Manufacturing a housing solution: The role that modular homes could play in Canada

Canada needs to hit the gas on home-building to boost supply and improve affordability; but something that could help is flying under the radar: modular homes.

This type of home is built in modules at a factory and then shipped to a permanent location. Today’s modular homes include customizable condos, townhouses and single detached homes. They look like their conventionally built counterparts but offer a major advantage. Modular homes can be manufactured year-round and aren’t delayed by bad weather or a labour gap. Indoor production is much faster and more efficient than on-site building.

How much faster, exactly?

When we asked our client Frank Cairo, a co-founder and co-CEO of Caivan, one of Canada’s largest producers of manufactured housing, he told us, “We build between five and seven homes a day and every single one of those is unique.”

At a time when the need for speed is real, some industry experts estimate that modular builds can be completed 30-50% more quickly than traditional ones.

We build between five and seven homes a day and every single one of those is unique.

Homes in major Canadian cities now cost an average of $1 million. To restore affordability, Canada would need to add 3.5 million housing units by 2030, according to the Canada Mortgage and Housing Corporation (CMHC). Even that extraordinary figure is an undercount, since it doesn’t include demand from students and non-permanent residents.  Ontario and British Columbia have the biggest housing supply gap, and it is growing in Quebec and Alberta.

Consider also the impending number crunch on the conventional building side: Canada’s construction industry already has 80,000 vacancies, a shortage that is top of mind among developers we talk to. Another 300,000 construction workers are expected to retire in the coming decade. Furthermore, construction costs have risen by 51 per cent in recent years. Factories, which can benefit from advances in automation, are in a better position to adapt to these realities. In a controlled production environment, emissions can also be reduced by up to 22 per cent, at a time when Canada is seeking ways to meet its net-zero commitments.

Modular housing needs to be part of a basket of solutions to Canada’s housing crisis. Yet Canada seems to be in no hurry: our modular and prefabricated homes have held steady for decades around 1 per cent of dwellings, according to IBIS research. Meanwhile, prefabricated homes already dominate the housing landscape in places like Germany, Sweden and Japan.

In the 2024 federal budget, the Canadian government included support for modular homes as part of its attempt to help address the affordability crisis. It earmarked $50 million in new funding for a Homebuilding Technology and Innovation Fund, aiming to work with the private sector and other governments to scale up, commercialize and adopt new homebuilding techniques, including for modular and prefabricated homes. Another federal program, CMHC’s Apartment Construction Loan Program, will also earmark at least $500 million to provide low-cost financing to prefabricated housing manufacturers that take on rental housing projects.

While these investments are welcome, funding alone won’t create a boom in manufactured or conventional housing. The bigger hurdle is Canada’s patchwork of local building approval systems, at the municipal and provincial levels, which slows all types of housing development. Manufacturing is a particularly capital-intensive process and builders like Caivan would need greater regulatory certainty to feel confident it makes financial sense to scale up. New players would be more likely to enter the field, too, if they saw a clear way to navigate the land development process and secure approvals. So far, there’s no such pipeline.

Despite Canada’s slow start in this space, we’re actually manufacturing homes more quickly, and at a lower cost, than our more experienced European counterparts. In Germany or Sweden, a manufacturing facility only produces a fraction of the number of homes as a Canadian plant: perhaps two or three homes a week, compared to Caivan’s five or seven a day. In fact, Cairo recently gave a tour to German home manufacturing companies who came to Ottawa to learn more about Caivan’s process.

“They’re trying to figure out, how do you guys build this so cost-effectively?” Cairo told us.

Still, modular homes alone cannot restore housing affordability. Compared to building a conventional home, buyers can likely save 10 to 20 per cent on materials and labour costs; but other associated costs like the price of land and permit approvals are still elevated. Modular homes do provide an avenue for long-term cost savings: they are built more precisely and are much more energy efficient than conventional homes.

So far, no one country is getting modular homes right just yet. This means the door is open for Canada to lead the way. If we can boost capital support and get the regulations right, we’re on a path to scaling this solution in a way that makes a meaningful difference to Canada’s housing landscape.