Policy changes will boost rental stock, but only years from now

The federal government's expansion of the Canada Mortgage Bonds (CMB) program will help bring more rental housing onto the market, experts say, although it will be years before the supply comes online.

Finance Minister Chrystia Freeland announced last week that the government has raised the limit for the Canada Mortgage Bonds from $40 billion to a maximum of $60 billion in a bid to provide access to low-cost financing for multi-unit rental construction. Ottawa says the move will help bring up to 30,000 more rental units per year onto the market in Canada.

The measure was introduced in anticipation of additional financing demand that the government expects will be spurred by its move to drop the GST on new rental housing developments.

"It's not enough for us to simply address one project at a time. We need to change the way that homes get built in Canada, including the financial equation that builders need to overcome," Housing Minister Sean Fraser said at a press conference last week.

"We're going to see a lot of projects that have been sitting on the shelf that are going to result in projects that have shovels in the ground."

Kevin Lee, the head of the Canadian Home Builders' Association, said in an interview with Yahoo Finance Canada that the expansion of the CMB program will help ensure more purpose-built rental projects proceed, as the "financial wherewithal to move ahead with these projects is now going to be there."

"It was really stymied before, but at least now it will have the financial impetus to move forward," Lee said.

"This is really good for purpose-build rental. It's been a part of the market that hasn't made sense for years, and that's why condos have taken over the market... more support in rental means more supply in rental, which will help make rental more affordable moving forward."

Canada Mortgage Bonds are issued by the Canada Mortgage and Housing Corporation (CMHC). The proceeds are then used to buy mortgage insurance from private lenders, which allows them to offer more favourable rates.

"Building more purpose-built rental units will come with the need for mortgage loan insurance for these rental properties, and the CMHC is the sole provider of that," Mike Moffatt, senior director of policy and innovation at the Smart Prosperity Institute, said in a statement.

"This will help make sure that these projects proceed, so it's definitely a step in the right direction when it comes to purpose-built rentals."

But it will take years before the supply hits the market, says Ron Butler, a mortgage broker and owner of Toronto-based brokerage Butler Mortgage. Construction on new buildings takes around three years, he says, and it can take between a year and two years to get all the approvals in place before projects can even start, depending on municipal regulations.

"In some cases, townhouse projects could go up faster, but no matter how expedited they are at City Hall, it takes 12 to 18 months to get shovels in the ground," he said in an interview.

Still, Butler says the program is "only a good thing" when it comes to boosting rental housing supply.

"At the end of five years, we'll have batches of new purpose-built rentals for people to rent at rational prices."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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