Regulatory red tape drives up Canadian home prices, CMHC study finds

Canada’s housing affordability problem has long been blamed on interest rates, immigration and construction costs. A new Canada Mortgage and Housing Corporation (CMHC) study put harder numbers to those concerns, linking stricter municipal land‑use rules to both slower supply growth and higher prices across the country.

Drawing on responses from more than 400 municipalities, CMHC built a Municipal Land Use and Regulation Index as a proxy for how supportive and efficient local approval regimes are, including fees, timelines and planning requirements.

“When a city’s housing regulations become 10% more restrictive, house prices go up by about 14%, even after accounting for population, density, growth and other factors. The finding is statistically significant,” the report said.

To illustrate that gap, “cities in Ontario are, on average, 15% more restrictive than those in Alberta.”

Price pressures showed up clearly across regions. Among large markets, “Toronto, Vancouver and Victoria have higher average regulation scores. These markets also tend to have the most unaffordable housing in Canada.”

In the study’s table, Vancouver’s overall regulation score of 106 sat alongside a house‑price‑to‑income ratio of 14.18; Toronto’s score of 100 was paired with a ratio of 9.67, while Victoria’s score of 110 was linked to 10.04. By contrast, Québec City posted a regulation score of 75 and a ratio of 3.97.

Approval dynamics also mattered. “Canada’s most unaffordable markets see the strongest demand for rezoning, but tend to approve these at the lowest rates,” CMHC said.

Vancouver and Toronto both recorded rezoning approval rates of just 47%, despite their steepest price‑to‑income ratios. Provinces with higher approval rates, such as New Brunswick at 91% and Saskatchewan at 90%, showed materially lower ratios.

Longer planning timelines remained a recurring drag. “Approval times were found to rise with the size of a city, with other forms of regulation, and with more community opposition,” the report said.

CMHC warned that “a one log point rise in the regulation score is linked to a 1.6 percentage point drop in the annual growth of the housing stock,” a hit that compounds over time.

The data offered a baseline rather than a verdict. The survey used 2022 as its reference year, before many cities rolled out Housing Accelerator Fund‑linked reforms such as as‑of‑right upzoning and e‑permitting.

CMHC said these moves were “a positive step toward better land use policy,” but stressed that “cities will have to continuously look at their regulations, policies, and approval processes to ensure they support the housing outcomes they want to achieve.”

The new research landed as Ottawa continues to lean on cities to loosen local rules. Under the $4 billion Housing Accelerator Fund, applications that did not show flexibility on zoning rules faced an uphill battle, federal housing minister Sean Fraser previously said, urging municipalities to be more ambitious than their neighbours if they wanted funding.

The program’s second round, launched in 2024, required large cities to adopt four‑units‑as‑of‑right bylaws as part of their action plans – a direct attempt to chip away at exclusionary zoning and enable gentle density in established neighbourhoods.

Yet local politics remained fraught. Private lender executive Kevin Fettig argued that restrictive zoning often reflected homeowners’ desire to mitigate the risk of a decline in property value, complicating federal efforts to add supply.

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Here's how homeowners are coping with mortgage renewals in a choppy economy

Toronto’s sharp rise in mortgage delinquencies turned renewal time into a stress test for many homeowners – especially those who bought at peak prices during the pandemic, according to mortgage broker Victor Tran of Rates.ca.

The number of borrowers in arrears in the Greater Toronto Area more than quadrupled from 2022 to late 2025, Canada Mortgage and Housing Corporation (CMHC) data showed, even as the overall delinquency rate remained low by historical standards.

Nationally, arrears also edged up but still sat around a quarter of one percent of mortgages.

Arrears rose – but most borrowers still paid

“At first glance, the increase sounds alarming, but the overall delinquency rate remains low,” Tran said.

“It reflects the strain higher rates are putting on monthly payments at renewal, especially for homeowners who bought during the pandemic, rather than widespread foreclosure risk.”

