Navigating CMHC Multifamily Construction Financing: Opportunities, Challenges, and Market Trends

By James Fields, Real Estate Broker | Multifamily Development & Investment Specialist

In the current economic climate, delivering new multifamily rental housing in Canada is no small feat. Developers are navigating rising construction costs, tighter capital markets, and evolving regulatory landscapes. Against this backdrop, the Canada Mortgage and Housing Corporation (CMHC) is pivotal in bridging the affordability gap and unlocking development potential through government-backed financing solutions. Whether you’re building standard rental housing, student residences, or senior living communities, CMHC programs are often the keystone to achieving project viability.

As a real estate broker and multifamily development specialist, I’ve worked closely with developers, lenders, and investors using CMHC products. In this comprehensive article, I’ll outline the structure of CMHC financing, break down the key opportunities and pitfalls developers face, and share insights on navigating the process effectively.

Understanding CMHC Financing Structures

CMHC offers two primary multifamily financing structures, each tailored to different types of developers and projects:

1. Insurance Certificate Program

CMHC issues a certificate of insurance or guarantee, which is presented to a lender. Based on this backing, the lender disburses funds at favorable rates. This structure is popular for developers seeking flexibility in choosing lending partners and timelines.

2. Direct CMHC Lending

Targeted at larger, institutional-scale developments, this option involves CMHC funding the loan directly with federal capital. While this program typically offers the most favorable terms, it also involves longer approval timelines, more extensive underwriting, and additional requirements around bonding and affordability.

CMHC Programs at a Glance

Apartment Construction Loan Program (ACLP)

• Replaced the former Rental Construction Financing (RCF) initiative.
• Offers low-cost construction loans covering up to 95% of project costs.
• Supports market-rate and affordable housing, including student and seniors housing.
• Structured to de-risk financing by holding back part of the loan until rent stabilization.

Multi-Unit Mortgage Loan Insurance (MLI Standard & MLI Select)

• MLI Select is the evolution of MLI, prioritizing energy efficiency, affordability, and accessibility.
• Offers lease-up flexibility, waiving occupancy thresholds in some cases.
• As of November 2024, mandatory appraisals are now required for all applications, including projects with over 25 previously exempt units.

These programs are central to Canada’s housing supply response. CMHC has committed $20.65 billion under ACLP to date, supporting over 53,000 rental units, with an additional $15 billion allocated for 2025–26 to enable 30,000 new units annually.

Loan Disbursement: Construction Phase & Stabilization

Understanding CMHC’s Loan-to-Cost (LTC) structure is critical for developers:

• During construction, only 70% of the loan is advanced.
• An additional 20% is released post-stabilization, once Rental Achievement (RA) milestones are met.
• This staggered structure mitigates risk for CMHC, but increases upfront equity requirements and developer timeline complexity.

Previously, projects underwritten at 95% LTC required just 5% equity. Under current rules, developers may need to provide up to 20% upfront, a 500% increase in equity outlay. For example, a $50 million build may now demand a $10 million upfront equity contribution, which won’t be recaptured for 3–4 years due to build and lease-up periods.

Project Thresholds and Credit Committee Oversight

Above $75 Million

• Automatic referral to CMHC’s Credit Committee.
• Requires formal bonding, viability assessments, and RA testing.
• Typically necessitates rental guarantees and broader reporting.

Below $75 Million

• Assessed case by case with more flexibility.
• Developers may still face bonding or RA requirements depending on perceived risk.

Bonding: Cost, Purpose, and Risk Management

Bonding plays a crucial role in CMHC’s risk mitigation framework.

• Assures that if a contractor fails or becomes insolvent, a bonding company will step in to complete the project.
• CMHC typically requires:
  • 50% Performance Bonding
  • 50% Labour Bonding
• Applies primarily to key trades.
• Costs developers approximately 2% of total hard construction costs.
• Rarely kills a deal, but it adds complexity and time to the underwriting process.

Rental Achievement (RA): The Deal Killer?

