Build First, Subsidize Second: A Smarter Way to Fix Canada’s Housing Crisis

Canada’s housing crisis is not new—but its consequences are becoming harder to ignore.

We’re short 3.5 million homes by 2030, according to CMHC. Vacancy rates in many urban areas have dipped below 2%, while rents continue to rise. Construction starts are slowing. And despite ambitious targets, the number of rental apartment completions isn’t keeping pace with need.

In response, policymakers have introduced several programs to boost supply—CMHC’s MLI Select, PACE financing, and the Apartment Construction Loan Program (ACLP) among them. These initiatives are designed to incentivize sustainable, affordable rental development with lower financing costs, higher loan-to-value ratios, and other tools.

But here’s the paradox: many developers say these programs are making projects less feasible, not more.

Incentives With Strings Attached

The intent is clear—support developers who build rental housing with deep affordability and sustainability goals.

The issue? The terms of access to these programs often include long-term affordability commitments that significantly reduce projected cash flow. Developers must offer units at below-market rents for 10, 20, even 25 years—regardless of inflation, financing climate, or unexpected cost escalations.

These affordability commitments are noble on paper. But in practice, they often collide with harsh economic reality.

When the Math Doesn’t Work, the Project Doesn’t Happen

Here’s what developers are actually facing:

• Interest rates have more than doubled since early 2022

• Construction costs are up 30–40% in many regions post-COVID

• Municipal delays can stretch approvals for 18–36 months, adding carrying costs before ground breaks

• Affordability mandates reduce rental income by 15–30% or more, depending on the market

Even with reduced mortgage insurance premiums or access to higher LTV ratios, the revenue suppression from affordability commitments often wipes out the benefit.

Imagine being asked to raise millions in capital—while capping your building’s future income for two decades. Investors balk. Lenders hesitate. Developers pull out. The project dies.

This is not theory. It’s happening now.

Developers Are Opting Out — Quietly

At a recent industry conference, I spoke with developers who’ve built thousands of rental units. Several said they had stepped away from projects because CMHC affordability conditions made the numbers unworkable.

One developer who tried to make it work described it bluntly:

“We did one deal under MLI Select and it burned us. We won’t do another.”

This is the unintended consequence: fewer new apartments, less rental supply, and rising market pressure. In the worst-case scenario, developers abandon rentals altogether in favor of strata or commercial development, where flexibility and return are less constrained.

Vilifying Developers Won’t Build Housing

A common response to this debate is emotional:

“If developers can’t build affordable housing, maybe they shouldn’t build at all.”

That argument ignores the reality of the industry. Developers are not villains. They are risk managers. They are problem solvers. And they are essential to housing supply.

Critics often haven’t faced rezoning battles, managed multi-year pro formas, or tried to deliver housing in a system stacked with cost and regulatory complexity. To build rental housing in Canada today is to navigate a minefield—and still show up with capital.

If we push developers out of the game, the crisis only deepens.

A Smarter Model: Build First, Subsidize Second

This isn’t about abandoning affordability goals. It’s about getting the sequence right.

Instead of:

• Mandating 20-year rent suppression before the first permit is pulled

Try:

• Incentivizing market-rate rental construction to increase overall supply

• Providing rent support or subsidies directly to tenants—after the units are built

• Streamlining municipal approvals and reducing soft costs

• Balancing affordability with financial viability in programs like MLI Select

This approach still delivers affordability—but in a way that doesn’t kill the business case before construction even starts.

We Need Policy That Understands Pro Forma

What’s missing in most conversations is an understanding of development math.

If we want private-sector developers to create affordable housing at scale, we must meet them with policies that align risk, reward, and feasibility.

Because when we get it wrong, we don’t just lose projects. We lose momentum. We lose trust. And we lose the builders who were willing to step up in the first place.

---

What We’re Doing About It

At OptiBuild Consulting, we’ve seen how market conditions, policy frameworks, and operational decisions intersect. That’s why we’re launching The Smart Building Owner’s Roadmap—a new content series that breaks down how to:

• Evaluate aging buildings and redevelopment opportunities

• Run the numbers with strategic clarity

• Align ESG goals with actual ROI

• Prioritize projects that deliver performance, not just compliance

We’re writing it for developers, asset managers, and policymakers who are ready to cut through the noise and get to the reality of what it takes to build housing that works—for everyone.

Because good housing policy starts with a clear-eyed understanding of what drives development—and what stops it.

---

Canada will not build its way out of this crisis with mandates alone. We need a housing strategy that rewards those who build, not one that burdens them with obligations they can’t afford to meet.

If the goal is affordability, then the path must begin with feasibility.

Follow our Roadmap Series to learn how we help building owners and developers navigate complexity, unlock value, and build smarter.

Talk to OptiBuild if you’re stuck between policy and pro forma—we help bridge the gap between ambition and execution.

Let’s start building again.