Developers still back long-term rental demand, but the economics of building now tell another story
Canada's rental developers still believe in long-term tenant demand. What they increasingly doubt is whether the numbers work today.
Some 72% of respondents to the 2026 Rental Housing Development Study, prepared by EY for Canada Mortgage and Housing Corporation (CMHC), said they had paused or cancelled pipeline projects because development costs rose over the past two to three years.
The findings arrive as purpose-built rental construction sits at an all-time high, according to CMHC.
The gap shows up most clearly in the outlook numbers. Of the 110 developers, owners, investors and housing providers surveyed between May 28 and July 13, only 37% were optimistic about rental feasibility over the next five years, and 49% were negative.
Looking beyond five years, optimism rose to 53% and negative sentiment fell to 19%.
"Developers remain confident in the long-term need for purpose-built rental housing but increasingly question the feasibility of delivering projects in the current environment. The widening gap between long-term opportunity and short-term viability suggests that project economics, rather than demand fundamentals, are becoming the primary constraint on new rental housing supply," the report said.
How are rental developers responding to rising costs?
Beyond shelving projects, 54% said they had raised rents, 44% had extended timelines and 44% had reduced unit sizes. Just 23% reported cutting material quality.
"Developers appear more inclined to delay or increase rents than to compromise on construction quality, which ranks among the less common responses. This suggests cost pressures are translating largely into deferred supply and higher rents rather than changes to product standards," the report said.
Government regulations, fees and approval delays ranked as the top barrier nationally and in every region surveyed. Respondents said faster approvals and lower development charges would help most.
That echoes earlier CMHC modelling showing that reducing municipal development charges could lift project viability in some cities.
The slowdown also hits an ownership market already short on new supply. When CMHC's Fall 2026 Housing Supply Report flagged a widening ownership shortfall, deputy chief economist Aled ab Iorwerth warned that "the key risk now is Canada underbuilds during this softer market."
At #MortgageFest Canada, Aled ab Iorwerth of CMHC and Taylor Little of Neighbourhood Holdings discussed housing supply, density and affordability, highlighting the need for more family-friendly housing options.https://t.co/QGc0eiJT9M
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 25, 2026
Insured financing keeps the rental pipeline moving
For brokers arranging multi-unit deals, the financing picture is steadier. About 85% of respondents typically use CMHC-insured loans such as MLI Select. That is the agency's multi-unit mortgage loan insurance product, which offers longer amortizations and higher leverage in exchange for affordability, accessibility or climate commitments.
Some 78% secured funding for a new rental project in the past year, up from 75% in 2025.
Another 77% faced no pre-leasing requirement before loan closing.
"CMHC insured loans remain the dominant funding source for rental development, with private alternatives seeing minimal uptake and funding success rates holding steady year over year. This concentration underscores the importance of maintaining accessible CMHC programs to ensure anticipated rental supply can move forward," the report said.
Developers are also keeping what they build. The share following a develop-and-sell strategy has collapsed from 53% in 2023 to 6%, while 63% now develop and hold.
The share with no plans to use modern methods of construction fell to 10% from 39% in 2025. The shift followed CMHC's decision to open insured financing to prefabricated and modular homes.
The report cautions that its results are directional indicators of sentiment, not a statistically representative sample of the sector.
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