It's an assembly-line solution to Canada's housing shortage. Prefabricated homes can be built 20% to 50% faster than traditional construction, cost 20% less, and produce 22% fewer emissions. They're customizable, meet all building codes, and look identical to site-built homes once complete.

So why aren't we building more of them?

The answer is simple. Financing.

"You can't get any construction financing because nothing's being built on the site until it's pretty much complete," says Dan Eisner, CEO and mortgage broker at True North Mortgage in Calgary. As a result, financing often falls on the buyer and manufacturer during the manufacturing process, delivery, and on-site assembly. Buyers can then apply for a traditional mortgage afterward.

That financing gap has prevented prefab homes from having a significant impact on housing supply and affordability in Canada, despite billions in federal support announced through the Build Canada Homes initiative.

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The Federal Government Is Betting Big on Prefabs

Prime Minister Mark Carney has pledged $25 billion in loans and $1 billion in equity financing for companies that build homes largely in factories rather than on construction sites. The federal government will also place bulk orders of prefabricated housing to help jump-start a nascent industry.

"We will create an entirely new Canadian housing industry," Carney said in his first press conference after the election win.

The recent federal budget further cemented that support with plans to build potentially close to 50,000 prefabricated homes on public land sites. Build Canada Homes, the federal government's newly launched homebuilding agency, aims to fund the construction of 4,000 modular homes on federal land starting in 2026.

It's a big, bold bet that could make it faster, cheaper, and more environmentally friendly to build a chunk of the 3.5 million homes Canada needs to add by 2030 to restore housing affordability.

But factories need sustained demand, a large enough market, and streamlined production to operate efficiently and profitably. That's what Ottawa, the provinces, and cities must create for the plan to succeed.

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What Prefab Actually Means

Prefabricated construction means building some or all structural elements of a home off-site in a factory. In Canada, there are three main types: mass timber, panelized, and modular.

Mass timber uses building components made from multiple layers of wood fastened together. Panelized construction assembles individual building panels into a complete structure. Modular construction builds a series of independent three-dimensional units in a facility, which are then transported to the property and assembled into a complete home in a matter of weeks or even days.

Steve Morgan, CEO of Calgary-based SEED Homes, says modular homes have had to overcome the stigma of being poor quality. But that's no longer true. Consumers can't tell the difference between prefabs and traditional builds once they're complete.

Yet the cost is increasingly less. A SEED home is about 40% less expensive than a single-family home using traditional construction techniques, Morgan says.

"With ours, the toilets are already in place, the kitchen cabinets are on the walls, and so there's just a little finishing work to complete the job on site, but basically, we can have a 1,200-square-foot home installed in about seven days." The cost, excluding land, is about $250,000.

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The Financing Problem Nobody's Solving

Despite those advantages, prefabricated homes remain out of reach for many first-time buyers because of financing challenges.

"Here is a great solution to the housing crisis, but until the lending industry and government truly get behind it, that barrier will remain," Morgan says.

The problem 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 also struggle with how to release funds in stages, since the usual on-site progress inspections don't apply in the same way.

Calgary realtor Tim Jones, broker and owner of Empowered Real Estate, says current financing "favours those with deeper pockets." Buyers don't qualify for the typical draw mortgage used for traditional home construction. "This does not help first-time home buyers."

A real-life example from London, Ontario, shows how it works in practice. Chris and Brianne Curry partnered with modular builder Axe Living to construct a 750-square-foot backyard unit. The total cost came in at just over $300 per square foot, including HST and service hookups. That's 25% to 30% cheaper than traditional stick-built quotes.

But the Currys used a home equity line of credit to fund their project, giving them flexibility without needing to refinance their entire mortgage. That option isn't available to first-time buyers who don't already own property.

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Canada Lacks the Factory Infrastructure

Canada has around 40 modular manufacturers. Most current facilities are small-scale, producing fewer than 100 units per year. The majority are focused on single-family housing.

Scaling to 20,000 to 30,000 modular units annually would require dozens of large, purpose-built factories like Factory OS in California, which spans over 250,000 square feet and produces 4 modules daily. Establishing such plants involves tens of millions of dollars in capital, trained labor, and access to both supply sources like lumber mills and major markets.

Real Estate Institute of Canada research suggests prefab homes could increase supply in Canada by as much as 15% annually if scaled up. At the same time, these homes would cost an average of $150,000 less than traditionally built homes, with a 50% reduction in construction time.

But to date, prefab construction accounts for less than 10% of all projects, residential and commercial, in Canada.

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Sweden Shows What's Possible

Sweden stands out globally, with roughly 84% of detached homes featuring prefabricated elements, vastly surpassing Canada's roughly 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.

