Understanding CMHC bonds and their role in Canada’s housing system helps explain why they matter for developers, contractors and communities. As a result, Canada continues to face a shortage of rental housing. Home prices have risen faster than incomes, and many Canadians are unable to enter the housing market. This reality has created a growing need for new rental supply across the country.
How CMHC Bonds Support Canada’s Housing Goals
To understand this role more, the Canada Mortgage and Housing Corporation is a federal Crown corporation, like the Bank of Canada, Canada Post and the Canadian Broadcasting Corporation. CMHC supports housing programs, provides mortgage insurance and helps keep the mortgage market stable.
To help increase rental supply, CMHC offers financing to developers who build new rental projects. For this reason, CMHC offers this financing at lower rates than traditional bank loans or private lending. Lower borrowing costs help developers plan long-term rental projects and make construction more predictable.
Why CMHC Bonds Matter to Developers
When CMHC provides this financing, it also protects its investment. The funds used for these projects come from programs supported by CMHC bonds. These bonds are investment products purchased by institutional investors. The funds raised help CMHC support mortgage and construction programs, including rental development.
Because CMHC is contributing financing to rental projects, it requires safeguards that help ensure the work is completed and that trades and suppliers are paid. This is where construction bonding becomes important. To protect its investment, CMHC requires performance bonds and labour and material payment bonds.
Performance Bonds and Labour and Material Payment Bonds
In the past, CMHC would sometimes waive the requirement for performance bonds or labour and material payment bonds. Many developers accessed CMHC financing without providing these bonds. However, today, conditions across the construction industry have changed. Higher costs, tighter margins and financial uncertainty have increased risk in construction. The most recent federal budget also signalled a significant rise in housing and infrastructure activity. As demand on the construction sector grows, CMHC is taking a more cautious approach to protect its financing and support successful project completion.
A performance bond protects the project by guaranteeing that the contractor completes the work according to the contract. A labour and material payment bond ensures that subcontractors and suppliers are paid for their work. These protections keep projects moving and reduce the risk of delays or disputes. In addition to bonding, developers must also meet several insurance requirements.
Insurance Requirements on CMHC-Financed Projects
But, developers working with CMHC must also meet several insurance requirements. Several insurance coverages are commonly needed to protect the project and the people involved.
Builders risk insurance protects the building during construction.
Wrap up liability insurance provides liability protection for all parties on the site under one policy.
CMHC may also require site specific pollution liability insurance. This coverage protects against unexpected environmental events that can arise during excavation or construction activities.
These insurance requirements work together with CMHC bonds to support project completion, reduce financial exposure and protect CMHC’s investment.
How CMHC Bonds Strengthen the Construction Process
Still, CMHC uses the funds raised through CMHC bonds to support programs that promote stable lending and new housing supply. By enforcing bond requirements and setting clear insurance expectations, CMHC helps create a safer and more reliable construction environment. Developers benefit from predictable financing. Contractors benefit from clear guidelines. Communities benefit from housing that reaches completion. Ultimately, CMHC bonds help strengthen the entire construction process.
Moving Projects Forward with Confidence
Rental housing plays an essential role in Canada’s long-term housing strategy. To support this, CMHC bonds help fund the programs that make this construction possible. Bonding and insurance requirements protect the public interest and support a stronger construction process from start to finish.
And finally, to learn more, check out our contract surety page you have questions about performance bonds, labour and material payment bonds or insurance coverage for CMHC-financed projects, the team at Ferrari & Associates can provide guidance and support. Get started by filling out our surety form here.