CMHC’s tightened bonding rules have ‘real implications’ for housing supply

Canada’s housing market is transforming fast—and so are the financial tools fueling new construction. One such program for multi-unit residential developers is CMHC’s MLI Select, a solution that rewards socially responsible builds with access to high-leverage financing, extended amortization periods and low-cost capital.

But as of late 2024, CMHC has tightened enforcement of one critical requirement for many projects under this program: the surety bond.

Surety bonds might seem like a behind-the-scenes technicality, but they have very real implications for the pace and certainty of new housing supply. 

Without them, MLI Select funding can be delayed or withdrawn, stalling projects midstream and keeping much-needed homes off the market. For real estate professionals, this can mean delayed closings, disrupted pre-construction sales and fewer new listings coming to market.

Under today’s framework, three distinct groups are feeling the impact: 

• Self-performing developers who manage and build their own projects, assuming all risk
• Developers and general contractors who need assurance on the bonds their contractors provide
• Specialty sub-trades who are now being asked for bonds, often for the first time on apartment projects under MLI Select.

For all three, the bonding process can be unfamiliar territory and demands a clear understanding of the surety market and industry expectations. 

From contractor-led bonding to broader obligations

Previously, CMHC did not enforce bonding on projects it supported. Now, whether the developer is building in-house or hiring a contractor, CMHC is enforcing this level of financial assurance for specific builds, usually over 25 units, but also subject to CMHC’s discretion. 

For self-performing developers, securing these bonds can be challenging. Market appetite is limited, and in a recent instance, only two companies offered terms to such developers. 

Developers hiring contractors face different considerations: reviewing bond wordings, confirming contractor eligibility and understanding the prequalification process are all important factors to consider.

The details matter. A prequalification letter issued by a bonding company carries weight; one on a broker’s letterhead alone may not. The information in these letters — from bond limits to length of relationship — helps determine whether a contractor can realistically provide the required bonds.

Barriers to qualifying

A surety bond is a form of third-party validation, signalling the bonded party has the financial capacity, experience and systems to complete the work. But many developers set up new corporations for each project, leaving the entity with limited assets and no operating history. In these cases, the only way forward may be to secure collateral mortgages on other properties to meet the surety provider’s requirements or provide additional guarantees.

Sub-trades face their own challenges. Many have never needed bonding before and must establish a bond facility from scratch to work on MLI Select projects. Early awareness of this requirement can prevent last-minute delays or lost opportunities.

The cost of non-compliance

Failing to meet bonding requirements can result in withheld funding, lost contracts and stalled projects; sometimes with millions of dollars already invested. These risks ultimately sit with the developer, making it essential to address bonding early in the project timeline.

Meeting these requirements is not simply a matter of paperwork. Success depends on how the developer’s financial position is presented, the security offered and the quality of supporting documentation. Solutions, such as leveraging collateral on other properties, can make a difference. The earlier these conversations happen, the more options are available.

A requirement worth planning for

MLI Select remains a powerful tool for delivering rental housing that meets Canada’s long-term needs. But the bonding requirement has raised the bar. 

Developers and sub-trades who integrate bonding into their project planning from the outset will be better positioned to secure financing and keep projects moving. Early engagement with a surety expert who understands the nuances of MLI Select can help navigate the process efficiently, avoid last-minute surprises and protect timelines.

Whether self-performing, hiring a contractor or requesting first time bonds from sub-trades, the message is clear: treat bonding as a core part of your financing strategy, not an afterthought.