The Liberal government’s latest plan to increase the supply of rental housing involves expanding a program that helps developers secure cheaper mortgage rates. As interest costs rise and impact the feasibility of new projects, the government aims to mitigate these challenges.
Yesterday, Finance Minister Chrystia Freeland announced that the federal government is raising the annual limit for the Canada Mortgage Bonds program from $40 billion to $60 billion.
Through the Canada Mortgage Bonds program, builders can secure loans that are guaranteed by the federal government. This reduces the risk for lenders, allowing them to offer financing at interest rates one to two percentage points lower than market mortgage rates.
By expanding the availability of affordable financing, the government estimates that Canada’s housing stock could see an additional 30,000 rental units built each year.
To qualify for the bonds, developers must be working on purpose-built rental projects with five or more units. According to Freeland, the expansion will take effect immediately and will not have a fiscal impact on the government’s books.
“We’re just adding some juice to a program that already exists,” Freeland explained to reporters.
“We don’t have to invent new things. We simply will have more financing available for a program which we know already works and is already playing an essential, even fundamental role in the multi-unit rental construction market.”
There are no specific quotas for including affordable or below-market rental units in the proposed projects that will receive the bonds.
This expansion of the Canada Mortgage Bonds program follows the government’s recent decision to eliminate the GST on new rental apartments. These measures aim to incentivize builders to embark on projects that may otherwise not be financially viable due to rising construction costs.
Housing Minister Sean Fraser highlighted the increased costs of land and materials that developers are facing. Coupled with rising interest rates from the Bank of Canada, builders have had to pause some projects until they secure financing.
The government’s measures, such as the GST rebate and the expansion of the Canada Mortgage Bonds program, aim to reduce construction costs and encourage builders to proceed with their projects. On multi-unit projects worth over $100 million, a savings of one to two percentage points in interest rates throughout the project’s lifespan can amount to “millions” for builders.
“We’re seeking to change the financial equation for homebuilders, influencing them to say yes to projects that have been put on hold due to the current more expensive landscape of operation,” stated Fraser.
Freeland cited Dream Unlimited Corp.’s announcement on Monday that they would build 5,000 rental units across Canada as evidence of the impact of the Liberal government’s housing strategy in addressing the housing gap.
The Canada Mortgage and Housing Corp. recently reiterated its projection that the country will face a shortage of 3.5 million housing units by 2030 to restore housing affordability.
The proposed GST rebate is part of the Liberal government’s Bill C-56, which was officially introduced last week and is currently being debated in the House of Commons.
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