CMHC MLI Select Program Update – Single Family Homes Removed

Canada Mortgage and Housing Corporation (CMHC) recently clarified its Multi-Unit Mortgage Loan Insurance (MU MLI) guidelines under the MLI Select program, a move that could reshape investment strategies in Alberta’s real estate market. This update aims to reinforce the program’s original intent—to support the construction, purchase, and refinancing of purpose-built rental housing with five or more units. Here’s what you need to know about the changes, their implications for Alberta, and how investors can adapt.

The MU MLI program now explicitly requires properties to meet one of two criteria:

1. A single connected building with at least five housing units (which may span multiple legal lots).

2. One legal lot with multiple dwellings (e.g., townhomes, duplexes) that collectively include five or more units.

A “housing unit” is defined as a self-contained space with cooking facilities, a bathroom, and a separate entrance. Micro-units (even single-room studios) qualify, provided they meet these criteria.

Crucially, bundling smaller properties (e.g., duplexes or triplexes across multiple lots) to reach the five-unit threshold is no longer eligible under MU MLI. Instead, CMHC directs investors with 2-4-unit properties to its Income Property Insurance product, which has distinct eligibility rules.

For weeks, Alberta’s real estate community awaited clarity on this issue. Prior to the update, investors were exploiting a loophole: parceling together multiple small properties (e.g., duplexes on separate lots) to qualify for MU MLI benefits, including the coveted 5% down payment and 50-year amortization. While this strategy maximized affordability for investors, it contradicted the program’s core mission—to increase affordable housing supply. Instead, it incentivized speculative buying of smaller properties without contributing meaningfully to new rental stock.

Now, with stricter eligibility rules, CMHC aims to realign incentives toward purpose-built rental developments that directly address Alberta’s housing shortage.

The timing of this update creates significant hurdles:

1. Certificate Validity Window: The MLI Select certificate is valid for only six months, and approval takes roughly three months. Investors must apply eight months before possession—a tight timeline that leaves little room for delays. This is what caused many investors to be exposed from the time of waiving conditions, and applying for their COI. Due to this, a lot of investors are facing uncertainty on whether or not they will be grandfathered into the program if they have signed a purchase agreement? Or if they have submitted their MLI application? Or if all will immediately be disqualified.

2. Financing Fallout: Buyers who applied under the old rules but haven’t yet secured approval may now face disqualification. Without MLI Select financing, many will need to:

   • Secure traditional financing (20-25% down payment, shorter amortization), which may be unaffordable for those planning to purchase multiple properties.

   • Forfeit significant deposits if they cannot close deals.

3. Builder Risks: Developers with projects already under construction—especially those marketing units to investors relying on MLI Select—could see deals collapse, leaving them with unsold inventory.

Critical Uncertainty: CMHC has not yet clarified whether previously submitted applications will be grandfathered or if there will be a transition period. This ambiguity leaves investors and builders in limbo.

1. Short-Term Disruptions: Expect delays or cancellations of projects targeting investors reliant on bundled properties. Markets like Calgary and Edmonton may see a temporary dip in pre-construction sales for small multi-unit developments.

2. Shift to Larger Developments: Builders may pivot to 5+ unit projects to align with MU MLI eligibility, accelerating the supply of purpose-built rentals in high-demand areas.

3. Price Adjustments: Investors unable to secure MLI Select financing for smaller properties may offload deposits or listings, creating buying opportunities for cash-rich buyers.

4. Rural Market Slowdown: Smaller towns reliant on duplex/triplex developments may stagnate as financing becomes less accessible.

Historically, December tends to see fewer new listings as the year winds down. However, 2024 defied this trend, with active inventory levels remaining steady. This balance between supply and demand created a competitive environment for buyers and sellers alike.

1. Negotiate Protective Clauses: Work with legal and real estate professionals to add conditions to purchase agreements, such as:

   • “Financing contingency: Sale is conditional on buyer securing MLI Select approval.”

   • “Program change clause: Allows renegotiation or termination if CMHC eligibility rules shift before closing.”

2. Explore Alternative Financing: For 2-4-unit properties, review CMHC’s Income Property Insurance or private lending options. While terms may be less favorable, they could bridge gaps for smaller investors.

3. Diversify Strategies: Consider joint ventures or partnerships to pool resources for larger, eligible projects (5+ units).

4. Stay Informed: Monitor CMHC announcements for clarity on grandfathering and transition rules. Proactively consult mortgage brokers familiar with federal and Alberta-specific programs.

CMHC’s update is a double-edged sword for Alberta. While it discourages speculative bundling and prioritizes purpose-built rentals, it creates short-term pain for investors and builders caught mid-process. The long-term upside? A stronger pipeline of affordable, high-density housing—critical for a province growing as rapidly as Alberta.

For those affected:

• Act quickly: If your project no longer qualifies, reassess financing options or renegotiate terms.

• Plan conservatively: Assume a 6-8 month lead time for future MLI Select applications.

• Seek expertise: Partner with advisors who understand both federal programs and Alberta’s market dynamics.