CMHC Flex financing an option for affordable housing

Business Development Manager , First National Financial
  • Jan. 17, 2019

Toronto and Vancouver recently held municipal elections and affordable housing was centre stage in debates, social media and campaign promises.

In Toronto, the two leading candidates had set development targets of 40,000 to 100,000 affordable units over a 10-year time span. In Vancouver, the discussion revolved around expedited timelines, flexible zoning, gentle density, tax schemes, secondary suites, co-op housing and building on city-owned land.

Is there a solution somewhere amidst all of these competing opinions? Likely, but getting it right won’t be easy.

Clearly there’s a will for affordable housing, but what’s the way to make it work?

The CMHC Flex finance program is one strong answer. It’s a construction and term financing package targeted for affordable apartments which is creating new units right now.

CMHC rolled out the flex program in May 2017 and the market uptake has been brisk. First National currently has a large amount of affordable apartment construction in our pipeline, with much of it clustered in the markets which need it the most.

Affordable housing requirements

There are two ways to qualify, but I’ll focus on the first. Year 1 rents must be kept at 10 per cent below new-build market rates, as established by an appraisal. They can rise with guideline increases only, for a 10-year period, after which they can reset to market on tenant turnover.

The other restriction is that 20 per cent of the units need to be at rent levels below 30 per cent of the local median household income. This can impact some markets more than others, so referencing StatsCan for your relevant data is a good first step.

The second way to qualify is by having an affordability agreement in place for your development with your local municipality. In most cases this will qualify you for the flex program, subject only to the conditions present in your agreement.

So where’s the payoff? What do you get for committing to diminished rents, other than the satisfaction of contributing to a more affordable city for your fellow citizen?

Benefits of the Flex package

In exchange for these concessions, an approved CMHC lender can now offer you a superior construction and term finance package:

* Leverage up to 95 per cent loan-to-construction. Before you get overly excited, this is a theoretical maximum and underwriting constraints do reduce that number. The end result still does end up typically being considerably higher than that of a conventional offering. 

* Construction interest rates only slightly above prime. 

* Non-recourse during the term portion of the loan.

* Reduced debt-service-coverage-requirements (DSCR). CMHC will allow a 1.10 DSCR, which is to facilitate higher loan amounts in a building which will have reduced income.

* Insurance premiums are paid on all apartment loans secured through CMHC. They can be sizable, although the interest rate savings make them profitable for borrowers. The relative size of the insurance premium increases as the loan-to-cost ratio gets higher.

With the Flex program, the insurance premium is typically going to be half what you’d pay in a market rent program.

* You can set the interest rate on the term portion of your loan once you’ve received your certificate of occupancy, as opposed to waiting for lease up. Depending on the size of your project and local absorption rates, this can be a difference of months or even years.

Builders are usually concerned with interest rates rising while they are trying to finish the project. It’s a risk they have little control over, so the ability to set the rate early is welcome.

In conclusion . . . 

Will the CMHC Flex Program single-handedly solve the affordability issues in cities across Canada? No, but it’s one powerful component of a multi-faceted approach to a complex problem.

Is it right for your project? Potentially and it’s an option you don’t want to ignore.

It’s worth repeating that it works better in some municipalities than others, so speak with a CMHC-approved lender which understands the program.


Adam Powadiuk is a Business Development Manager with First National Financial, Canada’s largest non-bank lender with over $80 billion in assets under administration. He is focused on connecting the investment…

Read more

Adam Powadiuk is a Business Development Manager with First National Financial, Canada’s largest non-bank lender with over $80 billion in assets under administration. He is focused on connecting the investment…

Read more





Industry Events