CMHC modelling suggests arrears would continue rising moderately through late 2026, with Toronto leading delinquency growth as high household debt, softer prices and a weaker labour market squeeze borrowers.

Federal watchdog Office of the Superintendent of Financial Institutions (OSFI) likewise warned of “mortgage payment shocks” as more than one‑third of Canadian mortgages come up for renewal by the end of 2026, even after rate cuts.

Tran stressed that lenders generally prefer to avoid taking properties back. “Lenders typically want to avoid foreclosure,” he said. “It’s costly and time‑consuming, which means lenders are often motivated to work with homeowners to find solutions that keep them in their homes.”

He pointed to extending amortizations, refinancing to roll in higher‑interest debt, or restructuring terms to improve monthly cash flow as options borrowers explore when payments become tight.

Options narrowed for borrowers who waited

Still, renewal has not guaranteed flexibility. Homeowners who no longer meet qualification rules often have to stay with their existing lender, Tran noted, limiting their ability to shop the market or access equity even with a perfect payment history – a constraint regulators and consumer‑credit agencies also highlighted as renewals reset at higher rates.

“Missed payments usually don’t happen all at once,” Tran said. “As renewals roll through at higher rates, pressure builds month by month, especially for homeowners with tighter budgets, and many don’t realize how quickly options can narrow if they wait until close to renewal to revisit how their mortgage is structured.”

For Toronto borrowers heading into renewal, Tran’s message is that early engagement matters: understand how arrears are treated, assess income and debt before signing a new term, and approach the lender – or a broker – while there is still time to adjust the mortgage rather than after a missed payment forces the issue.

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Toronto is fast becoming Canada's hotspot for mortgage arrears

For mortgage industry members and market watchers who’ve seen how Ontario’s economy has struggled in recent years, it likely came as no surprise to hear that Toronto’s rate of mortgage arrears currently leads the country.

Canada Mortgage and Housing Corporation (CMHC) research released last week showed delinquency risk saw its “strongest and most persistent increase” in Toronto, spurred by a range of factors including higher household debt levels, a slowing housing market, and a gloomy jobs outlook.

The city’s delinquency trends still aren’t cause for panic with rates low by historical standards. But they suggest Toronto homeowners are grappling with strain that isn’t being felt elsewhere in the country, signalling sharper pain from the much-discussed mortgage renewal wave.

And the trouble that’s roiled the city’s condo market over the past two years certainly hasn’t helped, presenting unforeseen challenges for investors suddenly faced with a looming cash crunch.

Higher carrying costs, investor woes add to Toronto’s arrears problem

The investor story is an important one in Toronto’s overall arrears outlook, CMHC deputy chief economist Tania Bourassa-Ochoa told Canadian Mortgage Professional, because of the high concentration of investors in the condo segment.

“We know that in the last few years we’ve seen carrying costs increase quite significantly: property taxes, condo fees, insurance, even mortgage rates as well,” she said.

“And it’s harder to rent [out] right now – longer leasing times, a lot of competition out there. Some are offering one free month, two free months. And that’s resulting in a lot of investors that are now in a negative cashflow position.”

Those pressures are weighing against plenty of so-called “mom-and-pop” investors renewing their primary mortgage, while other homeowners are lumbered with mortgage costs and debt loads significantly higher than most other parts of Canada.

For investors saddled with an unprofitable condo, there are no quick fixes in a bleak market. “The market liquidity is not there,” Bourassa-Ochoa said. “If you’re facing the unwanted situation of having to sell your property, prices in the condo segment have declined by 20% since the peak in 2022 to today.

“If you look only at presales in Toronto, at the current level of inventory that has piled up and the current level of demand for these preconstruction condos, it would take something like 15 years for the current demand to absorb the condos. And that’s obviously resulting in higher mortgage arrears.”

Among the cohorts struggling the most with mortgage arrears and renewals across Canada are first-time homeowners who purchased during the pandemic.

Many of those buyers were able to purchase a home – even at a higher price – because of the rock-bottom interest rates of the COVID-19 era, but have seen borrowing costs spike after 2022 as rates climbed.

