For decades, financing new housing in Canada has largely followed a familiar pattern – pre-sales, bank loans, institutional capital, and, increasingly, government incentives. But with traditional funding sources tightening amid economic uncertainty and market turmoil, developers are searching for alternative models to unlock much-needed supply.
One potential solution is emerging in the form of real estate development IPOs, a novel financing tool that is gaining traction. The model made headlines in late 2024 with two significant offerings: the Anthem Citizen project in Metro Vancouver and Plazacorp Willowgrove in the Toronto area. Both were underwritten by CIBC and structured as Real Estate Development Trusts (REDTs) – first of their kind real estate financing vehicles that could serve as a blueprint for tackling the nation’s deepening housing crisis.
“Policy changes, increased costs, shifting market cycles, and more create an ongoing challenge for developers hunting for capital, which requires innovative and creative thinking to get projects off the ground,” Anthem Co-Founder & CEO Eric Carlson said in a news release last year.
Anthem Citizen raised $82 million to build what will become one of Metro Vancouver’s tallest buildings. The 66-storey mixed-use tower will feature 372 condominiums and 273 rental apartments, along with office and retail space and a 176-suite hotel—part of a growing trend of high-density, mixed-use developments across Canada.
“It’s a great way to push the boundaries of what’s possible and take a new approach to making housing happen,” Carlson said.
The Plazacorp Willowgrove development in Markham and Stouffville secured $75 million to finance a 1,000-home project.
While these offerings were a first for Canada, they weren’t CIBC’s first foray into real estate IPOs. The bank has underwritten two similar transactions for the United States: last year’s Lantower Residential Real Estate Development Trust and West Side Square Development Fund. Those deals provided capital for large-scale rental projects in Florida and New Jersey, helping build thousands of new housing units.
Could these REDTs do the same for Canada?
Canada’s housing market is navigating a period of deep uncertainty. The country is simultaneously grappling with a massive shortage of affordable housing while struggling to generate new supply. Governments, developers, and financial institutions are all searching for answers.
The Canada Mortgage and Housing Corporation (CMHC) estimates that 5.8 million new homes must be built between 2022 and 2030 to restore affordability, which implies almost $3 trillion in total required funding. The Office of the Federal Housing Advocate puts the number even higher, estimating Canada will need more than 9 million new homes over the next decade to meaningfully improve affordability. Yet, despite the urgent need to ramp up, home construction is actually slowing.
CMHC forecasts that housing starts will decline in each of the next three years, averaging about 240,000 annually over that time. At that pace, we would still be more than 4 million homes short of CMHC’s target by the end of 2027. Closing the gap by the start of the next decade would be an almost impossible task.
Rising construction costs, labour constraints, regulatory red tape, zoning and high development fees are all contributing to the supply bottlenecks. The looming threat of U.S. tariffs could add another layer of risk, further constraining the sector’s outlook.
But access to financing has lately become one of the biggest hurdles.
Among the culprits for disappearing liquidity is a growing stock of unsold condo units in high-priced markets like Toronto, which is dampening investor interest and slowing the launch of new projects. The glut has left the traditional pre-sale model, once a key funding mechanism for condo developments, faltering.
Urbanation reports that only 10% of condo projects launched for presales in the final three months of 2024 in Toronto were sold—down sharply from the 10-year average of more than 50%. Prices are too high for small investors to make money in the current interest rate environment, yet developers can’t lower prices due to rising development costs. The result? A big loss of capital flowing into the nation’s housing market.
Government rental-focused initiatives—primarily through CMHC—are helping to provide some lift to rental construction. Rental properties now represent about 16% of all new construction, the highest level on record. But these programs come with conditions that can undercut profitability and are highly sensitive to shifting political priorities, making them an uncertain solution.
Funding difficulties for developers
Residential Real Estate Investment Trusts (REITs) have all but stopped raising capital. In 2024, no residential REIT debt or equity offerings were recorded in the S&P Global Market Intelligence annual report on the sector.
Publicly traded Canadian REITs outside of housing did see an increase in capital offerings last year, but almost all of it was debt, with significant decreased volumes of equity recorded, reflecting how real estate firms are avoiding dilution amid market uncertainty. According to Colliers, REITs accounted for just 8% of all real estate acquisitions in Canada last year, down from 25% in 2017.
Meanwhile, traditional lending institutions, historically the backbone of housing finance, are also tightening credit amid economic uncertainty.
According to the Canadian Rental Housing Construction Survey conducted in early 2024, 85% of developers reported difficulties securing funding for their projects.
As a result, the numbers are telling a sobering story. Investment in residential construction, when adjusted for rising construction costs, is at its lowest level in a decade, and down about 18% since the peak in 2021.
Source: Bank of Canada
Without a course correction, Canada runs the risk of pricing an entire generation out of homeownership while pushing shelter costs for low-income families to unsustainable levels.
Even as affordability has improved somewhat with falling interest rates, the share of household income spent on housing (the blue bars in the chart above) remains at historically elevated levels. Last year, nearly half of Canadians reported being very concerned about their ability to afford housing, according to a Statistics Canada survey.
This is why the real estate IPOs were so encouraging.
With volatile public markets and a constrained real estate sector, investors are looking for alternative ways to preserve capital, hedge against inflation, and generate stable returns. Large pension funds and endowments—including CPP, OMERS, and OTPP—have substantially increased their holdings in private real estate over the past two decades for precisely this reason.
Private multi-residential properties, a key segment of alternative investments, have often outperformed traditional equities and bonds while maintaining lower volatility and providing downside protection.
Meanwhile, unlike REITs that manage income-generating properties, REDTs allow investors to directly finance new housing developments – a model has the potential to bring sidelined capital back into the market.
Anthem Citizen, for example, was structured to be investor-friendly, targeting annualized returns in the 15-20% range. Investors can participate through registered accounts such as TFSAs and RRSPs, making it a tax-efficient investment.
Beyond capital infusion, real estate IPOs also address another major challenge: speed. Traditional developments are often built in phases due to funding constraints. A developer might complete one tower before moving on to the next, delaying the overall project timeline. REDTs raise the necessary capital upfront and can advance multiple phases simultaneously, delivering housing to market faster.
With access to private capital, REDTs can take on large-scale projects that meaningfully impact housing supply, offering both scale and speed advantages.
The recent success of real estate IPOs underscores the potential for innovative financing to help break Canada’s housing market out of its current stagnation. In the process, Canada has a chance to turn its housing crisis into an opportunity.
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