Government raising cap on mortgage bonds by $20B to spur rental construction
Mortgage bonds are sold and proceeds used to buy insurance on residential loans
The federal government is making an additional $20 billion in financing available for developers looking to build rental units.
Finance Minister Chrystia Freeland announced Tuesday that Ottawa will raise the annual cap on the Canada Mortgage Bond program from $40 billion to $60 billion.
Freeland said the announcement complements the government's recent move to take the GST off the construction of new rental apartments.
"We're already seeing more demand for financing of new rental construction," she said.
Mortgage bonds are sold by the Canada Mortgage and Housing Corporation (CMHC). The proceeds are then used to offer mortgage loan insurance to financial institutions, which can in turn pass on lower interest rates to developers.
"When lenders pass on favourable rates to builders, builders build more homes. It's that simple," Housing Minister Sean Fraser said.
In order to qualify for the loans, projects must have a minimum of five units, Fraser said.
The government expects the measure will ensure 30,000 more rental units are built annually.
According to data on the CHMC website, the Crown corporation has hit or come close to the $40 billion cap in mortgage bond sales in every year since 2007. Bonds worth $256 billion were circulating as of August 31 of this year.
The government unveiled in this year's budget that it's considering folding the mortgage bond program into the government's larger borrowing programs. Word on whether the government plans to move forward with consolidation is expected in the fall economic update.
Freeland was asked if folding the mortgage bond program in with other borrowing initiatives could deter investors from buying up more bonds. She said the government has only conducted preliminary consultations and no decision on the program has been made.
"The two initiatives are entirely separate," she said. "This is something that we're doing very deliberately, very thoughtfully, very carefully, very intentionally."
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