The 15 affordable apartments Renée Wetselaar dreamed of more than five years ago are nearly complete – and send a “mighty message” in Canada’s housing crisis.
Unlike most other housing projects, the walls, floors and roof were not built on-site at 412 Barton Street in Hamilton, Ont. Instead, they were made in a Quebec factory, flat-packed and shipped to the city’s east end for assembly into a narrow, six-storey building known as 412 Barton.
“Even though it is a small build, it has a mighty message,” Wetselaar, executive director of the nonprofit St. Matthew’s House, told Canada’s National Observer.
Canada needs to build millions of affordable homes quickly to address its worst housing crisis since the end of the Second World War. Prefabricated housing is in the spotlight as a faster, cheaper and more sustainable way to deliver those homes.
“The way we build homes needs to change,” Prime Minister Mark Carney said last month in announcing a Liberal housing plan to ramp up the prefab and modular industry and double new construction to nearly 500,000 homes a year.
The number of new homes built annually in Canada is roughly the same as the 1970s — about 245,000 housing starts in 2023 — while annual population growth has tripled in recent years, the Fraser Institute said on Tuesday in a new study on the housing crisis.
The Liberal plan provides $25 billion in financing and other measures to expand an industry that can deliver homes in half the time, at up to 20 per cent lower cost and less pollution than traditional building methods, Carney said.
Housing is a key issue in the April 28 federal vote and Liberals are proposing the most direct government involvement in the sector in decades. The NDP aims to release federal lands for affordable housing, while Conservatives are offering incentives and expedited project approvals.
Change won’t come easily. The construction industry today is wedded to traditional materials and methods – and struggling with rising costs, labour shortages, supply chain problems and trade tensions.
“We've kind of grown accustomed to a certain way of building with wood framing, where we're building everything on site,” said Dan Winer, the executive lead at Small Housing BC, a Vancouver-based nonprofit.
“Now the supply chains have become so ingrained … we're really looking at a generational shift in the way that we construct residential homes,” he added.
“Eye of a storm”
Canada will need 3.5 million housing units by 2030, according to housing agency CMHC. Justin Trudeau’s government set an ambitious goal to “unlock” 3.9 million new homes by 2031, and also clean up the industry to help meet the country’s 2050 net zero pledge.
Reaching those goals in 5-6 years will be hard, if not impossible, if the industry continues business-as-usual, experts say.
Most onsite builders today ship two-by-fours, plywood sheets and other materials to a lot where workers erect a home in 8-12 months. That timeline could take longer as trade tensions crimp supply chains. Chronic labour shortages are also set to worsen: one-in-five construction workers will reach retirement age in the next decade.
“We are going into the eye of a storm. You think our housing crisis is an issue today?” said Alex Boston, a Vancouver-based climate consultant. “It’s only going to get worse.”
Construction is also Canada’s third-largest polluter, generating four million tonnes of waste annually and 30 per cent of greenhouse gas emissions from materials like concrete and carbon embedded in existing buildings. New homes built in old ways will only expand the industry’s carbon footprint.
Modular merits
Offsite construction can be part of the solution, modular builders say.
Wetselaar learned about modular housing years ago while working in social policy planning and wanted it for Hamilton, a city grappling with rising homelessness and a shortage of affordable housing.
The flexibility of prefab building in tight city spaces, as well as its speed and sustainability, appealed to her. Despite delays and higher costs due to COVID-19, and city regulatory hurdles, the build itself went smoothly.
The prefabricated floors, walls and roof took about three months to assemble on-site. Its future residents – mainly Indigenous and Black seniors facing homelessness, with half of the units set aside for women – are due to move in by June.
“Once we had the pathway for the build, it did go very quick,” Wetselaar said.
BC-based Intelligent City, which recently announced plans for a nine-storey, mass timber residential tower in Toronto, said its components can be manufactured in four months, costing 10-20 per cent less than a similar concrete build.
Less waste is another advantage, said Francesca MacKinnon, sales and marketing director at Assembly Corp, a Toronto-based turnkey housing provider that works with prefab factories.
Panels and other components can be made with 80 per cent less material waste than a typical on-site housing project, she said.
Despite these advantages, the industry has struggled to gain market share.
"There’s a reason construction hasn’t evolved in 100 years"
Chris Hill at BC Collective
Just one per cent of Canadian homes are made with pre-built panels due “largely to unchanged consumer preferences and government policies,” market researcher IBIS World said last November.
That compares to 84 per cent of detached houses in Sweden, 20 per cent in Germany and 15 per cent in Japan.
“Tough business”
Prefab proponents say several factors are stifling the industry’s growth.
