In 2017, the federal government, through its national housing strategy, created a $72 billion, 10-year plan to try and create more housing across the country, which critics have charged cannot keep pace with immigration now scheduled to be boosted to 500,000 newcomers per year.
The governing Liberals under Prime Minister Justin Trudeau have also talked about "excessive profits" in the rental housing industry and suggested they will review the tax treatment of corporate owners, which some have said could result in the elimination of REIT status. Nothing has happened to that tax status to date.
In an interview with CoStar News, Kenney said the five REITs got together to discuss what they saw as misinformation amid attempts to blame them alone for the housing affordability crisis.
"We realized there was a massive gap between government understanding and reality of what we are doing," said Kenney. "We had never engaged with the federal government and unfortunately a narrative had made it to Ottawa before us suggesting apartment REITs were somehow responsible for the affordability problem in Canada."
REITs qualify annually for an exemption based on specified investment flow-through, or SIFT, rules and do not pay tax on income earned from their Canadian property holdings. Distributions are payable in the hands of the unitholder.
The five big REITs note they are majority owned by Canadians, including small investors' retirement accounts, and control only 3% of the total rental market.
Among their contentions is that more than half of their 120,000 suites are rented at rates that meet the government's definition of affordable: less than 30% of the local median renter household income.
"Increasing taxes on residential rental REITs would weaken the supply of affordable housing," said the group, which calls for maintaining the existing tax treatment.
They are also calling on more income support for Canadians by expanding the Canada Housing Benefit to help more families and introducing an emergency support benefit to prevent homelessness.
Their campaign comes with pressure on the rental housing market heating up as more Canadians are pushed out of home ownership because of the cost of rising interest rates.
In its latest report, Rentals.ca said rents surged across the country in October by 11.8% from a year ago to a monthly average of $1,976. Rents have climbed steadily after hitting a national low of $1,676 per month during the pandemic in April 2021.
"We don't have a land problem in Canada, we have lots of cheap land. We have more than the U.S. does," said Kenney, in the interview. "The number one driver of affordability problems in Canada is land. We have a finite amount of [unserviced] multifamily land."
Kenney said the problem is the lack of municipally serviced land across Canada and he believes the answer is what is called municipal utility districts, or MUDs.
"Dallas has 52 of them. They are completely built by the private sector and handed over to municipalities when they are mature and built at a third of the cost," said Kenney, noting the position has not been endorsed by the five REITs. "In Canada, the government are the only ones who think they can build housing."
Rising interest rates are affecting the valuation of CAPREIT, which traded as high as $60 in 2020 and is around $43 today, but Kenney said the tax threat is also a drag.
"If they change the tax structure, why would we remain REITS," he said, suggesting they would go private. "Why stay in a disadvantaged structure? The public markets are a source of capital. Real estate is one of the most capital-intensive businesses out there. If the government wants to turn off a primary source of capital for building in this country, I would suggest this is the wrong time."