The Canada Mortgage and Housing Corporation (CMHC) continues to offer incentives that expand access to affordable housing in Canada. Its flagship program, the MLI Select Program, is designed to enhance the supply of rental housing, boost the development of new rental units, and ensure affordability in the long term. For developers, investors, and property owners looking to expand their portfolio via favourable financing conditions; having a Mortgage Broker who is connected and understands what is needed is a must.
What is the CMHC MLI Select Program?
The MLI Select Program is a financial initiative launched by the CMHC to incentivize the construction of rental housing. The program is designed to support the development of rental units that prioritize three mandates; affordability, energy efficiency, and accessibility. In exchange for meeting these conditions, participants can access more favourable financing terms. Namely, access to longer amortization schedules, and lower interest rates. These two benefits in unison can allow investors/developers to maintain cash flow with larger mortgage loans, freeing up capital for future projects.
Purpose of the Program
The MLI Select Program’s primary objective is to help ease the pressure on Canada’s rental market. By incentivizing the construction of rental units, CMHC aims to:
- Increase the availability of affordable housing across Canada, particularly in urban centers where housing shortages are most pronounced.
- Encourage private sector involvement in addressing the housing crisis by offering financial incentives and lowering barriers to development.
- Promote energy-efficient buildings and sustainable construction practices that will help reduce the carbon footprint of the housing sector in the long term.
- Enhance accessibility for individuals with disabilities and ensure that new rental units meet universal design standards.
Key Features of the MLI Select Program
Eligibility Criteria
- Property Type: The program is open to the construction or substantial renovation of rental buildings, including multifamily properties, apartment buildings, and townhouses. It can also apply to existing rental properties if they are undergoing significant upgrades.
- Location: The program is available to projects across Canada, though priority may be given to areas with the highest demand for rental housing.
- Affordability Requirements: A key requirement for the MLI Select program is that the developer must agree to maintain affordable rents for a specified period. Typically, this is for a minimum of 10-20 years. “Affordable” is defined based on median market rents for the area. Depending on the project type, 10-30% of units in the project must commit to long-term leases at a maximum of 30% of median market income.
Energy Efficiency and Sustainability
The MLI Select Program places significant emphasis on environmental sustainability. Projects that meet higher energy efficiency standards, such as Net-Zero Energy or LEED Certification, can receive preferential terms. These incentives are part of CMHC’s broader commitment to reducing the carbon footprint of the Canadian housing sector and promoting energy-conscious development practices.
Accessibility and Inclusivity
The program also emphasizes the importance of accessibility. Developers are encouraged to incorporate design elements that make rental units accessible to individuals with disabilities. This could include features such as wider doorways, ramps, and the installation of elevators in multi-story buildings. By focusing on inclusivity, the MLI Select Program helps ensure that all Canadians have access to suitable housing options.
Flexible Repayment Terms
The MLI Select Program is designed with flexibility in mind, offering repayment terms that suit the needs of the project. Developers can choose from a variety of repayment schedules, depending on the timeline of their construction or renovation projects, with terms that extend up to 50 years in some cases.
Financial Incentives
- Lower Mortgage Insurance Premiums: One of the biggest advantages of participating in the MLI Select Program is the reduced mortgage insurance premiums. Developers benefit from a lower cost of financing, making it easier to secure capital for projects. Savings can also be found in the interest rate of CMHC insured loans.
- Long-Term Financing: The program offers developers access to long-term, fixed-rate mortgages, which can be a huge benefit in a fluctuating interest rate environment.
- Performance-Based Incentives: Projects that meet high standards of energy efficiency and sustainability, as well as those that adhere to accessibility guidelines, may qualify for even further premium reductions.
The Application Process
- Pre-Application Consultation: Before submitting an official application, I encourage developers and investors to discuss their project with a Mortgage Broker versed in the MLI Select product to ensure that their project aligns with the objectives of CMHC. This consultation can help clarify program requirements and guide developers through the necessary steps.
- Prepare Application: Unfortunately, these loans take quite a bit of leg work to secure. CMHC will be expecting a detailed application that includes a developer investors strategy for the build, surveys, soft costs, efficiency reports, rent roll proformas etc. It’s an intensive list and having a seasoned Broker to assist with framing and building a winning application is key to your success.
- Submit Application: Once the project meets the eligibility criteria and initial consultations have been completed, developers can submit a detailed application. This includes providing a comprehensive business plan, architectural drawings, and cost breakdowns. The application will also need to demonstrate how the project will meet CMHC’s affordability, sustainability, and accessibility requirements. Having the required lending and insurer channels to submit this application to the right parties is another benefit of working with a Commercial Broker.
- Approval and Financing: If the application is approved, CMHC will issue the necessary mortgage insurance and arrange the financing. The developer will also sign an agreement to maintain the agreed-upon rent levels for the specified period and comply with sustainability and accessibility standards. With this certificate of insurance in hand and thick application on record, securing a lender is the easy part.
- Monitoring and Reporting: CMHC will monitor the progress of the project during construction and periodically after its completion to ensure compliance with the program’s conditions. Developers may be required to submit regular reports detailing the financial and operational aspects of the project.
Benefits for Developers
Lower Financing Costs
- With reduced mortgage insurance premiums and long-term financing options, developers can significantly reduce the upfront cost of capital for their projects. This can make a significant difference in the financial feasibility of rental housing projects.
Stable Cash Flow
- By committing to offering affordable rents, developers benefit from the stability of long-term tenants. This consistent revenue stream can help developers secure financing more easily and reduce the risk associated with their investment.
Sustainability Credentials
- Developing energy-efficient buildings not only helps combat climate change but also improves the developer’s market reputation. Projects that meet green building standards can attract environmentally conscious tenants and potential buyers.
Market Demand
- With Canada’s ongoing housing affordability crisis, there is a high demand for rental properties. By participating in the MLI Select Program, developers tap into a market that is increasingly seeking affordable and sustainable living options.
Challenges to Consider with the MLI Select Program
While the CMHC MLI Select Program offers numerous benefits, developers should be aware of the challenges associated with it. The affordability requirements, in particular, may limit the rental rates developers can charge, potentially impacting profitability. Additionally, meeting energy efficiency and accessibility standards can involve upfront costs, although these are often offset by the long-term savings and financial incentives provided by the program.
Conclusion
The CMHC MLI Select Program represents a vital step in addressing Canada’s growing rental housing needs. Having access to this program and a consultant on your team familiar with its minutia. If you have a project that would benefit from lower interest rate debt or extended amortizations, contact our commercial team here today!
