There’s a theory of housing that says the problem we’re facing is fundamentally not a lack of homes
or restrictions on building and density. Instead, we face a scourge of investors who buy homes not
to live in but to rent out, taking away options from aspiring home buyers and forcing them into
renting. As one comment on our channel argued, “the investors are the prime cause of this
housing crisis lets stop the gaslighting and verbal gymnastics”. What we really need, then,
is to encourage homeownership and clamp down on investors who outbid first-time-homebuyers. “Take
out the demand from investors and you have more than enough supply. Which drives costs down.”,
according to another commenter on one of our videos. Well, clamping down on investors is
exactly what Rotterdam in the Netherlands tried to do — here’s how it turned out.
In 2019, almost 20% of homes in the Netherlands were bought with the intention of renting them
out, climbing to around 30% in major urban areas. In 2021 the Dutch government introduced a law
allowing municipalities to ban buying a home to rent it out, in order to give regular homebuyers
a leg up over investors. Rotterdam was the first major municipality in the country to make use of
this option, applying it to 16 of the city’s 71 neighbourhoods, covering about a third of the
population of the city, mostly just outside of the city centre where investor activity was higher.
That’s an opportunity to study the effect of the law by comparing what happens in regulated
neighbourhoods after the law takes effect with nearby neighbourhoods where the law doesn’t apply.
Here’s how Rotterdam explains its purchase protection or buyout protection policy,
which applies to houses and apartments with a tax-assessed value under 405,000
euros: “Many people who want to buy a house cannot. This is because there are investors
who want to pay more for the same house. And start renting them out for a lot of money.
Rental houses are often only rented out for a short time. Neighbors often do not know each
other at all and that is not a pleasant way to live. This [policy] will give people more
chances to buy a house for a reasonable price. For example, people who are buying a house for
the first time or people who do not have that much money.” How well did it work? We actually have two
studies here. Both studies looked at the effect of the policy on home prices. With investors out
of the way, do home prices fall to become more affordable? Both studies found the same result:
no. At least in the year or so after the policy came into effect that they had data for,
kicking investors out of these neighbourhoods did not seem to bring prices down for homebuyers.
The second study went further and looked into other effects of the law. While it
didn’t reduce the price to buy a home, it did increase the homeownership rate and decrease
rental availability. This raised rents by 4% in Rotterdam and changed the demographics of the
regulated neighbourhoods. With more homeowners and fewer renters, these neighborhoods started
to shift to become older, wealthier, and more likely to be native-born Dutch instead
of immigrants. In other words, trying to limit investors seems to have encouraged
gentrification! The study concluded: “While the ban-induced shift in purchases from investors to
owner-occupants has enhanced homeownership access for middle-income households,
it has curtailed housing opportunities for lower-income renter households.”
It feels like we see articles every few weeks about how much of Canada’s housing stock is
bought by investors, followed by a long list of commenters explaining that there’s no point
in building more housing if it’s just going to get scooped up by investors as part of
their portfolio instead of being a place to live for regular people. There are multiple problems
with this. First, new housing developments do usually come with significant opportunities for
ownership. This census tract covering Yaletown in Vancouver is 54% owner-occupied; this census
tract covering most of CityPlace in Toronto is 39% owner-occupied; and this census tract
in Griffintown in Montreal is 55% owner-occupied. These are all relatively new developments that
people associate with “investors” that provide owned homes for literally thousands of families.
The second and maybe bigger problem is that people talk about investors “taking homes
off the market” as if they make housing disappear and rentals don’t really “count”
as housing. The problem is that, on top of the reasons someone might actually prefer to rent,
like not worrying about maintenance, keeping the flexibility to move, or not wanting to tie up so
much of their money in one illiquid asset in one housing market, rentals are actually
really important for making housing accessible to people who just aren’t in a financial position to
own. As we saw in these Rotterdam results, laws that encourage homeownership and reduce
the availability of rentals don’t necessarily open up homeownership to lower income people.
They can have the effect of excluding lower income people and pushing them out.
The scary thing is that this isn’t always unintentional. There are absolutely lots of
people who identify “investors” as the source of the housing crisis out of a genuine concern
for regular people and first time homebuyers. But we’ve also followed enough public consultations on
new housing policies and developments to know that there’s a really pervasive anti-renter
sentiment out there. [“I’ve seen cities of renters and it’s ugly.”] A lot of people are
genuinely excited at the prospect of using the law to exclude renters — who are on average younger,
lower income, and more likely to be immigrants — from their neighbourhoods. There’s a thin and
blurry line between anti-investor sentiment and anti-renter sentiment. A lot of the rhetoric
about how “we need housing for people, not investors” is, intentionally or not,
sending the message to renters that because they don’t own where they live,
they don’t really live in a home, they live in someone else’s investment.
Whenever we stress the importance of rentals, we get people responding by saying that “ok,
maybe rentals are useful, but the private rental market is exploitative; rentals should
be provided by governments and nonprofits”. And we completely support a greater role for non-profit
and non-market housing. But you achieve that by actually funding and building non-profit housing,
not by limiting the private rental market and hoping things will work out. In the end,
this was just a couple of studies on one country’s policies. It’s possible that other laws designed
differently could have a different effect, or that we’ll learn more about the effect of this
Dutch policy in the coming years. But right now we think it’s much more productive — and less likely
to have unintended consequences on lower-income renters — if we focus on building more housing,
both market-rate and non-profit, instead of trying to shift housing around from renters to buyers.
We actually agree that the mindset of housing as an investment can be extremely corrosive,
but it’s important to be clear what we mean. We can think about three main ways to make money
from housing. You can make money from building housing, from renting it out, or from simply
owning it and seeing its value appreciate. As far as we’re concerned, that’s the order from most
productive to least socially useful. The idea that a person or company would make money from
building housing doesn’t bother us at all. NIMBYs sometimes decry allowing more housing construction
as a “giveaway to developers” but that’s like saying that allowing land to be used for farming
is a “giveaway” to farmers. They’re creating something that people want and need, isn’t
that the best way to make money? One step down is renting out housing. You’re not necessarily
creating anything new, physically speaking, unless you actually financed the construction.
But by renting it out you are making the housing available in a different way,
to people who don’t want to buy or aren’t able. Landlords can have a lot of power over people
and we need strong tenant protections to keep them accountable, but as the Rotterdam study indicated,
rentals are in fact important to make housing accessible to younger people,
people with lower incomes, and people with an immigrant background. Finally, the least socially
useful way to make money from housing is just owning it and seeing its price go up, because the
value doesn’t come from anything productive that you did, for the most part. Even worse, wanting to
(quote-unquote) “protect your investment” can be actively counterproductive if it leads to fighting
against new housing or trying to legally exclude less wealthy people from your neighbourhood.
The pervasive idea that owning housing should be a good investment that should be protected,
supported, and encouraged by government policy is one of the most destructive ideas of our time,
whether it comes from the multiple property owning class or individual homeowners.
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