Housing and profit

Hey there, time traveller!
This article was published 29/01/2024 (951 days ago), so information in it may no longer be current.

Sean Fraser, the minister of housing, infrastructure and communities, should visit the website of the Mainstreet Equity corporation to get further insight on how the federal government is supporting the financialization of housing and the displacement of low-income renters in our country.

On its website, Mainstreet unabashedly promotes how the federal government’s Canada Mortgage and Housing Corporation (CMHC) is a key element of their business model that is based on displacing low-income renters with higher income tenants.

This business model has been very effective. Mainstreet went public on the Toronto Stock Exchange in 2000 growing from 272 units, with a market value of $17 million, to over 17,000 units in 2023, with a market value of over $3 billion.

The company’s website describes how Mainstreet uses CMHC insured mortgages to finance its business model.

“After renovation, suites are repositioned in the market at higher rents. With the increase in rental income and reduction in vacancy and operating costs, cash flow increases significantly. That presents an opportunity for us to refinance the property with higher principal under long-term, CMHC-insured mortgages, typically resulting in the recovery of the entire capital expense and original equity investment. The funds raised through refinancing are used to acquire further under-performing assets, resulting in the continuous cycle of the Mainstreet value chain.”

The financialization of housing is a well-documented process whereby financial actors with large amounts of money, such as private equity firms or Real Estate Investment Trusts (REIT), use housing as a financial instrument for profit. Total assets of Canadian REITs grew from $80 million in 1993, to $4 billion in 1998, and to $75 billion today, an indication of how they are transforming the rental housing sector.

Large well-financed corporations make en masse purchases of affordable housing which they deem as “undervalued.” These acquisitions are then repositioned as rental accommodations with higher rents.

Displacing tenants is central to this business model. The biggest revenue gains are made from replacing low-rent paying tenants with higher paying ones.

In the spring of 2023, Mainstreet purchased the largest seniors non-profit housing building in Manitoba, the 287-unit Lions Place facility. It was the very first time in the history of the company that it acquired a non-profit housing building.

As non-profit housing organizations are faced with the challenges of the end of 35-year rent-geared-to-income social housing operating agreements with the federal and provincial governments, this growing vulnerability will be a lucrative market niche for financialized landlords.

A case in point, the 35-year federal operating agreement expired in 2018 at Lions Place, which put the building at risk without further government operating subsidy support.

The Free Press recently obtained a copy of Mainstreet’s latest shareholder quarterly report and published an article that indicated “profits from the Winnipeg assets of the Alberta real estate firm that bought Lions Place have soared by more than 260 per cent.”

Based on Mainstreet’s stated business model, we can expect they will apply to CMHC to refinance their recently acquired Lions Place facility as this allows them to recover capital expenses and original equity investment for this property.

In 2023, the former Progressive Conservative provincial government provided Mainstreet a $1.2-million subsidy for the next two years to top up rent paid by seniors who lived in the building prior to the change from a non-profit seniors housing complex to the for-profit Mainstreet building. Yet another example of corporate welfare in action.

The role of government should be to protect renters from the financialization of housing which results in the displacement of fixed-income tenants and undermines initiatives to increase the housing supply for low-income households. CMHC’s current practice of providing long-term mortgages to these financialized entities is a policy direction that is at cross-purposes with the priority of the federal government to expand housing for low-income renters.

The Financialization of Housing in Canada report, published by the federal government’s Office of the Federal Housing Advocate in June 2022, had a wide range of recommendations to address the negative impacts of the financialization of housing.

One of the key recommendations was that CMHC-backed lending to financialized landlords should be stopped.

Along with visiting Mainstreet’s website, Fraser should read his government’s commissioned report and stop enabling the displacement of low-income renters in our country.

Tom Simms is a family member of a current long-time resident of the former Lions Place.