Everyone is arguing about whether Ottawa and British Columbia will overpay. That's the wrong debate. Ask instead what it means for a household to be outbid by its own government.
The federal and B.C. governments have announced that Build Canada Homes and BC Housing will buy more than 2,200 unsold condo units in British Columbia and turn them into affordable housing.
Almost everyone covering this story has framed it as a bailout.
Pierre Poilievre calls it a transfer of wealth from the have-nots to the have-yachts. The Fraser Institute warns that taxpayers will end up overpaying for homes that nobody wants. Mike Moffatt set the terms most clearly: if the governments pay close to full price, it's fair to call it a bailout, but if they force developers to take a steep discount on homes they were going to build anyway, the plan can make sense.
I understand why the debate has landed here. But it's the wrong debate.
The federal housing ministry has already said the units will be bought below market value. Carney has said Ottawa would put up roughly 10 per cent of about $1.45 billion in potential spending, with B.C. roughly matching that and the rest covered by financing. In a few months, they will stand in front of a microphone and tell us they negotiated hard, they bought below market, in some cases below construction cost, in some cases out of insolvency proceedings.
So let's take them at their word. Let's assume they get the discount they're promising.
The plan is still bad. And the discount is the reason why.
When most of us hear the word discount, we picture a sale. A price marked down, posted publicly, available to anyone who walks in.
A bulk discount doesn't work like that. It gets quoted privately, to a buyer big enough to take everything at once. The rest of us never see it, and wouldn't be offered it if we did.
That's the kind of discount our governments are promising to negotiate.
And look at how they intend to do it. A small amount of public money, a much larger amount of borrowed money, used to buy a portfolio of residential units below market value, in a market the buyer expects to recover.
That's how you assemble an investment fund.
And we already know what these funds look like, because Ontario built one first.
In March, the Building Ontario Fund, a provincial Crown agency, put $300 million into High Art Capital, a private investment firm, to seed a $1.3-billion vehicle to buy unsold GTA condos in bulk. The target is 2,200 units. About 1,650 of them will be rented at market rates, and 550 at affordable rates.
Then in May, Jesta Group of Montreal paid $30 million for nearly all the unsold units in a recently completed building in downtown Toronto, and announced a $500-million program to buy more than a thousand more. Their senior managing director was refreshingly direct about the thinking. Hold the units as rentals, wait three to five years for the market to recover, then sell.
Beneath the deals that get a press release, there is a much larger market that doesn't. Industry researchers count close to 50 private funds and high-net-worth buyers picking up unsold inventory in batches of 40 to 50 units at a time, most of them under non-disclosure agreements. Zonda's Pauline Lierman describes discounts of $100 to $200 per square foot off the list price, which can bring the price down to roughly $800 per square foot.
That last sentence is the whole argument.
A young couple walking into a presentation centre with a pre-approval and a down payment does not get $800 a square foot. They get the price on the sheet. If they negotiate well, they might get a parking spot thrown in.
The $800 a foot goes to whoever can write a cheque for fifty units at once.
That's what a bulk discount pays for. Size.
So when our governments promise they will negotiate below-market prices on 2,200 units, they are not promising to be careful with public money. They are telling Canadian households that the state will buy homes at a price the state is not going to let households buy them at.
And if these units really are being bought below market value, or out of a receivership, then they were on their way to becoming a genuine bargain for somebody. That somebody could have been a household. Instead, the unit gets lifted out of the market before a household can reach it, and dropped into a portfolio.
This is the strongest defence of the plan, so let's take it seriously.
The argument goes like this. These condos are empty because there is no end-user demand at these prices. Government isn't outbidding a household, because there is no household. It's absorbing units nobody wants.
But look at what that sentence quietly assumes. At these prices. Which prices?
Not the price being offered to the government. Not the price being offered to the funds. Those prices have never been shown to a Canadian household. They sit behind a non-disclosure agreement.
So the honest version of the sentence is this: households won't buy these units at the retail price builders advertise to households, while those same builders quietly offer a much lower price to anyone buying fifty or more units at a time.
What we are actually looking at is two prices for two kinds of buyers, and only one of those prices ever gets published.
Ask the real question. If a builder offered a household the same price per square foot it is offering a bulk buyer, would the household take it?
Of course they would.
