How Canada’s big banks shape the housing crisis
(Image courtesy of CBC)
A new paper examines what it calls the “largely unexamined” relationship between Canada’s banking sector and the country’s housing crisis. The report, released by the international housing rights organization The Shift, analyzes how bank lending practices, mortgage securitization, and commercial financing standards shape housing unaffordability, household debt, and tenant displacement. The result is a housing system increasingly structured around financial imperatives, not affordability.
For decades, public debate about Canada’s housing crisis has focused on population pressures, zoning practices, construction bottlenecks, or investor demand. Less attention has been paid to the institutions that mediate nearly every financial transaction in the system: the country’s major banks. As detailed in The Shift’s analysis, Canada’s largest mortgage lenders — RBC, TD, Scotiabank, CIBC, BMO, and Desjardins — play a determinative role in shaping both the price of ownership and the stability of rental housing. The six largest banks earned close to $60 billion in profits last year, the same period in which mortgage debt reached $2.2 trillion, roughly 85 percent of Canada’s GDP, one of the highest ratios in the developed world.
Mortgage credit as a price engine
One of the report’s central findings is that mortgage credit expansion is a primary driver of rising home prices. Citing economists, the OECD, and the International Monetary Fund, the report explains that when households can access more mortgage credit — whether because interest rates have fallen, down payment requirements have been reduced, or amortization periods have lengthened — they are able to bid higher on homes. These bids, in turn, reset market expectations and push comparable prices upward.
The report offers a simple analogy: when the price of cauliflower or almonds rises due due weather events, consumers buy less. Housing operates differently. When prices rise, financial institutions and government policies often tell households they can still “afford” a home by extending more credit through low-interest loans, reduced down-payment requirements, or longer amortization periods. This keeps prices high. During the pandemic, for example, record-low interest rates made mortgages significantly cheaper, contributing to rapid increases in home prices. Even as the Bank of Canada raised interest rates back up to five percent in 2023, national price declines remained marginal. This indicates that deeper financial forces in the housing system can outweigh both rising interest rates and traditional supply-and-demand dynamics.
Information courtesy of the Canadian Union of Public Employees.
This cycle of more credit, higher prices, increased lending, and growing household debt creates what the report describes as a “positive feedback cycle” within the housing market. The cumulative result is that mortgage lending has become a dominant activity for Canadian banks: mortgages now represent 70 percent of all bank lending and about 50 percent of the banking system’s assets.
Policy choices that deepen household debt
The report emphasizes that government policy interacts with these lending practices in ways that often intensify debt burdens. A key example is the federal decision to increase the price cap for insured mortgages from $1 million to $1.5 million. Under this change, a homebuyer can now purchase a $1.2-million property with a down payment of just $95,000 — far below the 20 percent threshold typical under international Basel III standards. While the government framed the change as a way to support first-time buyers, The Shift’s analysis finds it contributes to higher household debt loads while also helping inflate home prices.
The report also notes that between 2021 and 2023, the share of residential mortgages with amortization periods exceeding 30 years rose from zero to roughly one-third. These extended timelines lower monthly payments in the short term, but they come at a high long-term cost. A 30-year mortgage on a $500,000 loan at 5.5 percent interest generates about $515,500 in interest — 21 percent more interest than the same loan paid over 25 years — while only reducing monthly payments by roughly seven percent.
At the household level, these dynamics are reflected in rising financial strain. By 2022, about 32 percent of mortgage holders were spending more than they earned, and 65 percent reported difficulty meeting financial obligations.
Securitization and the financialization of mortgages
Another major theme in the report is the scale and impact of mortgage securitization — the process through which banks pool mortgages, obtain government-backed insurance through the Canada Mortgage and Housing Corporation (CMHC), and sell these bundles as securities to investors. According to The Shift, about $503 billion in Canadian mortgages had been securitized by the end of 2023, comprising nearly a quarter of all outstanding mortgages.
Securitization provides banks with substantial liquidity, allowing them to issue more mortgages. It also transforms homeowners’ monthly payments into revenue streams for institutional investors such as pension funds and asset managers. While banks continue to interact with borrowers, their primary financial client in this structure becomes the investor. Borrowers may be unaware that their mortgage has been sold, and lenders are not required to disclose this. With CMHC guaranteeing these securities, investors are protected from losses while the public assumes the financial risk, thus exposing taxpayers to the consequences of potential downturns. The safety of that guarantee fuels strong demand for mortgage-backed securities and helps sustain high levels of mortgage lending. It also links Canada’s housing market to global capital flows, since overseas institutional investors are among those buying these securities.
Commercial financing and pressures in the rental market
The report also examines bank practices in the multi-unit rental sector, where commercial financing criteria can influence rent levels and tenant stability. A central metric is the Debt Service Coverage Ratio (DSCR), which requires that a building’s net operating income exceed its annual debt payments by a set percentage, typically 25 percent. This calculation, The Shift notes, creates incentives for landlords to increase rents or reduce operating costs to meet or exceed the threshold required for favourable financing terms.
Banks also assess capitalization rates, which favour buildings that generate higher rental income or show potential for revenue growth. According to the report, this contributes to a tiered lending system in which renovated or repositioned buildings — those able to command higher rents — receive more favourable financing terms, while older buildings with below-market rents face stricter ones. This dynamic does not arise because banks intend to cause displacement, but because lending rules unintentionally reward landlords who increase rents through renovations or tenant turnover. As a result, the system can encourage renovation-driven displacement and make it harder for non-profit housing providers to compete, since they face higher equity requirements and more restrictive loan conditions.
Symbiotic system
Throughout the analysis, The Shift stresses that these dynamics do not operate independently. Banks function within a broader ecosystem of government policy, CMHC insurance structures, and institutional investor demand. These actors form a symbiotic system in which lending practices, financial instruments, and revenue models reinforce one another, often with consequences for affordability and housing stability.
Recommendations
The report concludes with several recommendations aimed at reshaping the relationship between banking practices and housing outcomes. These include reforms to commercial lending criteria to account for tenant security, improved transparency around mortgage securitization, specialized lending units for non-profit housing providers, and requirements for banks to assess the climate impact of their real estate financing. The Shift also calls for amendments to the Bank Act to better align lending practices with the principles of the National Housing Strategy Act. You can read the 34-page report here.