That trend was particularly strong in Canada. “Those pandemic-era first-time homebuyers were very present in the Toronto area,” Bourassa-Ochoa said. “The GTA [Greater Toronto Area] had a lot of those. And that’s yet another factor that’s driving that regional risk.”

No sign of a crash yet despite rising arrears

Toronto may be experiencing a more rapid growth in mortgage arrears than other Canadian markets, but experts are still stopping well short of forecasting a meltdown in the city’s housing and mortgage sectors.

The mortgage stress test, strong household balance sheets, and financial institutions working with borrowers to manage payment shock are all reasons the national mortgage renewal outlook shouldn’t spill into a crisis, according to Bank of Montreal (BMO) senior economist Robert Kavcic.

And Toronto mortgage brokers have also reported a calm outlook on mortgage renewals even despite plenty of borrowers renewing at higher rates.

CMHC sees delinquency pressures staying “elevated” throughout the year and said regional monitoring will be important – but also isn’t expecting Toronto’s condo market to deteriorate as strongly as it did just before the turn of the century.

“There are a lot of elements that are very different today than what we saw in the 1990s. And part of that is mortgage regulation,” Bourassa-Ochoa said. “The economy, as well, is a lot more diversified in the GTA today than it was in the 1990s.

“The risk is there, definitely, but when we try to compare it to another big economic downturn in history there are a lot of variables that are different and it suggests that it might not be leading to that extent.”

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Mortgage ‘cliff’ fears ease as TD sees gentler hill for borrowers

TD Economics argued that Canada’s widely feared mortgage renewal “cliff” has already looked more like a hill, with rising incomes and stretched amortizations cushioning borrowers and limiting the drag on consumer spending.

One worry hanging over the Canadian consumer has been that spending would be held back as mortgages originated at rock-bottom pandemic interest rates renew into higher prevailing rates over the coming quarters.

TD, citing Bank of Canada analysis, noted that 15% of outstanding mortgages would see payments increase in 2026, mostly five-year fixed loans, and that affected borrowers could see payments increase 20%, depending on whether they adjust their amortization length. 

Mortgage shock turned into gentler hill

“These figures might give readers pause, but there’s more going on beneath the surface that is expected to leave a much smaller mark on overall consumer spending,” TD Economics said.

“In particular, the debt service ratio for the economy is below its recent highs in 2023, suggesting the period for the worst risk has already past.”

“This lower debt servicing burden exists for two reasons: healthy income growth and longer amortizations,” the analysis said. “The average mortgage amortization has been rising since early 2021 and now sits about 16 months longer than before the pandemic.”

TD added that this helped “smooth the payment shock against rising interest rates in 2022 and 2023, though it was not the dominant driver.”

“The more important factor has been stronger growth in personal disposable income,” TD said, arguing this has “turned a mortgage ‘cliff’ into a much gentler ‘hill’.”

It estimated personal disposable income growth over the past three years ran roughly two percentage points faster than in the three years before the pandemic, and that otherwise the debt service ratio would have peaked about one percentage point higher.

“That income strength also helped to boost the savings rate moderately above trend, providing another cushion for Canadian consumers.”

TD expects “downward pressure on aggregate debt payments as lower policy rates gradually feed through to debt-servicing costs – a process that historically takes four to six quarters.”

Housing recovery delayed, not derailed

On housing, TD said “the market hasn’t turned yet.” Recent data showed “a weaker-than-expected first quarter for home sales and prices, especially in B.C. and Ontario,” leading the bank to trim its outlook.

“Canadian average home price growth is likely to be closer to 1% rather than the 4% expected in our December outlook,” it said – a marked downgrade that nonetheless implied “a gradual, modest recovery supported by pent-up demand.” 

“A strong rebound looks unlikely given multiple headwinds: elevated supply in key regions, slow population growth, softer labour markets, and still stretched (but improving) affordability in Ontario and B.C.,” TD said.

It expects conditions to improve in 2027 “in parallel with an improvement in the economy and affordability,” with modest population growth lending “a helping hand in 2028 or 2029.”

