The Canada Mortgage and Housing Corporation (CMHC) has decided to raise mortgage insurance premiums for multi-family developments and adopt more conservative underwriting standards beginning on July 1, 2023. This move comes in response to the increasing risks in the housing market and is part of an effort to ensure the long-term stability of the financial system.

Could there be a slow down in construction of multi-family developments?

The decision to increase mortgage insurance premiums means that developers will face higher borrowing costs, which could ripple effect on the housing market. Higher borrowing costs for developers could increase the cost of constructing new multi-family projects, potentially resulting in higher rental rates for tenants. This could exacerbate the affordability crisis in the rental market, making it more difficult for low and middle-income families to find suitable and affordable housing options.

Implementing more conservative underwriting standards by CMHC will likely result in stricter eligibility requirements for developers seeking mortgage insurance. This could decrease the number of approved projects, slowing down the construction of new multi-family developments in Canada. Consequently, the supply of rental units may be unable to keep up with the growing demand, which could further contribute to rising rental prices and a shortage of affordable housing options.

Any positives to the increase in mortgage premiums?

However, the implications of CMHC’s actions are not solely negative. By raising premiums and adopting more conservative underwriting standards, the organization promotes responsible lending practices and encourages developers to build financially sustainable projects. This could potentially lead to a more stable and healthy housing market in the long term.

CMHC’s move to align its products and services with market conditions and manage its capital more efficiently is aimed at maintaining the financial system’s stability. By taking these measures, CMHC hopes to mitigate the risks associated with an overheated housing market, such as high levels of household debt and overvaluation of properties. In the long run, these actions may help prevent a potential housing bubble and the subsequent negative effects on the economy.