Modular Momentum: Can Prefabricated Homes Solve Canada’s Housing Crisis?
July 11, 2025
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
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Canada faces a mounting housing crisis. Current estimates suggest we need about 3.5 million additional homes by 2030 to restore housing affordability[1]. Yet at current building rates, we are far off pace. In this context, Prime Minister Mark Carney’s recent declaration rings clear: his federal housing plan is betting on prefabricated & modular homes as a solution to build more homes, faster and greener than traditional construction[2]. However, can modular construction truly solve Canada’s housing crisis? We examine modular’s promise through global evidence and assess whether it is a practical, scalable solution, or just political wishful thinking.
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The current modular market in Canada is ~$2.5 billion [3], increasing at a CAGR of 6.7%. Modular construction accounted for approximately 6.14% of the total square footage for new construction in 2023 [4].
* (Data centers, testing labs, kiosks, ticket booths etc.)
Source: modularbuildinginstitute
Source: modularbuildinginstitute
Can Modular Address Canada’s Housing Shortage?
The appeal of modular construction is its potential to rapidly boost housing supply. Let’s examine its impact on speed, cost, quality, and resources in the Canadian context:
Speed: Accelerating Delivery
Canada currently adds ~200,000 homes per year[5]—far short of the ~3.5 million units needed by 2030. Modular construction can help close this gap by significantly shortening build timelines. A single modular factory can produce 1,000–2,000 homes annually; with 20 such factories nationwide, this could contribute 20,000–30,000 additional homes per year—an increase of 10–15% in annual supply. Modular excels in projects with standardized units—such as rentals, student housing, and supportive homes—delivering entire buildings in months instead of years. While not a silver bullet, modular offers a way to catch up faster in a time-sensitive crisis.
Cost: Savings at Scale
A potential 20% cost saving could lower average construction costs per square foot from $250–$350 to $180–$250[6]. For a 2,000 sq. ft. home, that means $100K–$150K in potential savings. Developers benefit through improved project viability, and renters or buyers may see lower prices. However, these gains depend on scale. Transportation, factory overhead, and financing costs can offset labor savings, meaning net savings may be closer to 10% in practice. Still, in tight-margin projects—especially affordable housing, this can make a critical difference, especially when paired with incentives like bulk procurement or low-interest financing.
Quality and Sustainability: Raising the Bar
Far from compromising quality, modular construction in factory-controlled settings often results in more consistent builds. Some firms report defect-free rates above 95%. Environmentally, modular construction reduces emissions by up to 22% and waste by up to 50%, aligning with national climate goals.
Resources and Workforce: Need for a new Ecosystem
Modular construction uses fewer skilled trades per unit. Factory workers can be trained quickly and specialize in tasks, partially easing the skilled labour shortage. However, large-scale adoption may face resistance from unions and require reskilling efforts. Supply chains are another constraint: scaling modular will demand more lumber, cross-laminated timber (CLT), fixtures, and efficient logistics. Without investing in materials and regional factory networks, production bottlenecks will shift from job sites to factories. Canada has the resources but, aligning workforce, supply chains, and infrastructure will determine whether modular reaches its full potential.
The appeal of modular construction is its potential to rapidly boost housing supply. Let’s examine its impact on speed, cost, quality, and resources in the Canadian context:
Speed: Accelerating Delivery
Canada currently adds ~200,000 homes per year[5]—far short of the ~3.5 million units needed by 2030. Modular construction can help close this gap by significantly shortening build timelines. A single modular factory can produce 1,000–2,000 homes annually; with 20 such factories nationwide, this could contribute 20,000–30,000 additional homes per year—an increase of 10–15% in annual supply. Modular excels in projects with standardized units—such as rentals, student housing, and supportive homes—delivering entire buildings in months instead of years. While not a silver bullet, modular offers a way to catch up faster in a time-sensitive crisis.
Cost: Savings at Scale
A potential 20% cost saving could lower average construction costs per square foot from $250–$350 to $180–$250[6]. For a 2,000 sq. ft. home, that means $100K–$150K in potential savings. Developers benefit through improved project viability, and renters or buyers may see lower prices. However, these gains depend on scale. Transportation, factory overhead, and financing costs can offset labor savings, meaning net savings may be closer to 10% in practice. Still, in tight-margin projects—especially affordable housing, this can make a critical difference, especially when paired with incentives like bulk procurement or low-interest financing.
