A sober look at Canadian real estate.
Plus a few words on CAPREIT.
Happy new year everybody! I got a nice subscriber boost over the holidays. It seems some of you have pitched Fallacy Alarm to your friends and family. I am grateful for that! Word of mouth is the most powerful marketing tool for digital content. The more this grows, the more viable it will be. Thank you! I will keep trying to live up to your expectations in 2026. :)
TLDR Summary
“There is a housing shortage in Canada”. That’s a common urban myth that falls upon further investigation. A shortage can only qualify as such if there is financially potent demand that can actually absorb new supply if it was offered. Home prices and asking rents are falling in Canada right now indicating there is too much of it, not too little.
Several factors have converged to enable this glut to form. Population growth has slowed down substantially. Speculation has misaligned supply and demand due to two decades of prolific price appreciation. Erratic monetary policy has rug pulled investors and spoiled their appetite to lever up again after rate cuts. And the government has launched an outright war on homeowners and landlords to score political points.
However, this is in my opinion not a reason to stay away from this asset class. At scale, housing is a commodity. Renters need A home, not THE home. And history proves that buying into a commodity is best done during gluts, not during shortages.
CAPREIT is a curious case in this context. Its operating performance continues to be solid in spite of the brutal macro backdrop. Yet, its valuation has collapsed. It’s now trading at a 35% discount to its NAV. At 14x FFO, it’s trading at a 34% discount to its average valuation during the last eight years.
The original idea
Almost three years ago, in May 2023, I published the piece below on Canadian Apartment Properties Real Estate Investment Trust (CAPREIT).