“It’s a tough business,” said Chris Hill, founder of Vancouver-based BCollective, which has built several prefabricated homes out of its factory in East Vancouver. “There’s a reason construction hasn’t evolved in 100 years.”
Panel fabrication plants require significant upfront investment — from several hundred thousand dollars for basic facilities to hundreds of millions for full-scale factories — not to mention paying for skilled workers as well.
“As soon as you’re not producing every single day, you’re losing money,” Hill said.
While factory building doesn’t generate a big return on investment in terms of cash flow, it’s still a good business model, Hill said.
“It does create houses. It does create equity. It does create a lot of jobs.”
North American businesses tend to focus on two-year returns, Hill said, while European firms can take longer views in a mature market. For Canadian builders who make money using traditional methods, there’s a risk in trying something new.
“They're very much bottom-line focused,” he said.
Demand challenge
Lack of demand is another barrier – what experts call a “chicken or egg” problem.
“We don't have enough manufacturing capacity, so we don't have enough supply of offsite construction — because we don't have enough demand,” Boston said. “And we don't have enough demand because we don't have enough supply.”
“We need 15 to 20 years of predictability and confidence to instill in the marketplace to say: ‘You know what? We know that we’re going to have consistent demand,’” Boston said.
Carney’s plan includes more than $25 billion in financing to scale up factory housing, and $10 billion in low-cost financing to build “deeply affordable homes for those most in need.” A new government developer – Build Canada Homes – would bulk-buy units from housing manufacturers to spur demand.
The Canadian Home Builders’ Association gave the Liberal plan some positive marks, but said removing barriers to homeownership would yield greater results.
“Factories can’t invest when buyers can’t buy,” the group said.
Implementing new programs also takes time. A $50 million federal fund for “innovative housing technologies and materials” in the April 2024 federal budget took nearly a year to announce the first approved projects.
In BC, Premier David Eby pledged during last fall’s election to fast-track factory-built homes, but progress has been slow.
Ravi Kahlon, Minister of Housing and Municipal Affairs, told CNO in a statement that the province “embraces” new technologies like prefabrication and plans to meet with a group of mayors working to expedite prefabricated housing.
Market certainty strengthens the business case for modular homes, said Winer. Standardized designs — like BC's catalog released last fall — and favourable municipal zoning would drive material and labour economies of scale while reducing costs.
“But in order for the full cost effectiveness to be realized, it requires all of these systems working together in unison,” Winer said.
Inside a factory
Quebec’s Fab Structures is a case study for builders considering a move into modular.
Jake Chicoine and his brother, Ben, founded the firm in 2011 after running a conventional construction company and seeing the drawbacks in lost energy efficiency and the use of toxic materials in insulation.
They now operate a 14,000-square foot prefabricated panel factory in Wakefield, Que., with 14 full-time staff.
With the help of robots, Fab can produce 100,000 square feet of prefabricated panels a year, or enough for 250 housing units, including 412 Barton. They aim to double production this year.
The brothers faced early challenges. Sustainable materials like high-performance tapes and air and moisture barriers were scarce before the materials were certified in North America. Complex building codes were another hurdle.
They also had to overcome the “zeitgeist around prefabrication in Canada” which assumes factory builds are poor quality, Chicoine said.
That’s no longer based in reality; some studies have argued prefab projects can catch potential defects during the design phase, yielding higher-quality builds.
New entrants should integrate prefab into the initial building design and plan logistics and assembly well in advance, said Sophie Abboud, Fab's chief operating officer.
"The market is coming around to it"
Jake Chicoine at Fab Structures
“You have to work your way back from how you're going to bring these bigger panels, or if you need a crane,” she said. "It's very contrary to traditional construction.”
Financing requires a new approach, too. Traditionally, developers access loans only when on-site construction begins. With off-site builds, funds are needed 2-3 months earlier — a timeline some financial institutions consider too risky if projects fail.
Speed and flexibility are selling points. With municipal approval, developers can work on parts of the home simultaneously. While the factory is building walls, crews can prepare the foundation at the building site.
Components such as walls, floors and roofs can be installed in just two weeks, and the entire project completed in 4-6 months.
“The market is coming around to it,” Chicoine said.
“Perfect storm of opportunity”
Like many Canadian industries, the construction sector is facing a lot of uncertainty in the trade war launched by President Donald Trump against most U.S. trading partners, including Canada.
Tariffs on prefabricated buildings, materials and related components would hike building costs in a global supply chain, reduce housing affordability and hinder the sector’s growth, the Modular Building Institute, a global lobby group with 71 members in Canada, said in a statement.
“People are less likely to make big, large real estate decisions when the market is uncertain,” Assembly Corp’s MacKinnon said of the tariff turmoil, although her long-term view of prefab is optimistic.