Rental Achievement has emerged as the most contentious hurdle in CMHC financing.

• RA benchmarks must be met before the final 20–25% of the loan is released.
• This includes proving occupancy levels, cash flow stability, and market rent confirmation.
• A developer failing to meet RA standards can result in capital shortfalls, refinancing delays, or higher-than-expected equity holds.

In today’s uncertain market, this dynamic has made some previously viable projects unfinanceable, particularly with elevated interest rates and construction delays.

Economic Headwinds and Market Dynamics

Interest Rate Cuts Offer Some Relief

• The Bank of Canada has enacted seven consecutive rate cuts since mid-2024, lowering the policy rate to 2.75%.
• These cuts aim to alleviate pressure on borrowers, notably the 60% of mortgage holders facing renewal in 2025–26.
• Lower policy rates could also ease the cost of bridge financing and interim equity required for construction projects.

Construction Cost Volatility

• Materials and labour costs remain elevated post-pandemic.
• This disproportionately impacts low-rise and mid-density developments.
• Developers must navigate municipal fees, inclusionary zoning, and environmental regulations, which vary across provinces and municipalities.

Canada’s Housing Gap

• CMHC estimates 5.8 million new homes are needed by 2030 to restore housing affordability.
• Government support alone isn’t enough; private sector capital and innovation in financing structures are essential to meeting this goal.

Liquidity & Refinancing Risks: The 2028–29 Bottleneck

A significant portion of CMHC financing is backed by the Canada Mortgage Bond (CMB) program. But this program faces limitations:

• The CMB pool is shared between personal home loans and multifamily construction.
• CMB capacity is not keeping pace with multifamily demand.
• A wave of refinancing needs is expected between 2026 and 2029, creating a liquidity bottleneck.
• Developers relying on CMHC refinancing must start planning exit strategies, including early rate locks and dual-track financing plans.

Private Capital Sentiment

Private lenders have been largely absent from the multifamily space in recent years due to thin spreads and poor short-term yields:

• Current CMB yields:
  • 5-Year Bond: ~3.07%
  • 10-Year Bond: ~3.58%
  • Spread: ~50 basis points

This narrow spread disincentivizes private participation unless the lender is a long-horizon institution like a pension fund.

Despite this, conventional construction loans—though more expensive and less secure—have gained traction due to faster closing timelines and less restrictive approval paths.

Strategies for Developers: What You Can Do Now

 Leverage CMHC’s Frequent Builder Framework

Expedites approval timelines for repeat, credible applicants.

Consider MLI Select

Ideal for developments with environmental or affordability targets. Offers lease-up exemptions and points-based flexibility.

Monitor Interest Rate Trends

Early rate lock strategies (30-, 60-, 90-day) can hedge against volatility, allowing developers to capitalize on favourable movements.

Use Conventional Loans for a Bridge

Start with conventional financing to get shovels in the ground faster, then transition to CMHC post-stabilization for long-term hold strategies.

Policy Recommendations

To sustain Canada’s multifamily housing growth, policymakers should consider:

• Extending affordability mandates beyond the current 10-year minimum for increased impact.
• Raising loan-to-cost caps to 80% or higher, improving feasibility.
• Enhancing market data transparency to prevent rental data manipulation.
• Expanding CMB capacity to address long-term refinancing needs and avoid a multifamily liquidity crisis.

Final Thoughts

In an era where multifamily project viability hinges on precise underwriting and strategic capital planning, CMHC’s multifamily construction financing remains a cornerstone of Canada’s housing supply strategy. Even amid uncertainty, the upcoming $15 billion funding expansion (2025–26) and evolving product structures represent a rare opportunity for developers to move forward.

But success is not automatic. The most successful developers will engage CMHC early, align their business models with affordability mandates, and anticipate the shifting capital landscape.

Let’s connect if you’re planning a new rental development and need support understanding how CMHC financing could fit into your capital stack.

