Happy Monday Morning!

We’ve written a lot about the Canadian rental market. A rental construction boom financed by the federal government has pushed vacancies to multi-decade highs, and pushed rents down by double digits across most major metros.

Rental construction is almost entirely financed through CMHC, a government-owned crown corporation. They are now financing nearly 90% of all new rental construction in this country, through their MLI program which offers 95% loan to cost on new construction, and 50 year amortizations on completion. Some in the industry have called it ‘“welfare for developers”.

Nonetheless, it’s been a successful program in bringing on new supply. So, mission accomplished.

It caught our attention this week when the government announced new rental financing measures in its spring economic update.

The government is taking action to help lower financing costs to build residential properties with up to eight units.

The Spring Economic Update 2026 announces the government’s intention to:

• Amend mortgage insurance rules to permit private mortgage insurers to offer multi-unit mortgage loan insurance on five- to eight-unit residential properties to promote competition and offer lenders more choice; and
• Amend mortgage insurance rules to increase flexibilities for mortgage insurers to offer products to borrowers building new three- and four-unit housing, helping unlock financing for “missing middle” homes such as triplexes and fourplexes—an important step toward increasing housing supply and addressing Canada’s housing shortage.The government will initiate a 30-day consultation on these measures and announce further details after this consultation.

Here’s what we think it means, in plain english.

The feds know they have way too much exposure to a rental market that is deteriorating quickly. However, if they pull the plug, new construction likely goes to zero, since rental is the only thing getting built now that pre-sales are running at 40 year lows. New construction going to zero doesn’t get you re-elected when nearly 9% of your labourforce is employed in the construction sector.

In other words, the feds want to pull back but can’t. So they’re attempting to trim back exposure, slowly. Last year they raised insurance premiums on the rental financing program. Now they’re suddenly allowing the private insurance market to come in and play ball. It’s all rather convenient timing.

We find it interesting that they’re only allowing the private insurers to finance up to eight units, which is the sweet spot for Alberta multiplexes, a product that is becoming grossly oversupplied. New rental multiplexes are popping up on every street corner, financed at nearly 100% LTV, and then flipped to unsuspecting Toronto investors (the same investors that used to buy pre-sales are now buying highly levered multiplexes).

Multiplexes have become the new hot thing, with retail money hot to trot.

One barrier to the multiplex space is the CMHC MLI program currently requires a minimum of 5 doors. However, in cities like Vancouver, we are often constrained to triplex or fourplex due to lot sizes of 4000sqft which make building five doors nearly impossible. So the feds have a solution for that too. Insured financing for three and four doors. What could possibly go wrong?

Just to clarify, we don’t like dislike the multiplex, and we don’t have a problem with the government offering a carrot to the private sector to build new housing. However, we can’t help but notice the risks building.

We continue to believe that the real estate cycle has turned, and the market is oversupplied, with more supply coming. Everyone is now chasing multiplexes, including bigger developers who used to sell pre-sale condos! Furthermore, anytime we see Toronto investors chasing a hot trend, we get both excited and nervous.

Investors chasing triplexes and sixplexes built on maximum leverage will probably go down for the dirtnap. After all, cheap and abundant credit served up on a platter always ends the same way.

Furthermore, the feds continue to emphasize they are happy to see falling prices and cheaper rents. Just look at the tone of messaging from their economic report.

Overall construction activity has remained elevated by historical standards. Housing starts totaled 260,000 units in 2025—well above the 2000–2019 average of about 200,000—driven by record levels of purpose-built rental construction supported by federal measures.

Growing supply—combined with efforts to bring population growth back to more sustainable levels—is helping to narrow Canada’s housing supply gap and deliver meaningful improvements in affordability.

Since recent peaks, average home prices have declined by 20 per cent, national rents are nearly 9 per cent lower than their 2024 peak, and average monthly mortgage payments for homeowners have fallen by more than $1,200 in Toronto and Vancouver, almost $400 in Calgary, and over $200 in Halifax from peak levels.

Together with continued gains in real household incomes, these developments are restoring purchasing power and easing access to housing for renters and first‑time buyers.

In other words, the messaging out of Ottawa seems to suggest they are pleased to see lower prices. That’s fine, they were elected to do so. However, we are left wondering why any prudent capital allocator would still be eager to deploy capital into a market that is being managed lower, other than the allure of immense leverage…

Let’s watch.