Quality and Sustainability: Raising the Bar
Far from compromising quality, modular construction in factory-controlled settings often results in more consistent builds. Some firms report defect-free rates above 95%. Environmentally, modular construction reduces emissions by up to 22% and waste by up to 50%, aligning with national climate goals.
Resources and Workforce: Need for a new Ecosystem
Modular construction uses fewer skilled trades per unit. Factory workers can be trained quickly and specialize in tasks, partially easing the skilled labour shortage. However, large-scale adoption may face resistance from unions and require reskilling efforts. Supply chains are another constraint: scaling modular will demand more lumber, cross-laminated timber (CLT), fixtures, and efficient logistics. Without investing in materials and regional factory networks, production bottlenecks will shift from job sites to factories. Canada has the resources but, aligning workforce, supply chains, and infrastructure will determine whether modular reaches its full potential.
To illustrate how modular and traditional construction stack up, consider the following comparison:
Table 1 – Modular vs. Traditional Building Comparison
Table 1 – Modular vs. Traditional Building Comparison
| Metric | Modular Construction | Traditional Construction |
|---|---|---|
| Build Time (typical) | ~3–6 months for a mid-sized project (faster by 30–50%) | ~8–12 months (weather and site delays) |
| Cost per sq. ft. | ~$180–$250 (estimated, ~20% less) | ~$250–$350 (baseline) |
| Emissions Footprint | ~22% lower carbon emissions per unit | 100% (baseline) |
| Material Waste | ~5% of materials wasted (much less) | ~10–15% of materials wasted (off-cuts, errors) |
| Defect Rate | ~5% (95% defect-free on delivery) | ~10%+ (issues found at inspection) |
| Skilled Labour Needs | ~30% fewer skilled labour hours (more factory automation) | Baseline (full crew on-site for entire build) |
Source: buildingconnection.com.au, modular.org, csagroup.org, buildingconnection.com.au, bcg.com, bcg.com, mpamag.com
Challenges to Scaling Modular Construction in Canada
Modular construction offers real promise, but scaling it up across Canada is far from straightforward. Five major barriers must be addressed: manufacturing capacity, financing, regulation, supply chains, and public perception.
1. Industrial Capacity: A Factory Gap
Canada lacks the factory infrastructure to support widespread modular housing. There are around 40 modular manufacturers in Canada[7]. Most current facilities are small-scale, producing fewer than 100 units per year. Moreover, the majority of these modular-building manufacturers are currently focused on single-family housing. Scaling to 20,000–30,000 modular units annually would require dozens of large, purpose-built factories like Factory OS in California, which spans over 250,000 sq. ft. and produces 4 modules daily. Establishing such plants involves tens of millions of dollars in capital, trained labour, and access to both supply sources (like lumber mills) and major housing markets. Geography complicates things, shipping from a factory in Ontario to B.C. isn’t viable. Canada needs a regional network of modular hubs and a coordinated industrial strategy to avoid bottlenecks.
2. Financing and Investment Risk
While Mark Carney’s plan includes $26 billion in modular housing funding, capital risk remains a barrier. While modular construction can reduce costs, factories require massive upfront investment, while revenue flows in gradually as homes sell. This cashflow lag has bankrupted firms like Ilke Homes England, Modulous, House by Urban Splash and others in the UK. Private investors are cautious, so public funds must be deployed wisely: staged financing, performance-based milestones, and guarantees to de-risk lender exposure. Crucially, demand assurance is needed. Without bulk orders or purchase agreements, builders won’t risk factory development. A public anchor buyer—like Build Canada Homes—can help bridge that confidence gap but it transfers financial risk to government.
Additionally, legal responsibilities in modular construction remain poorly defined, complicating project execution. Standard construction contracts are often ill-suited to modular projects, which involve multiple parties—such as factory-based manufacturers and on-site contractors—working across different phases. This fragmentation creates ambiguity around liability, particularly in cases involving defects or warranty claims. To manage this legal uncertainty, manufacturers, general contractors, and subcontractors may increase their bids to hedge against potential risks, thereby eroding the cost advantages modular construction is intended to offer.
3. Regulatory and Zoning Delays
Even if modular homes meet building codes, outdated approval processes can slow them down. Local building inspectors may lack experience with factory-built modules. Zoning bylaws may restrict building types or require redundant hearings. These frictions reduce modular’s time and cost advantages. Solutions include “as-of-right” zoning for modular units, provincial pre-approvals (like B.C.’s standard small home plans), and inspector training. National standards from the CSA Group can also help normalize the permitting process across provinces. While standard codes like CSA A277 for prefabricated construction exist, they are not uniformly accepted and applied across provinces. For prefabricated construction to be scalable, standardization is very important.
