CMHC Fuelled the Rental Boom, and Now It’s Turning Down the Heat

“If you see a crane on a residential building site in your community, chances are it’s a project backed by CMHC”

— Coleen Volk, President and CEO, CMHC
2025 Annual Report

Introduction

It was a genuine treat to wake up on Tuesday and read RBC’s almost optimistic housing update entitled “Slowly but surely Canada’s housing market is turning around”.  Sure, it’s a little early to call it a recovery, but you’ve got to start somewhere!  Between that and the reality that the fabled ‘mortgage cliff’ hasn’t and won’t hit as hard as many feared because rates have remained low through 2026, it’s nice to feel something other than loathing and apathy.

Setting aside the vast regional differences in housing price trends, we tend to agree with RBC that after what has been a brutal few years in the housing market, there are real reasons for investors to be more optimistic about the future.  Even if that optimism is unfortunately born from the fact that new supply is drying up, it's becoming possible to see a future where prices could begin to rise quickly in response.

In our view, the last holdout of the building boom, purpose-built rental, has officially hit its high-water mark, and the supply tap will soon be turned down there too.

In this edition of the Bird’s Eye View, we discuss the MLI Select program from CMHC, which, combined with deep rental demand, has fuelled a meteoric rise in rental housing starts, and how changes to that program and slowing demand may usher in the ‘no-supply’ price rebound that many in the housing industry have been warning about.

Canada Builds Rentals

For the past 5 years, Canada has delivered more housing starts than at any other point in its history (StatCan), though on a per capita basis the building rate is roughly half of what it was in 1976.

The rise of purpose-built rental has been the primary driver behind those increased starts:

Source: Data from Statistics Canada, Table 34-10-0152-01

There have been a confluence of factors that have supported the growing popularity of purpose built rentals, from strong demand, to rent control exemptions in Ontario, a soft condo market, but more than anything else in our opinion, this increase has been driven by extremely inexpensive borrowing costs on CMHC-insured loans.  The chart below gives you a good sense of how huge this increase has been.

What is MLI Select?

MLI Select is low cost mortgage insurance.  The developer pays CMHC a one-time premium and in return, the federal government guarantees the mortgage, which gives lenders the freedom to lend far more, for far longer, at closer to government rates, because the lender no longer carries the risk.

MLI Select was so special because it allowed developers to borrow at 95% LTV (5% down), with 50 year amortization and limited recourse for a one-time insurance premium of as low as 1%, so long as you qualified for 100 points by ensuring the building meets a mix of affordability, energy efficiency or accessibility standards. Both new and existing buildings were eligible for this funding. During the first two years, the program was structured so that it was possible to achieve the 100 point threshold through energy efficiency alone, with no affordable units (Source).

In June of 2023, premiums at the 100-point tier were hiked to 2.55%, and in 2024 the point system was revised so that affordable units were required in order to hit the top tier.

In July of 2025, the flat fee structure was replaced with a risk based system.  Functionally, someone building at the 100-point tier with a 95% LTV, a 50-year amortization (the highest risk profile) would now be required to pay a ~5.8% premium.

Lastly, in November 2025, CMHC announced changes that, effective September 30, 2026, will require higher energy efficiency thresholds in order to achieve energy efficiency points, on top of a stricter baseline, the 2020 NECB (National Energy Code) instead of the 2017 NECB (Source).  The upshot is that buildings need to be ~35-45% more energy efficient to achieve max points for energy efficiency.

Frankly, MLI Select is still a useful program, it’s just no longer so powerful that it makes sense for developers to build rental housing independent of what the market is doing.

What is the Rental Market Doing?

The short version is that it's softening.  Rental vacancy in Canada went from 2.2% in October 2024 to 3.1% by October 2025, and while we suspect that new starts may have crested in May 2026, completions are still a long way from their top.  There are still 218,056 rental units under construction, and most of them will land in 2027 and 2028.

On the population front, Canada’s non-permanent resident population is down by almost 600,000 people from its October 2024 peak, and Canada’s overall population has fallen for three straight quarters.  While most forecasters expect this to stabilize and turn mildly positive in the next 2 years, it doesn’t change that it will take time to absorb peak supply into suppressed demand once units are completed.

Conclusion

When the market will clear is a matter of honest disagreement.  In our recent Canadian Private Real Estate Podcast, Carl Gomez, Chief Economist at Centurion, shared his thinking that, “we’re close to the bottom of the rent growth cycle and we’re probably setting ourselves up going into 2027 for much more positive rent growth on average”. In contrast, CMHC forecasts that in 2028, vacancy rates will be higher than today in 16 of the 19 markets that it forecasts. 

Whichever is right, we are becoming increasingly confident about the setup.  Starts have been falling sharply in almost every category except rentals, and we think that if rentals haven’t crested, they are close.  If the taps truly are turning off across the board, when even tepid demand absorbs outstanding supply, we think the whiplash from oversupply to undersupply could happen quickly and stay around for years.  We don’t take too much joy because that period could be very hard for Canadians, but as investors, we can’t help but let ourselves get a little bit excited about what appears to be potentially the best real estate investment setup that Canada has seen since COVID.