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As housing costs continue to rise across Canada and much of the world, governments, developers, and non-profits are searching for faster and more cost-effective ways to increase supply. One approach gaining real traction is the use of prefabricated homes—also called modular, factory-built, or off-site constructed housing. These homes are built in sections in a factory and then transported to the building site for final assembly. While this is not a new idea, prefabricated housing is playing a bigger role today in efforts to address affordability, especially in cities where housing supply shortages are urgent.
A 2024 report by the Canada Mortgage and Housing Corporation (CMHC) discusses the need for “innovative and scalable construction methods” to meet housing demand, and mentions modular construction as a solution. Other industry studies and pilot projects also show growing interest and investment in prefabrication as a practical tool for speeding up builds and reducing costs.
Housing Costs and Construction Challenges
Canada continues to face a serious housing supply shortfall. According to CMHC, an additional 3.5 million homes are needed by 2030, on top of what is already being built, just to restore affordability to levels seen in the early 2000s. Traditional homebuilding methods are struggling to keep pace, partly due to rising land and material costs, skilled labour shortages, and regulatory bottlenecks. Delays in construction often lead to higher financing and carrying costs, which are ultimately passed on to buyers and renters.
In this context, prefabrication offers a promising way to build faster and more predictably. Instead of relying on weather conditions and on-site labour availability, much of the work is done indoors under controlled conditions. This approach can significantly shorten timelines and reduce some of the key cost drivers in construction.
How Prefabrication Can Lower Costs
Several factors contribute to the cost-effectiveness of modular and prefabricated housing.
Faster Project Timelines
Because site preparation and off-site construction happen at the same time, total build times are often cut in half. A study by the McKinsey Global Institute found modular construction can reduce construction time by 20% to 50%. Shorter timelines also reduce interest on loans and allow developers to bring units to market more quickly.
Factory Efficiencies and Less Waste
In a factory setting, materials are measured precisely, and leftovers can often be reused for future units. This leads to less construction waste compared to traditional methods. Bulk purchasing and standardized production also help lower costs per unit.
Reduced Labour Requirements On-Site
Labour shortages in skilled trades have been a persistent issue in many provinces. Prefab housing shifts much of the work to a smaller, centralized workforce in manufacturing facilities. On-site labour still plays a role, but it is needed for a shorter period and for more specialized assembly tasks.
Long-Term Operating Savings
Many prefabricated units are built to high energy-efficiency standards, helping reduce long-term utility bills for residents. While not exclusive to prefab construction, the controlled factory environment makes it easier to meet and sometimes exceed local energy codes.
Shifting Perceptions and Better Design
Prefab housing has historically faced stigma, and has been seen by some as low-quality or temporary. However, advances in materials, engineering, and design are changing that. Today’s factory-built homes can match or exceed traditional builds in quality, safety, and aesthetics.
In Canada, a growing number of manufacturers are producing steel- and timber-frame prefabricated systems for a wide range of housing types, from single-family homes to multi-storey residential buildings. These are not basic, uniform structures—many modular units are customizable and built to meet strict building code requirements, including those for seismic safety and extreme weather conditions. Some builders are also incorporating materials like cross-laminated timber (CLT) and other low-carbon alternatives to reduce environmental impact and improve energy performance.
In a 2023 report, the Canadian Home Builders’ Association (CHBA) identified modular and panelized construction as one of the key technologies expected to transform housing supply over the next decade.
Adoption in Canadian Cities
Several Canadian cities are already using modular housing in targeted affordable housing efforts. In Vancouver, more than a dozen modular buildings have been added as part of the city’s temporary supportive housing program. These units were delivered quickly and aimed at helping people transition out of homelessness. In Toronto, the city has funded modular developments to help key groups.
CMHC’s Rapid Housing Initiative (RHI), launched in 2020, explicitly prioritizes modular and off-site construction methods in order to deliver housing in under 12 months. The RHI has funded over 10,000 affordable units across Canada, many of which were modular builds.
Even smaller municipalities are participating. In places like Kelowna, Edmonton, and the Niagara Region, modular homes are being considered for everything from workforce housing to senior housing. Indigenous-led housing projects are also exploring prefab to speed up timelines and support culturally appropriate design.
Challenges to Scaling Up
Despite the momentum, modular construction still faces barriers.
Financing can be more complex. Financing modular construction can be more complicated than for traditional builds. One challenge is that homes are built off-site and may not be considered real property until they’re delivered and installed. This makes it harder for lenders to secure the loan against the property during construction. Lenders may also have concerns about how to release funds in stages, since the usual on-site progress inspections don’t apply in the same way. As a result, some lenders are cautious or require extra documentation before approving loans for modular projects.
Zoning rules also vary significantly between municipalities. In some areas, outdated bylaws still classify modular homes differently from traditional ones, delaying approvals.
Transportation logistics, crane installation, and site constraints can add unexpected costs, especially in urban infill projects. And while Canada has several high-capacity prefab builders, overall production capacity is still limited relative to the scale of housing need. More investment in manufacturing infrastructure and supply chains could help expand output.
A Scalable Part of the Solution
Prefabricated homes will not provide an instant, single solution for the housing crisis, but they offer a practical and scalable solution that can complement other efforts. With growing government support, maturing technology, and clear cost advantages in the right contexts, prefab housing could become a larger part of the national housing strategy.