Modular construction offers real promise, but scaling it up across Canada is far from straightforward. Five major barriers must be addressed: manufacturing capacity, financing, regulation, supply chains, and public perception.
1. Industrial Capacity: A Factory Gap
Canada lacks the factory infrastructure to support widespread modular housing. There are around 40 modular manufacturers in Canada[7]. Most current facilities are small-scale, producing fewer than 100 units per year. Moreover, the majority of these modular-building manufacturers are currently focused on single-family housing. Scaling to 20,000–30,000 modular units annually would require dozens of large, purpose-built factories like Factory OS in California, which spans over 250,000 sq. ft. and produces 4 modules daily. Establishing such plants involves tens of millions of dollars in capital, trained labour, and access to both supply sources (like lumber mills) and major housing markets. Geography complicates things, shipping from a factory in Ontario to B.C. isn’t viable. Canada needs a regional network of modular hubs and a coordinated industrial strategy to avoid bottlenecks.
2. Financing and Investment Risk
While Mark Carney’s plan includes $26 billion in modular housing funding, capital risk remains a barrier. While modular construction can reduce costs, factories require massive upfront investment, while revenue flows in gradually as homes sell. This cashflow lag has bankrupted firms like Ilke Homes England, Modulous, House by Urban Splash and others in the UK. Private investors are cautious, so public funds must be deployed wisely: staged financing, performance-based milestones, and guarantees to de-risk lender exposure. Crucially, demand assurance is needed. Without bulk orders or purchase agreements, builders won’t risk factory development. A public anchor buyer—like Build Canada Homes—can help bridge that confidence gap but it transfers financial risk to government.
Additionally, legal responsibilities in modular construction remain poorly defined, complicating project execution. Standard construction contracts are often ill-suited to modular projects, which involve multiple parties—such as factory-based manufacturers and on-site contractors—working across different phases. This fragmentation creates ambiguity around liability, particularly in cases involving defects or warranty claims. To manage this legal uncertainty, manufacturers, general contractors, and subcontractors may increase their bids to hedge against potential risks, thereby eroding the cost advantages modular construction is intended to offer.
3. Regulatory and Zoning Delays
Even if modular homes meet building codes, outdated approval processes can slow them down. Local building inspectors may lack experience with factory-built modules. Zoning bylaws may restrict building types or require redundant hearings. These frictions reduce modular’s time and cost advantages. Solutions include “as-of-right” zoning for modular units, provincial pre-approvals (like B.C.’s standard small home plans), and inspector training. National standards from the CSA Group can also help normalize the permitting process across provinces. While standard codes like CSA A277 for prefabricated construction exist, they are not uniformly accepted and applied across provinces. For prefabricated construction to be scalable, standardization is very important.
| BC | AB | SK | MB | ON | QC | NB | NS | PE | NL | YT | NT | NU | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Required | X | ✓ | X | X | X | ✓ | X | X | X | X | ✓ | X | X |
| Recognized | ✓ | X | ✓ | ✓ | ✓ | X | ✓ | ✓ | ✓ | ✓ | X | ✓ | ✓ |
4. Supply Chain Constraints
A scaled modular sector requires vast volumes of engineered timber, prefabricated components, and just-in-time logistics. Canada’s forest products sector must ramp up CLT panel (engineered wood) and truss production. Modular firms also need steady access to HVAC units, kitchens, windows, —much of these finished products are currently sourced from the United States. Without resilient, regional supply chains, modular efficiency gains could be undermined by delays and material shortages—issues that surfaced during the pandemic.
5. Perception and Quality Trust
Many Canadians still associate “modular” with low-quality trailers. That stigma can depress demand and complicate financing. Yet in countries like Japan and Sweden, factory homes are seen as premium. To shift perception, industry must showcase durable, attractive modular builds, allow factory tours, and promote case studies. Poor execution in early projects could trigger reputational setbacks, so quality control is critical. Without public trust, modular will remain a niche product.
Global Insights: What Canada Should Learn from Modular Construction
As Canada eyes modular construction to address its housing crisis, valuable lessons emerge from global examples—some successful, others cautionary.
Sweden: A Prefab Leader
Sweden stands out globally, with roughly 84% of detached homes featuring prefabricated elements[8], vastly surpassing Canada’s ~5%. This success stems from a mix of policy support, climate adaptation, and targeted production. Swedish companies like Lindbäcks have refined modular apartment building, helped by incentives promoting energy-efficient design. Crucially, Sweden’s prefab market focused on mid-range, everyday housing, not luxury builds, normalizing modular homes as standard. For Canada, aligning modular construction with green building goals and launching it through public-sector projects like social or military housing could spur demand and scale. Sweden shows how modular can become mainstream when backed by the right policies and focused markets.
Australia & U.S.: Lessons on Limits
In the U.S. and Australia, modular makes up less than 5% of new homes. Adoption has lagged due to fragmented markets, challenging geography, and the persistence of low-cost, traditional construction. Still, modular has thrived in niches. Factory OS in California scaled by building workforce housing for Google and municipal projects. Canada can replicate this by deploying modular in specific, high-need segments, like student housing or remote communities. Australia’s experience also highlights the importance of public education to combat outdated views of modular as inferior.
UK: Risks of Overreach
The UK’s modular push offers cautionary lessons. Firms like Ilke Homes and TopHat collapsed after expanding too quickly, without sufficient demand. Delays in planning approvals left factories idle. These failures underscore the need for gradual, demand-driven growth. Canada must avoid repeating this by tying modular investments to real market demand and ensuring faster permit approvals.
Modular construction can thrive when combined with the right mix of policy support, clear market focus, and careful scaling. Canada should move forward, but with deliberate, demand-aligned steps informed by global experience. Coordinated action is needed across the value chain.
Federal & Provincial Governments
Create demand certainty through multi-year bulk purchase agreements for modular units—especially for public, indigenous, and affordable housing. Expand access to low-interest financing for projects meeting green standards. Modernize the National Building Code with modular-specific provisions and encourage provinces to adopt it uniformly. Mandate zoning changes to allow modular homes in all residential areas and fast-track land designation through programs like the Housing Accelerator Fund.
Municipalities
Train planners and inspectors on modular compliance using CSA Group guidance. Introduce expedited permitting for pre-approved modular designs. Identify underused public lands for rapid modular deployment (e.g., interim shelters). Pilot municipal modular projects—like community centers—to showcase quality and build public trust. Engage residents through open houses and education campaigns to normalize modular.
Manufacturers & Developers
Standardize floorplans (e.g., studio, one-bed, two-bed) to streamline production and reduce custom work. Form industry working groups to share best practices and improve design for manufacturing. Publish performance data on energy use, quality, and customer satisfaction to build transparency and buyer confidence. Explore hybrid models that involve local trades, easing labour transition and expanding reach.
Financial Institutions & Insurers
Develop financing products that align with modular workflows—e.g., lending based on factory completion milestones. Offer insurance tailored to modular-specific risks, including in-transit coverage. Educate underwriters and appraisers to ensure modular homes are valued fairly and financed comparably to traditional builds.
The Real Estate Institute of Canada (REIC) plays a vital role in shaping the future of housing by equipping real estate professionals to lead amid rapid transformation. As Canada explores modular construction to address its housing crisis, REIC fosters critical cross-sector collaboration—bringing together developers, financiers, appraisers, and policymakers. Through professional development, applied research, and ethical leadership, REIC ensures members understand and can confidently engage with emerging trends like prefabrication. By championing innovation and practical housing solutions, REIC helps real estate professionals be informed advocates for scalable, sustainable housing—empowering them to drive impact in communities across Canada.
A scaled modular sector requires vast volumes of engineered timber, prefabricated components, and just-in-time logistics. Canada’s forest products sector must ramp up CLT panel (engineered wood) and truss production. Modular firms also need steady access to HVAC units, kitchens, windows, —much of these finished products are currently sourced from the United States. Without resilient, regional supply chains, modular efficiency gains could be undermined by delays and material shortages—issues that surfaced during the pandemic.
5. Perception and Quality Trust
Many Canadians still associate “modular” with low-quality trailers. That stigma can depress demand and complicate financing. Yet in countries like Japan and Sweden, factory homes are seen as premium. To shift perception, industry must showcase durable, attractive modular builds, allow factory tours, and promote case studies. Poor execution in early projects could trigger reputational setbacks, so quality control is critical. Without public trust, modular will remain a niche product.