The vacancy tells us something, but it doesn't tell us these homes are unwanted. It tells us that builders would rather hold out for a bulk exit than cut their price in front of retail buyers. The head of the Urban Development Institute in B.C. said as much himself: some developers have marked to market and reduced their prices, and others haven't.
And here is the thing about not marking to market. You can't do it forever.
Empty units cost money every day. Carrying costs, condo fees, property taxes, interest on inventory loans that lenders eventually stop extending. A builder can sit on a vacant tower for a quarter. Maybe a year. Not indefinitely.
Eventually one of two things happens, and both of them are good for Canadians. The builder cuts the price to what a household will actually pay. Or the builder rents the units out and adds supply to a rental market that needs it.
Bulk buying the units stops both of those things from happening. It gives the builder a third door, an exit at a price that no household was ever shown.
I want to be fair to the builders here. Most of them are taking a real loss on these units, and a government purchase at a deep discount doesn't spare them that.
What it spares them is what usually comes after the loss. The lender calling the loan. The forced sale. The receivership. A price discovered in public, in front of everyone, including the buyers who overpaid in the same building three years ago.
The developer avoids that. And the government walks away holding the discount.
Here is how we got here, and I don't think anyone in this debate wants to say it plainly.
For over fifteen years, our new housing was designed and sold as an investment product. Small units, marketed to investors, financed by investors, and then rented back to the people who were supposed to be buying them. Hundreds of thousands of amateur landlords bought at prices that rent could never justify, on the strength of a single belief: someone will pay me more for this later.
That belief has now failed.
New condo sales in the GTA have fallen to 35-year lows. In the first quarter of this year, for the first time in three decades, not a single new condo project launched in the Greater Toronto and Hamilton Area. Pre-construction buyers are walking away from their deposits because they can't close on values that no longer exist. B.C. has more unsold condos than at any point since the records began in 1990.
This is what it looks like when a market full of amateur speculators finally clears.
And in any other asset class, we would all know exactly what comes next. The professionals show up to buy from the amateurs at prices the amateurs never dreamed of getting.
They're already here. High Art. Jesta. Fifty funds we can't name because of NDAs.
And now, arriving with a press release about affordability, Build Canada Homes and BC Housing.
The amateur speculator is being replaced by the vulture investor. Our governments have decided to become one of them.
Maybe. But we should ask some questions first.
Nobody has defined what affordable means here. Nobody has said where these units will be. Nobody has said for how long they'll stay affordable. The Prime Minister has described a rent-to-own program, which, whatever its merits for a family without a down payment, is not permanent non-market housing. It's a route back into the market, with the government as the middleman, and with the government holding the discount.
And think about what rent-to-own is really saying. We will buy these homes cheaply, and then we will let you buy them from us, eventually, on our terms.
If a household can be trusted to own that unit in five years, why can't it be trusted to own it now, at the same price the government is about to pay for it?
If you want these units to be affordable permanently, then buy them out of insolvency and take them out of the market for good, through a co-op or a land trust or a public landlord that never sells. If you want households to own them, then hand the household the discount instead of putting it on a balance sheet.
What you shouldn't do is buy 2,200 homes at a price Canadians aren't allowed to pay, hold them as an asset, and describe the appreciation as a public benefit.
For years, the housing debate in this country has been about one question. What are we allowed to build?
Zoning. Permits. Development charges. The missing middle.
All of it real. All of it worth fixing. And all of it a very comfortable place to be looking, because it lets us argue about paperwork instead of about money.
The question we've avoided is the one that actually sets the price of a home.
Who is buying our housing, and how are they being financed?
A household buys one home, with one income, at retail, with a mortgage stress-tested against a paycheque. A fund buys two hundred, with leverage, at wholesale, underwritten against an exit five years out. Those two buyers are not competing on the same field, and no amount of upzoning will change that.
Our governments had a real opportunity here. The speculative bid has broken. Condo prices are finally doing something they haven't done in a generation, which is fall toward what working Canadians can actually pay.
That correction is the affordability policy. It's slow, it's painful for a lot of people, and it is finally happening.
Instead of letting it finish, Ottawa and Victoria have decided to step in front of Canadian households in the line, with cheaper money and better terms, to buy the very homes those households were about to be able to afford.
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