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What Core Group's plan to buy houses means for London ON real estate

The Globe and Mail recently reported that Toronto developer Core Development Group Ltd. plans to buy $1 billion worth of single-family homes across Ontario and turn them into rental units. The plan seems to have touched a nerve and caused a storm of controversy, with critics claiming it will make housing even more unaffordable.


Given that Core Group plans to focus a lot of its home purchases on mid-sized cities in Southwestern Ontario -- including London and Cambridge -- this is an especially important topic for the region. So what will Core Group's foray into single-family homes mean for renters, home buyers, and sellers in London, Ontario and throughout Southwestern Ontario?


We'll take a look at some of the criticisms of the plan, but also how there may be some unexpected benefits in terms of housing affordability.


How Core Group's plan may make homes more costly


Housing affordability has become a major issue throughout Canada, but especially in mid-sized cities in Southwestern Ontario. In London, ON, for example, home prices have soared by about 50% over the past year. The surge has made the dream of owning a single-family home unattainable for many Canadians.


So, when Core Group announced it was going to buy $1 billion worth of single-family homes in Ontario, it's no surprise that people reacted strongly to the news.


The main criticism of the plan is that by buying up so many homes in already overpriced cities, Core Group will be reducing the overall supply of single-family homes. That, in turn, will mean fewer houses for sale to meet the already high demand, which will translate to even higher home prices.


Other critics claim that large corporations like Core Group will drive out mom-and-pop landlords and raise rent prices for tenants. Because a company like Core Group has deep pockets to invest in renovations, it can more easily find ways to raise rent prices than a smaller landlord would be able to.


Why Core Group may not hurt housing affordability in Southwestern Ontario


While some of the criticisms of Core Group's plan are legitimate, there are some holes in the arguments. Many analysts argue that Core Group's entry into single-family rentals won't have any impact on housing prices in London, ON, and elsewhere -- and could even help make housing more affordable.


For one, while Core Group hasn't released details of which houses they plan to buy, the cities they are targeting tend to all have large student populations. This suggests that they may end up focusing on buying homes that are already owned by mom-and-pop landlords that are being rented to students.


If that's the case, then Core Group's plan won't have any impact on housing supply. It'll just mean that instead of dealing with small-scale landlords, renters will be interacting with a corporation. That might work better for some, less so for others, but it won't make much of a difference on housing affordability.


Could Core Group make renting in London, ON cheaper?

Core Group also argues that it plans to divide each house it buys into two rental units (i.e., one upstairs and one basement unit). That would double the supply of rental housing available for families at a time when finding affordable homes that are large enough for families is incredibly challenging.


Like it or not, buying a house is now so unaffordable that many families have no choice but to rent. The fact that Core Group's plan will mean more rental supply for those families will at least give those families the opportunity to live in a nice detached home for a relatively good price.


And while it's true that a large corporation like Core Group is able to invest money into upgrading homes and increasing rents, that upward pressure should be offset by the fact that the plan is increasing the overall supply of rental units.


Besides, is investing in upgrading rental units really that bad of a thing? Surely we want families to be able to live in quality homes and not just cheap ones!


How the Core Group plan may bring down house prices in Southwestern Ontario


Many analysts believe that Core Group's plan won't increase house prices in Ontario -- and there's a smaller group of analysts who think that it could ultimately make housing more affordable, not less. That's because by bringing more rental units onto the market, Core Group could help make renting a single-family home more affordable in cities where there is currently a lack of supply in such rental units.


In turn, that could mean that people who would have been homebuyers may instead decide that renting is more feasible. With fewer buyers in the market, there is less pressure on home prices, so overall housing becomes more affordable.


While that theory may sound far-fetched, it's actually proven itself out in other cities. Montreal, for example, has managed to avoid the very worst of Canada's housing crisis, despite attracting high numbers of immigrants and generating a booming economy. While there are many factors at play for why that is, most economists agree that the fact that Montreal has a higher percentage of renters than any other large city in Canada helps keep the overall housing market from getting too overheated.


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