CMHC-Insured Multiunit Lending Has Boomed; Will It Continue?

The volume of multifamily residential units funded with Canada Mortgage and Housing Corporation (CMHC)-insured loans has grown meaningfully as funding has shifted from conventional (i.e., uninsured) to insured loans. This change was driven by the confluence of higher interest rates and the March 2022 introduction of MLI Select, CMHC's latest multiunit mortgage loan insurance product. We look at the future of multifamily development, particularly the insured segment, as interest rates come down, CMHC tightens its underwriting criteria, and rents soften.

Key highlights include the following:

-- Elevated interest rates and the government's increased focus on stimulating the building of rental supply have driven significant growth in multifamily residential development funded through loans insured by CMHC.
-- Lenders, who earn attractive risk-adjusted returns from insured lending, have benefitted from this growth, in particular medium-size lenders as a result of underlying government-guaranteed securitization funding.
-- We believe that despite some near-term headwinds for the industry, longer-term prospects for purpose-built multifamily rentals, especially those funded by CMHC-insured lending, remain strong.

"In our view, overall government support for rental housing construction is robust, and despite some recent tightening of underwriting standards the value proposition of CMHC's multifamily mortgage loan insurance remains strong, especially in an uncertain macroeconomic environment," said Josh Veenkamp, Assistant Vice President, North American Financial Institution Ratings. "We believe developers will continue to rely on insured lending to fund a significant portion of their multifamily projects."