James Fields

Real Estate Broker | Multifamily Development & Investment Specialist

Trolleybus Real Estate Brokerage

Navigating CMHC Multifamily Construction Financing: Opportunities, Challenges, and Market Trends

By James Fields, Real Estate Broker | Multifamily Development & Investment Specialist

In the current economic climate, delivering new multifamily rental housing in Canada is no small feat. Developers are navigating rising construction costs, tighter capital markets, and evolving regulatory landscapes. Against this backdrop, the Canada Mortgage and Housing Corporation (CMHC) is pivotal in bridging the affordability gap and unlocking development potential through government-backed financing solutions. Whether you’re building standard rental housing, student residences, or senior living communities, CMHC programs are often the keystone to achieving project viability.

As a real estate broker and multifamily development specialist, I’ve worked closely with developers, lenders, and investors using CMHC products. In this comprehensive article, I’ll outline the structure of CMHC financing, break down the key opportunities and pitfalls developers face, and share insights on navigating the process effectively.

Understanding CMHC Financing Structures

CMHC offers two primary multifamily financing structures, each tailored to different types of developers and projects:

1. Insurance Certificate Program

CMHC issues a certificate of insurance or guarantee, which is presented to a lender. Based on this backing, the lender disburses funds at favorable rates. This structure is popular for developers seeking flexibility in choosing lending partners and timelines.

2. Direct CMHC Lending

Targeted at larger, institutional-scale developments, this option involves CMHC funding the loan directly with federal capital. While this program typically offers the most favorable terms, it also involves longer approval timelines, more extensive underwriting, and additional requirements around bonding and affordability.

CMHC Programs at a Glance

Apartment Construction Loan Program (ACLP)

• Replaced the former Rental Construction Financing (RCF) initiative.
• Offers low-cost construction loans covering up to 95% of project costs.
• Supports market-rate and affordable housing, including student and seniors housing.
• Structured to de-risk financing by holding back part of the loan until rent stabilization.

Multi-Unit Mortgage Loan Insurance (MLI Standard & MLI Select)

• MLI Select is the evolution of MLI, prioritizing energy efficiency, affordability, and accessibility.
• Offers lease-up flexibility, waiving occupancy thresholds in some cases.
• As of November 2024, mandatory appraisals are now required for all applications, including projects with over 25 previously exempt units.

These programs are central to Canada’s housing supply response. CMHC has committed $20.65 billion under ACLP to date, supporting over 53,000 rental units, with an additional $15 billion allocated for 2025–26 to enable 30,000 new units annually.

Loan Disbursement: Construction Phase & Stabilization

Understanding CMHC’s Loan-to-Cost (LTC) structure is critical for developers:

• During construction, only 70% of the loan is advanced.
• An additional 20% is released post-stabilization, once Rental Achievement (RA) milestones are met.
• This staggered structure mitigates risk for CMHC, but increases upfront equity requirements and developer timeline complexity.

Previously, projects underwritten at 95% LTC required just 5% equity. Under current rules, developers may need to provide up to 20% upfront, a 500% increase in equity outlay. For example, a $50 million build may now demand a $10 million upfront equity contribution, which won’t be recaptured for 3–4 years due to build and lease-up periods.

Project Thresholds and Credit Committee Oversight

Above $75 Million

• Automatic referral to CMHC’s Credit Committee.
• Requires formal bonding, viability assessments, and RA testing.
• Typically necessitates rental guarantees and broader reporting.

Below $75 Million

• Assessed case by case with more flexibility.
• Developers may still face bonding or RA requirements depending on perceived risk.

Bonding: Cost, Purpose, and Risk Management

Bonding plays a crucial role in CMHC’s risk mitigation framework.

• Assures that if a contractor fails or becomes insolvent, a bonding company will step in to complete the project.
• CMHC typically requires:
  • 50% Performance Bonding
  • 50% Labour Bonding
• Applies primarily to key trades.
• Costs developers approximately 2% of total hard construction costs.
• Rarely kills a deal, but it adds complexity and time to the underwriting process.

Rental Achievement (RA): The Deal Killer?