Her company was already sourcing wood from Canada and Europe before the trade turmoil, and looking to Sweden to equip a new factory in Toronto, Ont. Only a few items such as elevators and parts for HVAC equipment are coming from the US.
The trade war could be an opportunity given the renewed interest in offsite construction in Canada, and “the noise around future proofing more industries” in the country, said Hill from BCollective.
“We have a housing crisis. We have a trade crisis. How much can we internalize that to generate income, spread the economy and build houses?” he said.
“I think it is a perfect storm of opportunity.”
Comments
There's another thing holding back this industry: bank policies on mortgage lending. I was unaware of this until friends recently had the mortgage pulled on their homebuilding project by a big Canadian bank shortly before they were about to start construction. The major components were being assembled in another province and were to be shipped to the building site in BC where the foundation had already been poured. But the mortgage was cancelled because the bank policy was that they wouldn't fund construction involving that kind of arrangement. I'm not sure whether the hangup was the distance between the manufacturing plant and the building site, or just them being in different provinces, or both. Fortunately, my friends were able to find a local contractor who could custom-build something to fit the foundation, and they completed the project, though not without what must have been a hideous amount of extra stress and expense. So unless goofy policies like this get addressed, this industry is going to be held back unnecessarily.
I wonder if Carney's housing plan has a financing component? Would they consider a new CMHC financing policy that uses public funds as seed money?
The proposal seems to be oriented heavily toward affordable non market, social and rental housing more than private mortgages.
In addition, single family detached homes are becoming obsolete in cities with chronic land supply shortages while demographic pressures mount, like in Metro Vancouver. Clearly, land use planning, urban design and architecture must follow these advances in building technology.
In my view the orchestration of these efforts will bring more apropriate forms of housing and mixed use, walkable communities to the forefront. But it's also important for senior governments to follow up with improved transit and public services.
This is the future. It's far more sustainable and less wasteful than the outdated standard practices from last century.
Great reporting.
Very much agree.
As to banker friendly financing, if Carney can t make it happen then no one can.
This reminds me of what happened post war, where they built cookie cutter homes to manage the housing issues back then. Will they be affordable or not depends on the cost of materials and trade labour these days.
But I also see with our current stalled housing market, a number of affordable homes listed for sale, but no buyers. The buyers are sitting on the fence, worried about the costs and instability caused by the Orange Sphincter to the south.
The biggest problem with affordability is the mortgage costs these days. Monthly mortgage costs have become ridiculous and household wages have been falling behind for years. Corporations have become richer on the backs of Canadians paid slave wages. It's time to rein in corporate greed and pay people a livable wage. Without decent wages, no one will be able to afford a home, let alone rent these days.
Still, there seems to be a lot of building going in my Vancouver neighbourhood, one of the tightest and least affordable markets in the nation.
I haven't done any research on it, but I read about the effects of the recent changes to Vancouver's zoning bylaws and provincial pressure to densify around transit and beef up the building code, specifically concerning energy efficiency and emissions.
There is a chronic land shortage in Vancouver (which is constrained in all directions except up by geography and previous political attitudes protecting wealthy low density neighbourhoods with exclusionary zoning) and the builder-developer sector is busy converting stand alone single family structures into multi-family. They are doing a fairly good job maintaining the character of older neighbourhoods too, even though height and lot coverage restrictions have loosened.
The key to affordability today is leaning more and more on the rental market, which has been in construction decline for decades. Vancouver's land supply shortage has translated in part into higher purchase prices on homes. That cost is not going away. Therefore, rental housing must help increase the housing supply, which in turn will moderate prices..
Enter public housing programs. Low and medium rise rental buildings that receive federal and provincial seed money (preferably with long term conditions set on rental rates) can be a very effective way to meet our urban housing challenges. Cities could also help keep upfront costs reasonable by donating some of their land holdings toward affordable multi-family housing.
Mark Carney's housing plan is a very interesting policy with respect to the above and in using innovative Canadian tech in mass timber and beefed up energy efficiency. The program is designed to create jobs and economic activity during an economic crisis not of our making while also filling a gap in housing need.
This is a great advancement in the building industry where productivity has been flat for decades. Modular/Off-Site, especially for housing is not a new idea. It also works great for remote areas like the Territories especially NU where transportation access and trades are limited. A key to success - like most manufacturing - is a steady, reliable market, which housing should be. There are lots of influences in the housing market, most significantly municipalities and the planning and permitting process. If municipalities and Provinces can improve their process timelines and support modular, more homes will get built more quickly. Their inspection processes will also be more efficient as they can take place in the factory.