In 2015, the UK government made a striking admission: its tax system was “supporting landlords over and above ordinary homeowners.” What followed was a series of tax reforms designed to curb buy-to-let investor demand and rebalance the housing market toward first-time buyers.
Research from the Joseph Rowntree Foundation - a UK social change organization focused on building a more equitable future, free from poverty - finds that these reforms had meaningful effects. Investor purchases declined. More properties were sold out of the private rental sector than were bought into it. And there are now an estimated one million more owner-occupiers than if the pre-2016 trend had continued.
To understand why this mattered, we need to go back to the early 2000s, when the introduction of buy-to-let mortgages helped fuel a surge in landlord activity. Investors increasingly competed with first-time buyers for entry-level homes. After the global financial crisis, mortgage lending tightened, but the burden fell more heavily on young households than on investors with capital and equity. Over time, more homes were purchased by buy-to-let landlords, and fewer ended up with aspiring homeowners.
The UK’s tax reforms changed the incentives. By reducing the financial advantages landlords enjoyed, investor demand cooled. The flow of homes into the rental sector slowed and eventually reversed.
A common argument against restricting investor demand is that it would put upward pressure on rents. If landlords buy fewer homes, the thinking goes, rental supply shrinks and tenants suffer.
But the dynamic is more complex.
Investors create rental supply, but they also create rental demand. Every home purchased by a landlord is one less home available to be owner-occupied, pushing households into renting. When investor purchases declined, more renters were able to transition into ownership. The reduction in rental supply was accompanied by a similar reduction in rental demand.
In Canada, affordability continues to be framed almost entirely as a supply issue. The assumption is that affordability is only about how many homes we build and that who owns those homes, how they’re used, and how they’re financed - whether through household incomes or corporate capital - is basically irrelevant.
Capital flowing into housing is often larger and more responsive than housing construction. Homes take years to plan and build. Capital can move quickly across markets. When housing functions as a low-risk, tax-favoured investment vehicle, demand driven by capital can outpace new supply.
Restoring homeownership for the next generation requires addressing those incentives. That means examining the tax treatment of housing and considering guardrails around our housing market to limit speculative capital from distorting access to homeownership
The UK experience offers a real-world example of how policy choices can influence who gains access to homeownership. The question for Canada is whether we are prepared to make similar policy choices and prioritize housing for Canadian households rather than as a vehicle for speculative investment.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn