Ottawa’s Bold Prefab Housing Bet Needs System Reform to Deliver

Prime Minister Mark Carney has wasted no time signaling that innovation will be central to his approach to solving Canada’s housing crisis. His government’s early commitment to modular and prefabricated housing – including the launch of the $26 billion Build Canada Homes initiative – marks a bold and overdue bet on building faster, smarter, and more sustainably. It is a welcome shift in tone and ambition.

For too long, Canada's housing debate has been stuck between supply denial and uncoordinated deregulation. Modular and prefab construction is no silver bullet, but building in factories and assembling on site can meaningfully shorten construction timelines, reduce labour strain, lower carbon emissions, and make infill development more viable.

The federal government is right to lean into this opportunity. But here’s the hard truth: Modular and prefab technologies will not succeed unless we dismantle the structural barriers that have long stifled innovation and take a hard look at why these methods have yet to consistently deliver cost savings.

My recent C.D. Howe Institute paper outlines how Canada’s current housing system is a productivity trap. Municipal permitting delays often stretch for months – sometimes even years. In theory, modular homes can be built 30 to 50 percent faster than conventional ones. But time is money and that advantage is wiped out when it takes 18 to 24 months to get a permit approved.

 As well, building code interpretations vary not only between provinces, but also between municipalities. Financing systems treat factory-built homes as anomalies, constrained by restrictive construction loan, mortgage, and insurance rules. Developers also face duplicative inspections, fragmented transportation regulations, and a patchwork of development charges that penalize new construction – especially the kinds we need urgently. The high cost of developable land and the lack of project finance support worsen the situation.

This is why the Carney vision must go beyond funding. If the federal government wants to unleash the full potential of modular and prefabricated construction, it must focus on clearing the runway, not just fueling the plane.

The federal government should offer low-cost financing and tax credits to help builders cover high upfront costs for tools, machinery, and training. The Canada Mortgage and Housing Corporation (CMHC) should also introduce construction financing insurance tailored to modular and prefab homes to reduce lender uncertainty and risk premiums.

Regulations must be streamlined. CMHC should speed up fund disbursement for rental and affordable housing projects. Permits need fast-tracking for modular builds to avoid costly delays.

Consistency is key. Building codes should be interpreted the same way across all municipalities. Transportation rules for modular and prefab structures should be harmonized across jurisdictions – if roads can take the load.

Further, Canada should benchmark its regulatory environment against peer countries. This includes examining how Sweden and other nations have successfully scaled modular construction, panelization, and mass timber.

The modular and prefab push should not be confined to public and affordable housing; it must be integrated into the mainstream housing strategy, with clear benchmarks for scalability and cost reduction over time.

This also means benchmarking Canadian off-site projects against traditional methods. As Toronto’s auditor-general found recently, the city has no clear metrics to compare the outcomes of modular and traditional housing, a missed opportunity to evaluate cost, speed, and sustainability.

None of this is easy, but it is essential. The prime minister has opened the door to a new chapter in Canadian housing policy, and Ottawa’s investments in prefab construction are a chance to expand the frontier of what’s possible – to build more homes, faster, and with lower emissions.

Tasnim Fariha is a senior policy analyst at the C.D. Howe Institute.