Federal Budget 2024: A Medium-Term Boost for Commercial Multi-Unit Lending
In the wake of Canada’s Federal Budget 2024, analysts are anticipating a medium-term positive outlook for commercial multi-unit lending. The budget, unveiled recently, outlines supply-side initiatives aimed at bolstering housing supply, particularly in the multi-unit sector, amidst the backdrop of robust population growth in the country.
Supply-side initiatives featured in the budget are expected to have an incremental positive impact on multi-unit lending. However, it’s worth noting that increasing housing supply is a complex and lengthy process, and while the direction seems right, it will require significant effort and time to materialize fully.
The Federal housing plan sets an ambitious target of adding 3.9 million new homes by 2031, translating to an annual housing starts rate of approximately 560,000 until the specified year. This level of production represents a substantial increase compared to the current annualized run-rate and the average over the last five years.
Within the coverage universe of analysts, it’s observed that a considerable portion of mortgages and loans are directed towards commercial multi-unit lending. For instance, a significant proportion of mortgages under administration at First National and loans under management at EQB are allocated to multi-unit lending. Similarly, portfolios of Mortgage Investment Corporations (MICs) like Atrium MIC and Timbercreek Financial predominantly consist of mortgages and construction loans for commercial residential development.
The budget introduces several initiatives aimed at accelerating housing construction, particularly in the purpose-built rental segment. Notable additions include the expansion of GST removal to cover student housing development, additional funding for insured multi-unit mortgages and construction loans, an accelerated capital cost allowance rate for purpose-built rentals, and measures to unlock federal lands for residential development.
On the demand side, measures to improve affordability are highlighted in the budget. Notably, the extension of mortgage amortizations for first-time homebuyers purchasing new builds and an increase in the Home Buyers’ Plan withdrawal limit are among the key initiatives. These measures are expected to have a minimal impact on overall demand but could potentially provide a slight tailwind for mortgage growth.
Stocks to Benefit from Policy
- First National Financial Corporation (FN.TO): As a leading Canadian mortgage lender, First National Financial Corporation is well-positioned to benefit from increased demand for commercial multi-unit lending. With a significant portion of its mortgages under administration directed towards commercial lending, the company could see growth opportunities amid the focus on bolstering housing supply.
- Equitable Group Inc. (EQB.TO): Another prominent player in the Canadian lending landscape, Equitable Group Inc., could benefit from the medium-term positive outlook for multi-unit lending. With a substantial portion of its loans under management allocated to multi-unit lending, the company is poised to capitalize on the initiatives aimed at accelerating housing construction, particularly in the purpose-built rental segment.
- Mortgage Investment Corporations (MICs): MICs such as Atrium MIC (AI.TO) and Timbercreek Financial Corp. (TF.TO) could also see opportunities for growth in their portfolios, given their focus on providing mortgages and construction loans for commercial residential development. With a significant proportion of their portfolios dedicated to multi-unit lending, these MICs could benefit from the increased emphasis on expanding housing supply.
- Homebuilders and Developers: Companies involved in residential development, such as Brookfield Residential Properties Inc. (BRP.TO) and Mattamy Homes (privately held), could see increased demand for their services as the government aims to accelerate housing construction. These companies play a crucial role in building new homes, including multi-unit residential properties, and could experience heightened activity in the medium term.
- Construction Materials and Services Providers: Companies supplying materials and services to the construction industry could also benefit from increased housing construction. Companies like Stuart Olson Inc. (SOX.TO), a construction services provider, and suppliers of construction materials such as CanWel Building Materials Group Ltd. (CWX.TO) could see a rise in demand for their products and services as construction activity picks up.
Overall, Canada’s Federal Budget 2024 presents a comprehensive approach towards addressing housing challenges, with a focus on both supply-side and demand-side measures. While the initiatives are poised to support commercial multi-unit lending in the medium term, their full impact will unfold gradually as they are implemented and integrated into the housing market landscape.
