The targets set by Build Canada Homes, the new federal agency created to respond to the housing crisis, were recently called into question by the parliamentary budget officer, who estimates that the agency will only be able to deliver 26,000 of the 690,000 homes needed nationwide by 2030.
However, Build Canada Homes’ mandate is not limited to building. It also aims to build an “entirely new Canadian housing industry,” according to the 2025 federal budget. If it succeeds, it is this paradigm shift that will be the agency’s true legacy in the federal government’s fight against the housing crisis, rather than the relatively modest number of homes it will deliver itself.
To achieve this, it is relying on a “technical” innovation: prefabricated housing. By increasing demand for this construction model, it hopes to emancipate the supply chain from government-funded demand by the end of its mandate, allowing it to compete with the traditional industry.
In theory, the Canadian residential construction industry could benefit from significant economies of scale, both in terms of costs and time, which would boost its productivity. But to succeed in this economic undertaking, Build Canada Homes will have to take into account the unique context of each province and territory. Otherwise, the shift to prefabricated construction will not be able to come to full fruition.
An Efficient and Economical Technique
Prefabrication involves producing building components in a factory and then assembling them on-site. This makes it possible to build in all seasons, reduce the amount of materials used per project, limit waste on construction sites, and offer greater job stability to workers.
Nevertheless, its main advantages lie in the economies of scale made possible by using an assembly line and the ability of a factory to serve several projects simultaneously. When the conditions are right, the construction of prefabricated houses is more efficient than traditional construction carried out entirely on-site.
However, these economies of scale require a certain degree of uniformity. In a country as vast and diverse as Canada, this uniformity is difficult to achieve in the short term. The standardization needed for mass production is hampered by the variety of municipal zoning regulations, the multiplicity of provincial and municipal building codes, and the diversity of lot shapes and sizes. Not to mention that transforming a highly parochial construction industry into a centralized production chain offers as many opportunities for efficiency gains as it does risks of local job losses and potentially lower wages due to the hyper-specialization of jobs on an assembly line.
A Stark Contrast With Regulatory Complexity
This need for uniformity conflicts with the administrative reality in Canada. The country has approximately 5,161 local governments, each with its own zoning rules and building standards. In large metropolitan areas, fragmentation between the main city and outlying suburban municipalities adds an additional layer of regulatory complexity.
This fragmentation of urban and metropolitan areas represents a real regulatory headache for prefabricated housing manufacturers. Each municipality’s regulations have their own definitions, norms, and standards.
Consider the greater Montreal area. Factories will have to comply with around 100 sets of norms and standards, including those of the boroughs in addition to the suburbs. Echoes of this situation can be found in the Golden Horseshoe, which includes more than110 municipalities, and in Metro Vancouver, which has 23 local governments.
If Build Canada Homes aspires to make prefabricated housing the new standard in residential construction, this diversity of land-use planning regimes within the same real estate market will be a considerable obstacle.
This doesn’t even consider the complexity of regulations within the municipalities themselves. The proliferation of small residential zones creates major difficulties for the prefabricated model.
In Gatineau, for example, there are more than 800 residential zones, each with its own set of norms. Adapting an assembly line to such a diverse market compromises the ability of factories to remain competitive with the traditional industry.
In this context, the fragmentation of zoning and municipal regulations hinders the ability of the innovation at the heart of Build Canada Homes’ strategy to take root. Adjustments are needed. Here are a few ideas.
Deploy a Catalogue of Residential Structures
A step toward harmonization was taken in 2024 with the federal government’s publication of a catalogue of pre-approved residential structures. This initiative, inspired by post-war wartime housing programs, offers house models that comply with various provincial building codes.
The government thus recognizes the heterogeneity of Canadian regulations. While the catalogue meets provincial construction requirements, local zoning standards remain a source of friction. To bring about lasting change in the residential sector, Build Canada Homes’ policy will therefore need to take into account the harmonization of zoning regulations at the local and regional levels.
Taking Inspiration From Japanese Zoning
Japan can serve as an inspiration. The national government has established a list of 12 zones with standardized norms that municipalities must use in their development plans. Front and side setbacks, heights, and floor area ratios are prescribed by the national building code, although stricter rules may be imposed at the district level if the city deems it necessary.
In Canada, a similar model could be implemented at the provincial level, to take into account provincial jurisdiction over municipal affairs and the unique climatic and cultural realities of each province.
CMHC’s Housing Accelerator Fund is a very early step in this direction. It offers participating municipalities the opportunity to implement certain reforms in exchange for federal funding for affordable housing. Among the proposed reforms, the elimination of exclusionary zoning and the relaxation of restrictions on the form and implantation of buildings are among the most interesting.
These reforms allow prefabrication plants to rely on certain minimum regulatory standards, such as the right to build four units per lot instead of one, the possibility of erecting contiguous buildings, or increasing building heights in areas beyond city centers.
Focusing on Dutch-Style Land Assembly
Before the 2008 financial crisis, several Dutch municipalities practiced what is known as an “active land policy.. They purchased land to consolidate small parcels into larger ones, developed basic infrastructure and utilities, and then resold the land to real estate developers. Although this model was abandoned in the Netherlands due to the Great Recession, it could still be considered in Canada. The Canadian federal government, through the Canada Lands Company, could leverage its greater financial capacity (relative to municipalities) to consolidate urban and suburban land—particularly on federal sites—with a view to building prefabricated housing.
A Transformative but Fragile Undertaking
The transformation of the Canadian residential construction industry is a major economic undertaking. It requires close collaboration between the federal, provincial, and municipal governments to create a new land-use planning regime. Such an operation is complex, but if successful, it could pave the way for real structural change toward a more uniform, predictable, and efficient private industry across the country, supported by a reliable, innovative, and affordability-focused public sector. Nevertheless, the shift to plant-centric rather than project-based construction brings a certain degree of risk to local employment markets in the residential construction sector in terms of requirements regarding skills and location.
In the shorter term, however, the credibility of prefabricated housing will depend largely on Build Canada Homes’ ability to deliver on its current projects. If the company fails to deliver its homes, it is unlikely that the private sector will adopt the prefabricated model at scale.
The success of the prefabricated housing initiative therefore depends as much on upcoming regulatory reforms as on the government’s ability to demonstrate, by example, that this model can deliver on its promises.
This post originally appeared on Policy Options under a Creative Commons licence.
