Canada’s hotel industry says changing federal mortgage insurance rules for mixed-use developments could produce 21,000 additional rental homes over the next decade while adding thousands of hotel rooms.Hotels Canada called on MPs to expand Canada Mortgage and Housing Corporation insurance eligibility for projects combining hotels and residential rentals.“Over 10 years this policy could create 21,000 new rental units and 14,000 additional hotel rooms,” the organization wrote in a submission to the Commons human resources committee.The estimate was based on comparing current development trends with a higher-growth scenario that could result from changing mortgage insurance limits, according to the submission, Brief For The Study On Housing Starts.CMHC currently restricts mortgage insurance for apartment developments to projects with a maximum 30% commercial component.Hotels Canada said the restriction can make hotel-residential projects ineligible because such developments frequently have a 50-50 or 60-40 split between uses.“The cap may unintentionally exclude projects that deliver substantial housing as hotel-rental developments often have a 50-50 or 60-40 split,” said the submission.The organization said developers can consequently choose to build hotels without residential units because the housing component becomes financially unviable without access to CMHC-backed mortgage insurance.Hotel operators have “strong interest in spending in mixed use projects,” said Housing Starts, but federal financing policies are not designed to accommodate those developments.The proposal comes as Ottawa seeks to dramatically increase the pace of home construction across Canada.The federal government has targeted 500,000 housing starts annually as the minimum required to restore affordability. Canada’s existing one-year construction record was set in 1976, when 273,200 homes were started.CMHC said in its Sept. 10 Fall 2026 Housing Supply Report that current construction trends remain well below the level required.“Based on our current projection, Canada still faces a long-term housing supply gap of 187,000 to 238,000 homes per year over the next decade,” said the report..Ottawa has already introduced tax incentives intended to encourage rental construction.Parliament passed Bill C-56, An Act To Amend The Excise Tax Act, in 2023, eliminating the GST on qualifying new purpose-built rental housing constructed by 2036.The Department of Finance estimated the measure would cost the federal treasury $4.6 billion.Despite the tax break, CMHC reported last year that developers continued to face significant financial obstacles.“Short-term risks – costs, financing hurdles and trade uncertainty – continue to slow momentum,” CMHC said in its 2025 Housing Observer report.“More targeted support, streamlined processes and innovation will be key to unlocking the scale of development Canada needs.”The agency said 42% of developers surveyed expressed pessimism about near-term conditions.While declining interest rates and slower growth in construction costs provided some relief, developers said overall costs remained high and projects continued to face financial challenges from weaker expected revenues, development charges and tariffs.“Access to financing remains a critical factor,” said CMHC.
