Housing development costs underscore the central role that investors play in the market, according to analysts
Investors are an increasingly important component of resolving Canada’s perennial housing supply issues, according to industry commentators Murtaza Haider and Stephen Moranis.
Their contributions would be particularly vital amid the Canadian population’s boom, which grew by as much as one million last year.
“The increased demographic pressure will likely worsen housing affordability unless significant investments are made in building new and maintaining existing housing,” Haider and Moranis said in an article for the Financial Post.
Despite some scepticism over their positive impact, “housing investors are critical for the health and growth of housing stock,” the analyst duo wrote. “For one thing, large-scale housing developments may not be possible without them because they provide the risk capital for the prolonged period when housing is being built.”
The extended development timelines in red-hot markets like Toronto make the active presence of investors even more crucial.
“A typical condominium takes years to build and plan,” Haider and Moranis said. “Construction may take another two to five years. A potential buyer may have to wait five years or more to set foot in a completed dwelling after making the initial deposit.”
The costs involved further underscore the central role that investors play in the market.
“New housing construction is a capital-intensive process requiring hundreds of millions of dollars in investments,” the analysts said. “If investors are excluded from the process, there aren’t many others ready to step in with the money needed for construction, the necessary risk appetite (some construction may not start or be complete on time or on budget), and the patience to wait for years.”
Canadians should thus refrain from condemning investors as the bane of housing supply, Haider and Moranis argued.
“Taking investors out of the construction equation will further slow the already sluggish rate of new housing supply, eventually hurting the same people the investor-bashing housing advocates say they want to help. The road to hell, they say, is paved with good intentions.”
