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?