Supply is also projected to tighten as construction stays on the sidelines in over‑supplied pockets, including what TD called “the GTA condo market, which is famously the weakest market in the country.” 

“In terms of risks, economic underperformance poses a downside risk,” TD said, pointing to the potential for weaker employment to amplify renewal stress. “However, upside potential also exists if falling prices unleash the significant pent-up demand that exists within Ontario and B.C. faster than we expect.”

The bank noted Canada has “seen this before” when surging sales in 2023 and 2024 caught forecasters off‑guard.

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Why the mortgage renewal wave hasn’t spiralled into a crisis

Canada’s 2025-26 mortgage renewal wave has so far fallen short of the chaos once feared, although pockets of strain remain with borrowers in some Canadian cities facing deeper challenges than others.

That’s according to a report released last week by Canada Mortgage and Housing Corporation (CMHC), which showed mortgage arrears – while rising – remain low by historical standards even despite a steady uptick.

Unsurprisingly, borrowers in the pricey Toronto and Vancouver markets are seeing the steepest affordability hurdles at renewal time, but there still seems no sign of the mortgage market disaster some predicted as the renewal wave loomed.

Stress test plays its part

CMHC’s deputy chief economist Tania Bourassa-Ochoa (pictured top) sees a few reasons for that – including the mortgage stress test, sometimes maligned but also viewed as an important way of safeguarding Canada’s financial system.

Regulation has played a significant role in mitigating risk in the Canadian mortgage market, Bourassa-Ochoa told Canadian Mortgage Professional, even despite some of its downsides.

“All these years of mortgage regulation tightening that we’ve witnessed for the last decade – yes, it has kept a lot of first-time homebuyers on the sidelines and yes, it has made it a lot more difficult for people to qualify,” she said.

“But in retrospect it did really limit that increase in mortgage arrears or at least the speed of it – because we were able to stress test these borrowers, basically from the outset. That stress test did act as a safeguard and is limiting what could have been a lot worse.”

Extended amortizations, allowing borrowers to pay down their mortgage over a longer period when renewing, have also helped them navigate some of the challenges posed by higher rates.

“Financial institutions were very proactive in identifying potential riskier borrowers, looking for these adjustments to their mortgage terms at renewals or looking at different choices to make sure these borrowers were kept afloat,” Bourassa-Ochoa said. “I think the proactiveness really helped the trend that we’re seeing right now.”

Those longer amortizations can be seen as a double-edged sword – effective in the short term for helping borrowers manage their mortgage payments, but ultimately keeping them indebted for longer.

Bourassa-Ochoa described the arrangement as a trade-off between short-term financial relief and long-term wealth, with more interest ultimately being paid for a longer period down the line.

Longer-term outlook bleakest in Toronto

Mortgage arrears are still low in Toronto, the most troublesome Canadian city where delinquencies are concerned, but they’ve quadrupled since just after the pandemic and are projected to continue rising in the year ahead.

Home prices have slipped across the Greater Toronto Area (GTA) over the past two years, but it remains one of the country’s most expensive housing markets – a key reason for homeowners’ affordability struggles.

And the disaster that’s befallen Toronto’s condo sector is also playing a part, causing strain for scores of investors who’ve seen their investments in condo rental properties turn sour.

“When you look at Toronto, just by the mere fact that this is a high-priced market means that borrowers there also have larger mortgages and are more leveraged,” Bourassa-Ochoa said. “So they have higher levels of debt.

“The investor story is also very important in this context. You have a market that has a high share of investors in the condo segment. We know that in the last few years we’ve seen carrying costs increase quite significantly: property taxes, condo fees, insurance, even mortgage rates.

“It’s harder to rent right now. There are longer leasing times. And that’s resulting in a lot of investors that are now in a negative cashflow position. So whether you’re a homeowner or an investor in the condo market in Toronto right now and you’re highly indebted and renewing your mortgage, that is definitely putting a lot more pressure in that sense.”

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We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!