Canada’s banks are suddenly warming up to real estate development loans. Bank of Canada (BoC) data shows chartered bank loans to builders and developers doubled in less than a year, after decades of modest growth. The sudden shift aligns closely with taxpayers getting involved in the market, de-risking lenders. Short of a catastrophic blow to the economy, taxpayers are unlikely to be on the hook for many loan defaults. However, households will incur a significant cost even if these loans perform.
Canadian Bank Loans To Real Estate Developers Double In A Year
Canada’s chartered bank loans for real estate development are surging. The segment climbed 20.7% (+$14.6 billion) to $85.1 billion in Q1 2025, doubling (+105.4%; +$43.7 billion) from last year. Annual growth peaked in Q4, but with only one quarter of deceleration, it’s unclear if this is just a blip.
All In? Canadian Bank Loans For Real Estate Development Surge
Loans to the construction industry, builders and developers held by Canadian chartered banks. In billions of dollars.
Source: Bank of Canada; Better Dwelling.
Canadian Taxpayers Are Being Used To De-Risk Developer Loans
Traditionally, chartered banks avoided risky builder/developer loans due to default risk. This forced developers towards expensive secondary-market capital (private equity, syndicates, etc.). As a result, chartered bank loans for builders and developers remained largely stagnant until they suddenly tripled over the past 5-years. Why?
Banks don’t volunteer detailed loan data, but like all industries in Canada these days, this surge was fueled by taxpayers. The spike aligns with two key expansions made by the CMHC, the Government of Canada’s (GoC) state-owned mortgage insurer:
- Apartment Construction Loan Program (ACLP): Originally launched in 2017, the ACLP saw an aggressive expansion in 2023. While ACLP loans are direct from the CMHC (not banks), chartered banks play an intermediary role. They’re more willing to provide short-term financing knowing the ACLP will guarantee a later phase.
- Mortgage Loan Insurance (MLI) Select: This program for multi-unit rental dwellings was also significantly expanded in 2022/2023. Maximum leverage was increased and the project cap was raised to a mind-blowing $1.5 billion. Once again, this move de-risks lending.
Canadian Households Will Foot Much Higher Indirect Costs
Taxpayer exposure to delinquencies in these programs is likely slim, but that doesn’t mean it’s a free ride. When the government provides low-cost loans, it secures capital from the bond market. Credit costs are based on supply and demand. The GoC and CMHC bonds compete within the same limited credit supply.
As public borrowing rises, credit demand rises and borrowers compete for capital. To be blunt, the cost of borrowing rises for everyone—including households and businesses. Policymakers are effectively redistributing the cost of borrowing across private borrowers. Sorry about your pricey mortgage, the government needed to buy an institution a new rental building.
Many argue that the BoC can reduce borrowing using quantitative easing (QE). This is a form of unconventional monetary policy to boost inflation by injecting credit liquidity to stimulate excess demand. With CPI-Core already above the 3% upper band of tolerance, inflation is too high for the use of an inflation-generating tool. Even so, inflation is a tax paid by all currency holders—that means households, businesses, and investors. Once again, a redistribution of costs.
However, the public’s biggest question should be, who is being funded? A recent study in Ontario found that financial landlords (like REITs) tend to exert oligopolist-style pressures on prices. As a result, they drive neighborhood rents higher and much faster than traditional rental building operators or mom-and-pop landlords. A taxpayer backed accelerator to drive rents? What could go wrong?
The gov sold the public on the gov getting involved in building “affordable” housing, and didn’t tell them their definition of “affordable” is $4,200 a month in Vancouver.
Keep in mind cities are also redirecting property taxes to these projects, and they only need to be 20-30% of units affordable to be considered an affordable building, depending on city. So the 70-80% of units that aren’t affordable, just market priced buildings.
The gov could punch the average person in the stomach and tell them it’s an affordable punch, and they’ll take it with a smile.
LOL! Speaking of affordable punches in the stomach, I wonder how many people are looking forward to their two tier healthcare or we become the 5`1st state or something.
Why is the government getting involved in buying multi-billion private equity firms rental buildings anyway? Because it worked out so well when they bought the Bay?
If the government has to get involved in building middle class housing, it failed miserably. The Boomers think this just get smoothed over with more debt as long as they get their healthcare, but they have no clue how the second order effect to this is privatized healthcare.
I say this as a Boomer fyi
Yes, the alignment with Doug was clear. This is about generating instituional revenue streams, and generating government-paid, industry captured profits.
People hated unions so they said the gov should privatize everything. Then the private companies did a shittier job with no oversight, and costs exploded. Fin.
This is excellent news and shows Canada’s commitment to housing and protecting house prices for hard-working Canadians.
Canadians have worked hard to invest in real estate and should be rewarded by the government for their hard work.
Go away realtor – your naked self-interest is disgusting. Hope you lose your speculative properties.
Can someone explain more to me of what is going on here… has ‘our’ government suddenly put us on the hook to guarantee this huge expansion of loans the banks are making? Or … ???
The liberal govt created a mess in housing, and the new pm sees intent on continuing these disastetous policies.
While the ‘default’ risk may be low now, the misuse of the chmc to fund develo0ment by wealthy corporations is a slippery slope.
The unfunded liability held by the chmc is likely more than 1tr dollars, so a major hpusing correction would cripple canada.
So why on earth are they adding projects that should be privately funded to this debt is beyond me. The chmc was to help first time homebuyers, not to fund reits.developers and insure banks.
Now.i get it, banks dont want any risk, buf should they get tens of billions in profits risk free? Is that the role of the chmc now?
Canada is on a knife edge where the economy xould crash, and put.canada into a serious recession. If that happens our coddled banks would skip through a recession they caused, why you and ne would be stuck with theie bill?