After being vilified for its plans to buy $1-billion worth of houses in Ontario to rent them out, Core Development Group Ltd. says it now also wants to build new rental houses from scratch.
It has been two years since Core’s founder and chief executive officer, Corey Hawtin, told The Globe and Mail that the company would buy hundreds of detached houses in mid-sized Southern Ontario cities. The plan was to add basement units and turn the houses into rentals.
Mr. Hawtin did not anticipate the ensuing wave of outcry. His company was accused of profiting from rising rents, taking houses away from Canadians and contributing to the pandemic’s surge in home prices. The news added fuel to the debate over the role of real estate investors, and whether properties should be considered assets or homes.
Since then, high mortgage rates have made it much harder for individual buyers to afford their own homes. Higher borrowing costs have kept more people in rentals, which has in turn led to a shortage of those units and a spike in monthly rents. The federal government is now pushing the private sector to create rental-specific apartment buildings, and has reduced development costs with tax breaks and cheaper financing.
Mr. Hawtin says he now sees a chance to build not apartment buildings, but rather single-family homes that are purpose-built for rental, to fill what he characterizes as an unmet need for detached housing in the rental market. The company is under contract on two sites, one in Kingston and one in London. Each location has the necessary permits for up to 250 single-family homes, according to Mr. Hawtin.
“There is a gap in the market,” he said in an interview. People who rent single-family homes, he added, are doing so because they prefer it to the alternatives. “They don’t want to live in an apartment.”
Mr. Hawtin, who comes from a family of developers, founded Core in 2013. The company has since completed five condo buildings and four rental-only apartment buildings in the Toronto region. He expanded into buying detached houses in 2021 after realizing there were no large companies in Canada that specialized in renting out that type of property. The country’s apartment rental vacancy rate has been around 3 per cent since the early 2000s.
Core now owns 550 single-family homes in Kingston, Peterborough, St. Catharines, Sudbury, Sault Ste. Marie and Timmins. The company initially aimed to own $1-billion worth of single-family rental properties, amounting to about 4,000 low-rise units, in medium-sized Ontario cities by 2026. Mr. Hawtin said he now expects that Core will need longer to reach that goal.
“The angry critics that we had last time were mostly those that were frustrated that they couldn’t buy a home. I get it. I sympathize,” Mr. Hawtin said. “We’re not causing that. It’s got nothing to do with what we’re doing. We need more rentals. We need more single-family rentals.”
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Large-scale single-family-home rental operations started in the U.S. after the country’s housing bubble burst in 2007. Private equity giant Blackstone and Canadian institutional investor Tricon Residential TCN-N were some of the deep-pocketed players that bought thousands of houses at fire-sale prices after the housing crash.
Institutional investors, which invest on behalf of others, now own entire U.S. neighbourhoods and make money on the rental income, similar to apartment building owners.
In Canada, institutional investors that run rental home businesses own apartment buildings. Likewise, when developers build rental-specific housing in this country, the properties are typically apartment buildings with hundreds of units. This requires much less land than neighbourhoods with hundreds of single-family homes.
Institutional investors in the U.S. have now in some cases shifted away from buying already-built homes, and branched out into constructing neighbourhoods of detached houses that are designed specifically to be single-family rentals.
Mr. Hawtin wants to do the same in Canada. “There’s an opportunity to bring on that new stock of rentals at scale,” he said.
If Core follows through on its plans to build single-family rentals, it would be benefiting from a downturn in new home building. Some developers have had to postpone or even sell projects because they have been unable to handle higher borrowing and construction costs. “The low-rise developers are not able to sell those homes. So we think there’s an opportunity to bring that sort of scale, scale up the business in that market,” Mr. Hawtin said.
But the plan to build rental-only detached houses depends on Ottawa’s latest new-home-construction initiative: a waiver of the 5-per-cent federal goods and services tax on new multi-unit rental-specific buildings.
To be eligible for the waiver, a development must have a minimum of four units per property. Martin Bégin, a spokesperson for the federal Finance Department, said the waiver would not apply to single-family homes. “This approach will help encourage incremental densification,” he said.
But Mr. Hawtin said the legislation is ambiguous, and that he believes the tax break could apply to four detached houses built on the same plot of land.
If Core does not buy the land in Kingston and London, Mr. Hawtin said, he will continue with his plan to buy detached houses and turn them into rentals. He said there is a lack of awareness of the shortage of single-family rentals in Canada. He called this a “hot button” issue, and reiterated that he understands the opposition to his plans.
“I think the opposition is primarily the people who can’t afford to buy a home and are frustrated. Those critics have a very loud voice and rightfully so. But yeah, I think it’s just overlooked as an asset class that we need,” he said.