New federal loans to build apartments will impact key aspects of real estate development

The federal government has announced that will invest an additional $15 billion in new rental housing development loans. Going forward, it is anticipated that these loans will make the Canadian landscape more palatable for real estate developers.

The Apartment Loan Construction Program will begin in 2025. This news comes on the heels of $4.1 billion in loans that the federal government announced through the Rental Construction Financing Initiative (RCFI). Finance Minister Chrystia Freeland unveiled the $15 billion plan during her fall budget update in the House of Commons. She added that Ottawa will also crack down on short-term rentals, such as Airbnb, in some areas of the country.

Ottawa’s loans offer relief to renters and provide added opportunities for developers. The sharp rise of interest rates over the past year, and inflationary costs in construction, have slowed many construction projects or even put projects on hold. The Apartment Loan Construction Program is expected to up the ante for all aspects of real estate development in Canada – from municipal approvals to construction financing.

Canada’s affordable housing crisis

The loans are a response to Canada’s affordable housing crisis. The average Canadian rent hit $2,178 in October, marking the sixth-consecutive month of all-time highs, and marks a 9.9% increase year-over-year (YOY). That’s an improvement on the 11.1% YOY jump in September. However, the average cost of a one-bedroom unit in October was $1,906, up 14% from 12 months earlier, while a two-bedroom averaged $2,255, up 11.8% during that time period.

Vancouver remains the most expensive city for renters, with a one-bedroom averaging $2,872 and a two-bedroom at $3,777, up 6.7% and 5.5%, respectively on an annual basis. However, the provinces driving rent inflation have been Alberta, Quebec and Nova Scotia. These three provinces have seen strong population growth, plus a large addition of new rental supply (priced above-average). Add to this a national increase in immigration.

In terms of annual rent growth for apartments, Calgary topped the list for the ninth-straight month with rents rising 14.7% YOY to an average of $2,093. The new federal funding includes $500 million for approximately 1,400 purpose-built rental homes in Metro Vancouver.

Key takeaways

Shovels will return to the ground, but developers will require help navigating the incredibly complex process of completing apartment buildings. The real estate group at MLT Aikins has participated in all forms of commercial real estate transactions, including the development, financing, acquisition and sale of condominiums and apartment complexes.

Our team has vast experience in transactions and financing arrangements across Manitoba, Saskatchewan, Alberta and British Columbia. We offer advice on ownership structures, including limited partnerships, REITs, syndications and joint ventures, as well as financing instruments such as mortgages, mortgage bonds, leasehold financing and other secured financing arrangements.

Our real estate group is experienced in both the practical and legal aspects of land use, planning and development matters. This allows us to assist developers on development proposals, permit applications, subdivision applications and land use planning in environmentally sensitive areas. We guide clients through the life cycle of an apartment building project, from development approvals to financing and environmental compliance to final contract negotiation.

To learn more about the potential impact of the new federal loans on your next real estate project, please contact our real estate group.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should not be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.