Mathieu Laberge, Chief Economist at CMHC, explained that in the 1960s, Sweden decided modular construction was the technology of the future and the government began funding projects to create baseline demand. "Now, they don't need any more government support, because it's a self-standing industry."

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.

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The Regulatory Maze

Another hurdle to mass production is that homebuilding regulations currently vary across provinces and even municipalities. This makes it hard to service different cities with standardized factory-made parts.

Carlo Carbone, a professor at the University of Quebec in Montreal who has done extensive research on prefabricated housing, notes that building culture in Canada is mostly related to on-site construction. "We're still really linked to that."

Experts believe the government will need to produce set designs for prefabricated housing and then pre-approve construction that abides by those blueprints. British Columbia has offered pre-approved housing designs for small-scale, multi-unit housing to simplify approval processes. Ontario recently announced measures to cut red tape.

But even when building approvals are in place, obstacles can come from unexpected places. One Indigenous housing project at a busy city intersection incurred $1 million in extra costs because the municipal parks department didn't allow the modular builder to temporarily store material on a portion of a nearby public garden.

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Z Modular's Closure Is a Warning Sign

Z Modular, one of Canada's largest prefab manufacturers, closed its doors in June 2024. The company said the decision was prompted by inefficiencies in financing, rising costs, and regulatory delays.

"Despite an obvious housing crisis, Canada has lacked the foresight to enact the changes necessary to encourage investment and enable developers to be successful," said Barry Zekelman, CEO of Z Modular owner Zekelman Industries. "Unfortunately, despite our investment of tens of millions of dollars, our teammates have become the victim of the tragic reality of a broken system."

A big part of the challenge with ramping up modular construction is that it costs a lot to get a factory going, and it needs steady demand to pay for all the fixed costs. Without that sustained demand, factories can't operate profitably.

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Insurance Is Another Problem

Chris and Brianne Curry in London ran into trouble when their existing group insurer refused coverage for their modular backyard unit. They had to switch insurers, and their premiums rose by about 40%.

Not all insurers understand modular or secondary units yet. This is an area where buyers need to do legwork upfront. Don't assume your existing insurer will cover a prefab home. Get clarity before you commit to building.

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What Needs to Change

For prefab housing to scale in Canada, five barriers must be addressed: manufacturing capacity, financing, regulation, supply chains, and public perception.

Financial institutions need to develop financing products that align with modular workflows, lending based on factory completion milestones. They need to offer insurance tailored to modular-specific risks, including in-transit coverage. And they need to educate underwriters and appraisers to ensure modular homes are valued fairly and financed comparably to traditional builds.

Governments need to create sustained demand through bulk orders for social housing, military housing, and affordable housing projects. They need to standardize designs and pre-approve construction to streamline regulatory processes. And they need to address interprovincial trade barriers that increase transportation costs and timelines.

The prefab industry needs to invest in manufacturing capacity, supply chains, and automation. It needs to showcase durable, attractive modular builds through factory tours and case studies to shift public perception.

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How Coldwell Banker Horizon Realty Can Help

At Coldwell Banker Horizon Realty, we understand that prefab and modular homes represent a growing segment of the housing market. Whether you're considering a prefab home for your next purchase, evaluating modular backyard units for rental income, or wondering how prefab construction will affect property values in your area, we provide the expertise and local knowledge you need.

Understanding the financing challenges, insurance requirements, and regulatory landscape for prefab homes requires professional guidance from people who stay current on market trends and policy changes.

Contact Coldwell Banker Horizon Realty today to discuss how prefab housing options fit into your real estate plans and how we can help you navigate the unique considerations these homes involve.

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The Bottom Line

Prefab homes offer a real solution to Canada's housing crisis. They're faster to build, cheaper to produce, and better for the environment. The federal government is betting $25 billion on the industry through Build Canada Homes.

But financing remains the critical barrier. Buyers can't get traditional construction mortgages. First-time buyers without existing equity are locked out. Insurance can be difficult to secure. And lenders haven't adapted their products to align with how modular construction actually works.

Sweden solved this problem 60 years ago by creating sustained government demand that allowed the industry to scale. Now 84% of Swedish homes use prefabricated elements, and the industry doesn't need government support anymore.

Canada is trying to follow that model. But until the financing gap closes, until lenders create products that work for modular construction, and until first-time buyers can actually qualify for these homes, prefabs will remain a niche solution rather than the mass-market answer Canada needs.

The technology works. The cost savings are real. The environmental benefits are clear. What's missing is the financial infrastructure to make it accessible to the people who need affordable housing most.