REMI
rental housing development

Canada’s rental development efforts

How have new federal grants and measures impacted supply?
Monday, February 3, 2025
by Erin Ruddy

The disparity between housing demand versus available supply in combination with historically high immigration rates has created ongoing challenges for the Canadian housing market. As per Scotiabank’s 2024 housing poll, the number of Canadians between 18 and 34 who own a home has declined to 26 per cent today from 47 per cent in 2021. While the Canada Mortgage and Housing Corporation (CMHC) has forecast 2.3 million new housing units by 2030, true affordability would require an additional 3.5 million homes. Currently, the most significant housing supply gaps are in Ontario and British Columbia, with Quebec and Alberta also expected to fall short.

“Complex problems are rarely solved by simple solutions,” says Kerri Byers, Associate Director, Valuation Advisory at Altus Group Altus Group and one of the analysts involved in the report. “Canada’s housing shortage is a multi-faceted issue that requires input and cooperation from all levels of governments, the public and private sectors. The cost and availability of capital, the sentiment of investors, and the cost of development also play a role in the country’s ability to meet its housing targets.”

Meanwhile, as homeownership continues to evade more and more Canadians, putting additional demand on the rental market, purpose-built rental development has become a larger focus for developers and the government. Some of the recent policies aimed at increasing the rental supply include tax incentives, construction loan programs, and grants. In April 2024 the federal government announced a $15 billion top-up to the Apartment Construction Loan Program (ACLP) along with reforms and the launch of Canada Builds, a ‘Team Canada’ approach to building affordable homes on underutilized lands across the country.

In July, CMHC also launched the Frequent Builder framework, which promised to accelerate the construction of affordable and new rental homes by expediting the application process for established housing providers who rely on the Affordable Housing Fund (AHF) or the ACLP for funding.

“These rental-focused initiatives appear to be generating momentum across the market, as purpose-built rental construction starts represented 47 per cent of all housing starts in Canada’s six largest Census Metropolitan Areas (CMAs) in 2024,” Byers notes.

In December, Ontario Liberal leader Bonnie Crombie revealed her housing plan, which includes a “phased-in” rent control measure, in addition to the promise of resources to clear the backlog of disputes waiting for review by the Landlord Tenant Board. Crombie also intends to establish an emergency-support fund for tenants to mitigate evictions by providing short-term, interest-free loans for renters facing financial emergencies.

In November, the federal government announced upcoming enhancements to the ACLP, which provides low-cost loans to support the construction of new rental housing, including affordable, senior, and student housing. The program prioritizes projects that meet specific criteria related to affordability, sustainability, and social outcomes, and offers loans ranging from a minimum of $1,000,000 up to 100 per cent of the cost of the residential component of a project. The CMHC’s Multi-Unit Mortgage Loan Insurance program (MLI Select) works in coordination with ACLP to provide mortgage loan insurance for multi-unit rental housing projects with reduced premiums and longer amortization periods based on commitments to affordability, accessibility, and sustainability.

“While ACLP provides much-needed funding that makes rental development possible, MLI Select offers mortgage loan insurance with better financing terms for the project,” Buyers says. “In simple terms, ACLP helps projects get the green light, and MLI Select helps ensure projects remain financially viable over time through insurance incentives. By leveraging both programs, developers can benefit from comprehensive support throughout the lifecycle of a rental housing project, from construction to long-term financing.”

As of September 2024, CMHC has committed $20.65 billion in loans through ACLP to support the creation of more than 53,000 purpose-built rental homes. The recent enhancements to this program are as follows:

  • New scoring metric: Similar to MLI Select, ACLP is now on a points system based on affordability, energy efficiency, accessibility and social outcome scoring.
  • Program extension: The ACLP has been extended from 2027-28 to 2031-32
  • Expanded eligibility: The program now includes on- and off-campus student housing and independent seniors housing
  • Removed minimum requirements: Minimum requirements related to accessibility and energy efficiency have been removed. Instead, applicants are encouraged to make stronger commitments to desired rental supply and social outcomes.
  • Enhanced appraisal requirements: Previously, applications for multi-units over 25 units did not require an appraisal. Now, appraisal reports must be produced in accordance with the applicable industry standards, contain three market valuation methods, and have an effective valuation date within 12 months from the application submission.

Essentially, by combining the low-cost CMHC loans with the insurance incentives from MLI Select, Altus Group purports that developers can significantly reduce their financing costs and improve the overall financial feasibility of their projects.

“These measures collectively help make rental housing projects more viable and attractive, ultimately contributing to an increased supply of affordable and sustainable rental housing in Canada,” says Byers. “However, they do not address the other pressures experienced by developers in the past year, including volatility in construction costs, the high cost of land for development sites, municipal fees and development charges, and increased operating costs. All of these factors combined produce a project pro forma that can ultimately make or break its feasibility. The CMHC’s financing programs, while impactful, are a single factor in the development pro forma.”

 For more info on rental housing development in Canada, visit: Building Solutions – The Impact Of CMHC Loans On Canada’s Rental Development Efforts

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