The vast majority of new purpose-built rental housing in Canada relies on CMHC-insured loans to make them financially feasible. In 2024, CMHC estimated that their construction financing programs backed an estimated 88% of new rental starts across the country.
But anyone in the industry will tell you that the terms in which these loans are made available to developers are constantly changing. And I think it's pretty clear that many of the changes being made are intended to push, maybe force, developers into building some percentage of affordable homes as part of their projects.
At the political narrative level, this makes sense: Canada needs more affordable housing. But it's important to remember that homes pegged to below-market rents are not financially feasible to build on their own. So, unless equivalent subsidies are being somehow provided, the remaining market-rate homes will be forced to shoulder the additional costs.
We talk about this a lot on the blog (see inclusionary zoning posts), and I don't see it as an equitable solution. But there's also the problem of it further choking off new housing supply. And my sense is that that's exactly what is happening. It's only getting harder to underwrite new rental housing — certainly in cities like Toronto.
This will have the opposite effect on overall affordability. It also increases the probability that my supply predictions will prove roughly correct. I can't see a world where new rental supply is able to step up and fill the gap being left by new condominiums, a large portion of which was serving as new rental housing.
Toronto is on a path toward a severe housing shortage, and it's very hard for the private sector to do much about it in the current market environment. When that will change remains to be seen.
Cover photo by Darren Richardson on Unsplash
The state of Utah is trying to build 35,000 starter homes over the next five years. Last year, $300 million was allocated to something known as the Utah Homes Investment Program (UHIP). The initial idea was that these funds would be provided as low-cost deposits to financial institutions so that they could, in turn, offer low-interest loans to homebuilders who committed to building single-family starter homes.
But this didn’t go as planned. Apparently, the low-cost deposits weren’t low enough to compensate for the perceived lending risk. So Governor Cox asked if the funds could instead be directed to the Utah Housing Corporation. Enter the Condominium Construction Loan Program. The way this newly created program works is that UHC can now provide low-cost loans — up to 100% LTC — directly to developers.
However, there are some stipulations:
Warrantable projects: The projects must be warrantable to the Federal Home Loan Mortgage Corporation, meaning the property and the individual condominium units need to be eligible for conventional mortgage financing.
Owner-occupancy requirement: The individual condominium units must be sold to an owner-occupant, with a recorded deed restriction in place for a period of not less than five years. This is obviously to stop investors from buying and reselling.
Equity sharing: The equity appreciation on the condominium unit is shared between UHC and the first owner-occupant. The homeowner earns 75% of the equity appreciation (15% per full year of occupancy, through five years), with the balance going to UHC upon sale of the unit.
So it’s a trade-off: buyers get access to new homes at below-market pricing (because the developer’s cost structure is reduced), and in exchange, they give up some of the potential upside. Will it work and help Utah achieve its starter home goal by 2030? I don’t know. But it’s clear recognition that if you want to deliver below-market housing, you need to provide subsidies.
The Missing Middle Initiative, which is a research group housed at the University of Ottawa's Institute for the Environment, just published this detailed report on Southern Ontario's housing affordability crisis.
As we know, things are not good: In 2005, 21 of 26 single-family house markets in Southern Ontario could have been classified as either affordable or deeply affordable for middle-class families, and none were unattainable.
Today, none of these markets can be considered affordable or deeply affordable, and 11 of them are now unattainable. In every single one of these markets, buyers should expect to pay 25% or more of their pre-tax income on mortgage payments.
Below is one of their charts showing the price-to-income ratios for single-family houses in various markets since 2005. Outside of the Greater Toronto Area, the turning point toward worsening affordability was generally in 2016, and the peak was in 2022.
Here's some historical context. Canadians who had mortgages in the late 70s and early 80s often like to talk about how crippling rates were back then. But interestingly enough, monthly payments — relative to wages — are actually worse today than they were during this high-rate period (according to the report).
This is partly because home prices were a lot lower back then and so high rates didn't have the same impact to mortgage payments. Instead, the two worst periods of time for affordability (payments relative to wages) were during the late 80s housing boom and then during/after the recent pandemic.
Following the real estate crash of the early 90s, monthly payments relative to wages declined along with home prices. And they didn't return to the same levels seen during the preceding boom until 2022 — some thirty years later.
The same thing is happening right now. This reset is naturally improving affordability. But it really should be viewed as an opportunity to course correct before the next cycle begins. MMI's report does a good job explaining that housing is objectively less affordable today than it was for prior generations.
Charts from the Missing Middle Initiative; cover photo by Victor Ballesteros on Unsplash