Modern Methods of Construction could play a decisive role in closing the gap, provided that Canada's policy, market and lending frameworks are fundamentally restructured to accommodate it
Canada's housing supply crisis is well documented. The country needs upwards of 480,000 new units a year through 2035 to restore affordability and meet projected demand, according to the Canada Mortgage and Housing Corporation — a target that national starts have not come close to reaching.
CMHC's own outlook now projects a further decline to around 223,000 units annually by 2027.
Against that backdrop, a major new analysis from RBC Thought Leadership contends that Modern Methods of Construction could play a decisive role in closing the gap, provided that Canada's policy, market and lending frameworks are fundamentally restructured to accommodate it.
MMC is a broad category encompassing off-site manufacturing, prefabricated panelling, modular units and digital construction technologies.
The report, titled "A New Blueprint: How Modern Methods of Construction," was authored by Stephanie Shewchuk, policy lead for housing at RBC Thought Leadership. It arrives as housing starts continue to weaken and as the mortgage industry grapples with a supply outlook that, by nearly every major forecast, falls well short of what affordability restoration requires.
The analysis makes a pointed argument: the technology to build faster and cheaper already exists, but the system surrounding it does not.
Factory-based construction, the report notes, can compress overall project timelines by between 20 and 50% compared with traditional on-site methods, while also yielding better thermal efficiency, reduced on-site labour requirements and more predictable cost outcomes.
Cost savings of 20 to 40% are achievable, the report states, but only at volume and with standardization, neither of which currently exists in Canada at meaningful scale.
Full modular construction accounts for an estimated 7.5% of the overall construction market, representing approximately $5.1 billion in annual value.
Some MMC approaches make up as little as 2% of housing starts nationally.
Why the conventional model is failing
The report identifies three interlocking structural problems that are preventing MMC from gaining traction. The first is regulatory fragmentation.
Canada's National Building Code establishes a base-level framework, but it is administered provincially and applied municipally, creating a patchwork of inspection regimes, approval processes and warranty requirements that varies materially across jurisdictions.
The report describes this as "among the most frequently cited barriers by MMC practitioners in Canada," and notes that a manufacturer seeking to operate across multiple provinces faces costs from that fragmentation that can be prohibitive for smaller firms.
Municipal approvals compound the problem, the report argues. Current permitting frameworks were designed around conventional site-built construction and require manual review of every project as a unique design, even when modular units are repetitive and factory-certified.
Kevin Hughes of Canada Mortgage and Housing Corporation said housing starts rose 17% month over month, though ongoing financing pressures, labour shortages, and weak presale demand continue to weigh on the broader construction outlook.https://t.co/q39iy3GS7f
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 15, 2026
The 2026 federal Spring Economic Update committed to updating the National Model Codes to better support factory-built housing and accelerate review processes for innovative construction products, but the report acknowledges that translating federal intent into aligned provincial and municipal practice will take time.
The construction sector's underlying productivity record makes the stakes clear. Between 2001 and 2023, labour productivity in Canada's construction sector declined by 37.3%, the report states, citing a joint Statistics Canada and CMHC study.
The sector remains highly fragmented, dominated by small firms without the scale to invest in new technologies or training.
A modular facility, by comparison, needs to produce between 500 and 1,000 units a year to become cost competitive — a threshold that requires sustained, predictable order volume that few Canadian developers currently provide.
The federal government's recent $6 billion investment in skilled trades is cited as a positive signal, as the shift to factory-based production requires a meaningfully different labour profile, with greater emphasis on manufacturing processes, digital design and quality systems management.
Canada's existing apprenticeship infrastructure, the report notes, is not well-aligned to those requirements, though construction workers generally carry many of the core competencies that modular factory work demands.
Financing is the missing piece for brokers
CMHC recently expanded its insured financing programs to cover modular and prefabricated construction across all multi-unit products, a shift that the RBC report effectively foreshadowed.
The core problem, as the report frames it, is that conventional construction financing is built around a draw structure tied to on-site milestones — foundation, framing, finish — with the partially completed building serving as security through land title.
For volumetric modular construction, the largest expenditures are incurred at the factory, often before a single unit arrives on site.
At the point of peak factory spend, there is little on the ground to serve as security, forcing developers, particularly smaller ones and non-profit providers, to finance the production phase from equity or working capital.
That front-loading of equity requirements raises the effective cost of capital and can partially or fully erode the efficiency gains that make MMC attractive in the first place.
The report identifies several practical changes that lenders could make. The most immediate, it argues, would be adapting draw-schedule frameworks to allow advances against verified factory production milestones — an approach already in use in Australia and the United Kingdom.
Security valuation frameworks could similarly be restructured: modules sitting in a factory are legally considered personal property rather than real estate, making their value in a default scenario uncertain, but analogues exist in shipping and aircraft manufacturing where lending against high-value assets in production is standard practice.
There is also a buyer-facing dimension that the report describes as an underappreciated barrier to broader adoption.
Most Canadian lenders do not currently treat factory-built homes that meet all applicable standards on the same terms as site-built homes for mortgage qualification and insurance purposes.
That uncertainty in the end-buyer market suppresses developer appetite for MMC investment even when construction financing is available, creating a circular problem in which supply hesitation and financing hesitation reinforce each other.
Global models, Canadian lessons
The report examines four international precedents in detail. Sweden is cited as the most instructive example, with roughly 45% of new homes now built using some form of off-site manufacturing. That's an outcome achieved over decades of market evolution, consistent building codes and cultural acceptance of standardized design.
Japan's sector, led by large vertically integrated manufacturers such as Sekisui House and Daiwa House, demonstrates how companies with sufficient market power can use MMC to deliver high-quality, disaster-resilient housing at speed.
The United Kingdom, through its Homes England agency and the 2019 Farmer Review's warning that the construction sector must "modernise or die," has made serious policy efforts to catalyze adoption, with mixed but instructive results.
Australia, which the report notes faces housing challenges structurally similar to Canada's, has seen a cluster of MMC manufacturers emerge, backed by $54 million in targeted federal investment and proactive state-level procurement policies.
The report's central finding from those comparisons is pointed: "No country has achieved this purely through the intrinsic merits of the technology alone."
Scale has followed only where policy, market and financing conditions were deliberately aligned, not where technology was introduced and left to compete on unit-cost terms against an entrenched conventional system.
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