Rental Achievement has emerged as the most contentious hurdle in CMHC financing.

• RA benchmarks must be met before the final 20–25% of the loan is released.
• This includes proving occupancy levels, cash flow stability, and market rent confirmation.
• A developer failing to meet RA standards can result in capital shortfalls, refinancing delays, or higher-than-expected equity holds.

In today’s uncertain market, this dynamic has made some previously viable projects unfinanceable, particularly with elevated interest rates and construction delays.

Economic Headwinds and Market Dynamics

Interest Rate Cuts Offer Some Relief

• The Bank of Canada has enacted seven consecutive rate cuts since mid-2024, lowering the policy rate to 2.75%.
• These cuts aim to alleviate pressure on borrowers, notably the 60% of mortgage holders facing renewal in 2025–26.
• Lower policy rates could also ease the cost of bridge financing and interim equity required for construction projects.

Construction Cost Volatility

• Materials and labour costs remain elevated post-pandemic.
• This disproportionately impacts low-rise and mid-density developments.
• Developers must navigate municipal fees, inclusionary zoning, and environmental regulations, which vary across provinces and municipalities.

Canada’s Housing Gap

• CMHC estimates 5.8 million new homes are needed by 2030 to restore housing affordability.
• Government support alone isn’t enough; private sector capital and innovation in financing structures are essential to meeting this goal.

Liquidity & Refinancing Risks: The 2028–29 Bottleneck

A significant portion of CMHC financing is backed by the Canada Mortgage Bond (CMB) program. But this program faces limitations:

• The CMB pool is shared between personal home loans and multifamily construction.
• CMB capacity is not keeping pace with multifamily demand.
• A wave of refinancing needs is expected between 2026 and 2029, creating a liquidity bottleneck.
• Developers relying on CMHC refinancing must start planning exit strategies, including early rate locks and dual-track financing plans.

Private Capital Sentiment

Private lenders have been largely absent from the multifamily space in recent years due to thin spreads and poor short-term yields:

• Current CMB yields:
  • 5-Year Bond: ~3.07%
  • 10-Year Bond: ~3.58%
  • Spread: ~50 basis points

This narrow spread disincentivizes private participation unless the lender is a long-horizon institution like a pension fund.

Despite this, conventional construction loans—though more expensive and less secure—have gained traction due to faster closing timelines and less restrictive approval paths.

Strategies for Developers: What You Can Do Now

 Leverage CMHC’s Frequent Builder Framework

Expedites approval timelines for repeat, credible applicants.

Consider MLI Select

Ideal for developments with environmental or affordability targets. Offers lease-up exemptions and points-based flexibility.

Monitor Interest Rate Trends

Early rate lock strategies (30-, 60-, 90-day) can hedge against volatility, allowing developers to capitalize on favourable movements.

Use Conventional Loans for a Bridge

Start with conventional financing to get shovels in the ground faster, then transition to CMHC post-stabilization for long-term hold strategies.

Policy Recommendations

To sustain Canada’s multifamily housing growth, policymakers should consider:

• Extending affordability mandates beyond the current 10-year minimum for increased impact.
• Raising loan-to-cost caps to 80% or higher, improving feasibility.
• Enhancing market data transparency to prevent rental data manipulation.
• Expanding CMB capacity to address long-term refinancing needs and avoid a multifamily liquidity crisis.

Final Thoughts

In an era where multifamily project viability hinges on precise underwriting and strategic capital planning, CMHC’s multifamily construction financing remains a cornerstone of Canada’s housing supply strategy. Even amid uncertainty, the upcoming $15 billion funding expansion (2025–26) and evolving product structures represent a rare opportunity for developers to move forward.

But success is not automatic. The most successful developers will engage CMHC early, align their business models with affordability mandates, and anticipate the shifting capital landscape.

Let’s connect if you’re planning a new rental development and need support understanding how CMHC financing could fit into your capital stack.

James Fields

Real Estate Broker | Multifamily Development & Investment Specialist

Trolleybus Real Estate Brokerage