The Role of Government Incentives in Hotel and Apartment Building Financing
The public programs that lower the cost of building apartments and hotels in Canada and the U.S., from CMHC loans and tax rebates to LIHTC and partnerships.
Updated & fact-checked Figures are linked to their sources at the end of the article.
Governments in Canada and the U.S. use several tools to make housing and, less often, hotels cheaper to build: insured or direct loans on better terms than the market offers, tax rebates and credits, tax-exempt bonds, and partnerships in which a public body leases or co-funds a private project. Each one comes with conditions, usually on rents, energy performance or public use.
This article is for developers and owners deciding whether a public program belongs in their financing. It lists the main programs, what they offer and what they ask in return. Programs change often, so every figure below is dated; check the program page before relying on it. This is general information, not tax or legal advice.
Apartments get most of the support
Almost all of the large programs target rental housing. Hotels are commercial property and are generally outside them: CMHC’s MLI Select, for example, is open to standard rental buildings, single room occupancy, supportive housing and retirement homes, and does not list hotels.[2] A hotel owner looking for public money usually ends up with small, time-limited regional programs, or with converting the building to rental housing.
Canada: what is available
| Program | What it gives | What it asks in return |
|---|---|---|
| CMHC Apartment Construction Loan Program | Direct construction loan up to 100% of residential cost, fixed rate, up to 50-year amortization | At least 5 units; at least 20% of units at affordable rents for 10 years, or an approved affordable program |
| CMHC MLI Select | Insured loan up to 95% loan-to-cost for new construction, up to 50-year amortization, lower premiums | Points for affordability, energy efficiency and accessibility; 50 points minimum |
| GST/HST purpose-built rental rebate | 100% of the GST, or federal part of the HST | Construction started after September 13, 2023 and before 2031; 90% of units for long-term rental |
| Nova Scotia provincial HST rebate | Rebate of the provincial part of the HST | Same design as the federal rebate; administered by the Canada Revenue Agency |
The CMHC loan program is the most valuable for developers because it replaces the costliest debt: the construction loan. It lends during construction and lease-up, then requires the borrower to move the insured mortgage to a CMHC-approved lender at the end of the term.[1] MLI Select works through ordinary lenders; the insurance lets them lend more, for longer, at a lower debt coverage ratio.[2] Our guide to funding an apartment building development explains both in more detail.
The tax rebates are simpler. Canada rebates 100% of the GST, or the federal part of the HST, on qualifying new purpose-built rental buildings that began construction after September 13, 2023 and before 2031 and are substantially completed before 2036.[3] Nova Scotia approved a matching rebate of the provincial part of the HST on November 9, 2023, with the same design.[4] Together, the two rebates remove the full HST on a qualifying project, which is a large share of its cost.
Hotels in Canada
For hotels, the main federal channel has been the regional development agencies. In Atlantic Canada, the Atlantic Canada Opportunities Agency delivered the Tourism Growth Program, part of $108 million over three years nationally, with $10.6 million for Atlantic Canada. Contributions to businesses were normally repayable, and the program is now closed to new applications.[5] That pattern is typical: hotel support tends to be modest, repayable and time-limited, so it rarely shapes a hotel’s capital stack.
CMHC’s Apartment Construction Loan Program does fund the conversion of non-residential buildings into rental housing.[1] For a struggling hotel, conversion to apartments can open the door to housing programs that the hotel itself could never use. Whether a particular building qualifies is a question for CMHC.
United States: tax credits and bonds
The two main U.S. tools for affordable rental housing
Low-Income Housing Tax Credit (LIHTC)
- Created by the Tax Reform Act of 1986
- State and local agencies allocate credits; HUD describes the program as equivalent to about $12 billion a year in budget authority
- Investors buy the credits, which provides equity for the project
- Covers acquisition, rehabilitation or new construction of rental housing for lower-income households
Tax-exempt private activity bonds
- Bonds issued by a state or local agency, with interest exempt from federal income tax, which lowers the borrowing rate
- The project must meet a set-aside test for the whole qualified project period
- 20–50 test: at least 20% of units for households at or below 50% of area median income
- 40–60 test: at least 40% of units for households at or below 60% of area median income
The details above come from HUD and the Internal Revenue Code.[6][7] FHA mortgage insurance under HUD’s Section 221(d)(4) adds a third layer for construction debt, with leverage up to 90% of cost for affordable projects under a January 2025 HUD letter.[8] None of these have a direct Canadian equivalent; the closest Canadian tools are the CMHC programs above.
Public-private partnerships
A public-private partnership (often called a P3) is a contract in which a private company designs, builds, finances or operates something for a public body, and is paid through a lease, fees or a share of the cost. In real estate, P3s are most common for buildings with a public use, such as convention centres, hospitals and transit-linked development.
Halifax has a well-known example. The Halifax Convention Centre, part of the Nova Centre development, was built by Argyle Developments and leased to the public sector. According to CBC News, the $169.2 million project was funded by all three levels of government: the federal share of $51.4 million was paid to the developer when the lease was finalized in 2018, and the province and Halifax Regional Municipality pay fixed annual lease payments of $10.76 million, split evenly, over 25 years.[9]
Public-private partnerships: what each side gets
For the developer
- A creditworthy public tenant or payer, which makes the project easier to finance
- Public land, funding or approvals that would not otherwise be available
- Long-term, predictable income
Watch out for
- Long procurement and approval timelines
- Political risk: governments change, and so do priorities
- Public scrutiny of the contract terms and returns
- Fixed payments that may not keep up with costs over a long lease
How to use incentives in a financing
Before you build a project around a program
Read the current program page
Terms change; note the date you checked and keep a copy.
Price the conditions
Model the lower rents, energy upgrades or accessible units the program requires, and compare that cost with the savings on debt or tax.
Check the timing
Rebates depend on construction start and completion dates; loan programs take months to approve. Build that into the schedule.
Confirm who carries the obligation
Affordability commitments usually run for 10 years or more and may bind a future buyer.
Get advice
A tax adviser for rebates and credits, and a lawyer for any agreement with a public body.
Sources
- Apartment Construction Loan Program: Standard Rental Housing — Canada Mortgage and Housing Corporation. Checked 2026-10-12.
- MLI Select — Canada Mortgage and Housing Corporation. Checked 2026-10-12.
- GST/HST purpose-built rental housing rebate (PBRH rebate) — Canada Revenue Agency. Checked 2026-10-12.
- Notice: Purpose-built Rental Housing Rebate — Nova Scotia Department of Finance and Treasury Board, July 30, 2025. Checked 2026-10-12.
- Tourism Growth Program in Atlantic Canada — Atlantic Canada Opportunities Agency. Checked 2026-10-12.
- Low-Income Housing Tax Credit (LIHTC) Program Data — U.S. Department of Housing and Urban Development, HUD User. Checked 2026-10-12.
- 26 U.S. Code § 142: Exempt facility bond — Legal Information Institute, Cornell Law School (text of the U.S. statute). Checked 2026-10-12.
- Mortgagee Letter 2025-03: Multifamily Changes in Debt Service Coverage Ratios and Loan to Value/Loan to Cost Ratios — U.S. Department of Housing and Urban Development, January 8, 2025. Checked 2026-10-12.
- Province finalizes lease for Halifax Convention Centre — CBC News, March 6, 2018. Checked 2026-10-12.