Global Insights: What Canada Should Learn from Modular Construction
As Canada eyes modular construction to address its housing crisis, valuable lessons emerge from global examples—some successful, others cautionary.
Sweden: A Prefab Leader
Sweden stands out globally, with roughly 84% of detached homes featuring prefabricated elements[8], vastly surpassing Canada’s ~5%. This success stems from a mix of policy support, climate adaptation, and targeted production. Swedish companies like Lindbäcks have refined modular apartment building, helped by incentives promoting energy-efficient design. Crucially, Sweden’s prefab market focused on mid-range, everyday housing, not luxury builds, normalizing modular homes as standard. For Canada, aligning modular construction with green building goals and launching it through public-sector projects like social or military housing could spur demand and scale. Sweden shows how modular can become mainstream when backed by the right policies and focused markets.
Australia & U.S.: Lessons on Limits
In the U.S. and Australia, modular makes up less than 5% of new homes. Adoption has lagged due to fragmented markets, challenging geography, and the persistence of low-cost, traditional construction. Still, modular has thrived in niches. Factory OS in California scaled by building workforce housing for Google and municipal projects. Canada can replicate this by deploying modular in specific, high-need segments, like student housing or remote communities. Australia’s experience also highlights the importance of public education to combat outdated views of modular as inferior.
UK: Risks of Overreach
The UK’s modular push offers cautionary lessons. Firms like Ilke Homes and TopHat collapsed after expanding too quickly, without sufficient demand. Delays in planning approvals left factories idle. These failures underscore the need for gradual, demand-driven growth. Canada must avoid repeating this by tying modular investments to real market demand and ensuring faster permit approvals.
Modular construction can thrive when combined with the right mix of policy support, clear market focus, and careful scaling. Canada should move forward, but with deliberate, demand-aligned steps informed by global experience. Coordinated action is needed across the value chain.
Federal & Provincial Governments
Create demand certainty through multi-year bulk purchase agreements for modular units—especially for public, indigenous, and affordable housing. Expand access to low-interest financing for projects meeting green standards. Modernize the National Building Code with modular-specific provisions and encourage provinces to adopt it uniformly. Mandate zoning changes to allow modular homes in all residential areas and fast-track land designation through programs like the Housing Accelerator Fund.
Municipalities
Train planners and inspectors on modular compliance using CSA Group guidance. Introduce expedited permitting for pre-approved modular designs. Identify underused public lands for rapid modular deployment (e.g., interim shelters). Pilot municipal modular projects—like community centers—to showcase quality and build public trust. Engage residents through open houses and education campaigns to normalize modular.
Manufacturers & Developers
Standardize floorplans (e.g., studio, one-bed, two-bed) to streamline production and reduce custom work. Form industry working groups to share best practices and improve design for manufacturing. Publish performance data on energy use, quality, and customer satisfaction to build transparency and buyer confidence. Explore hybrid models that involve local trades, easing labour transition and expanding reach.
Financial Institutions & Insurers
Develop financing products that align with modular workflows—e.g., lending based on factory completion milestones. Offer insurance tailored to modular-specific risks, including in-transit coverage. Educate underwriters and appraisers to ensure modular homes are valued fairly and financed comparably to traditional builds.
The Real Estate Institute of Canada (REIC) plays a vital role in shaping the future of housing by equipping real estate professionals to lead amid rapid transformation. As Canada explores modular construction to address its housing crisis, REIC fosters critical cross-sector collaboration—bringing together developers, financiers, appraisers, and policymakers. Through professional development, applied research, and ethical leadership, REIC ensures members understand and can confidently engage with emerging trends like prefabrication. By championing innovation and practical housing solutions, REIC helps real estate professionals be informed advocates for scalable, sustainable housing—empowering them to drive impact in communities across Canada.
[1] cmhc-schl.gc.ca
[2] Liberal.ca
[3] https://www.modular.org/industry-analysis/
[4] https://www.modular.org/industry-analysis/
[5] cmhc-schl.gc.ca
[6] https://www.modular.org/industry-analysis/
[7] modularbuildinginstitute
[8] Architizer.com
[2] Liberal.ca
[3] https://www.modular.org/industry-analysis/
[4] https://www.modular.org/industry-analysis/
[5] cmhc-schl.gc.ca
[6] https://www.modular.org/industry-analysis/
[7] modularbuildinginstitute
[8] Architizer.com
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected].