April 23, 2024

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Building Blocks: Addressing Canada’s Housing Crisis with Innovation and Prefabricated Construction

4 min read

Key Takeaways

On February 16th, RBC, the Task Force on Housing and Climate, and BC Housing joined forces to host a roundtable discussion in Vancouver to address Canada’s housing crisis by enabling and scaling prefabricated or manufactured construction. We assembled a cross-section of attendees in the buildings space, including executives from commercial builders, real estate investment firms, pre-fabricated manufacturers, construction services, Metro Vancouver, BC Housing, Infrastructure Canada, industry associations, and others, plus RBC’s real estate and sustainable finance lending teams. The conversation highlighted the fundamental and structural challenges that need resolution before prefabricated construction can emerge as a viable solution. While some challenges have been captured below, this note focuses on some of the enablers and ideas tabled in the discussion that could help solve Canada’s housing challenge.

Here’s what we took away from the discussion:

  1. Executive champions can pave the way.
  2. Manufactured housing has succeeded in jurisdictions that have shown urgency in resolving the housing crisis and have executive champions that facilitate approvals through the system. St. Catharines, Ontario, and Charlottetown, Prince Edward Island, were cited as municipalities where builders delivered housing projects within months, thanks to various city departments’ willingness to negotiate existing guidelines and expedite approvals.

  3. Deploy different financing and equity models.
  4. This includes properties owned by municipalities that offer shared equity with developers and financiers. Patient capital for affordable housing projects should also be explored. Importantly, lenders are being asked to rethink their financing terms and risk and valuation models to enable more manufactured construction, which differs significantly from traditional construction finance. In manufactured construction, heavy capital outlay is required prior to tooling starting at factories, compared to traditional construction financing that anticipates a steady pace of outlay as the site progresses.

  5. Capital is needed for an industry in pain.
  6. Private sector players provide the vast majority of housing in Canada and will play a pivotal role to meet CMHC’s projection of 3.5 million additional housing units (for a total of 5.8 million) by 2030. But current macro conditions are hampering their ability not just to build, but survive. In the past 18 months, interest rates on loans and land debts have ballooned exponentially, affecting project economics. And while public advocacy for prefab and mass timber construction has been ramping up, several manufacturers such as Nexii and Structurlam, have gone under. Industry, including developers, contractors, manufacturers, and others, needs proper incentives, including subsidies and tax credits, to invest more in housing, especially affordable stock that often yields thinner margins.

  7. Lean on public sector procurement.
  8. Given the high capital costs required to invest in manufacturing plants and facilities, an extended period without housing projects could render companies insolvent. That’s where public entities can play a foundational role. Ensuring that there’s not only a fast approval process but one that guarantees projects allows companies to grow and scale.

  9. Seek international expertise.
  10. Ultimately, we may need to also look outside of Canada to get the scale needed to build nearly six million in cumulative housing units by the end of the decade. Many manufacturers in Canada have already folded, and the remaining may not have the capacity and/or scale to meet the projected housing target. China’s manufacturing capacity–at millions of square feet of factory space–should be explored.

  11. A catalogue of pre-approved home designs is a step in the right direction.
  12. But it needs to be reconciled against the complex policy landscape across various levels of government, including national codes, provincial policies, and municipal codes. Builders are struggling to keep up with constant changes to building codes. Significant effort is also required to adapt existing knowledge for each amendment, which prevents their ability to scale using manufacturing.

  13. Governments are alert to the housing challenge.
  14. Federal Minister Sean Fraser has signalled the department’s increased focus on manufactured housing as a solution to the crisis in recent forums and discussions. The CMHC’s Housing Accelerator Fund is another laudable effort to tie federal funding to municipals to removing local barriers to building homes fast. The Task Force on Housing and Climate’s report on March 5 will likely have recommendations that end up in this year’s federal budget. B.C.’s Ministry of Housing is also expected to push through a swath of legislative changes this spring, on the heels of the province’s new BC Builds program. However, governments can do more to facilitate development, including harmonizing codes across jurisdictions, speeding approval processes, and educating permitting departments on the benefits of innovative construction methods and materials.

  15. British Columbia could be a manufactured housing leader.
  16. The province is managing its forests in more sustainable ways and focusing on high value rather than high volume. WoodWorks BC and other organizations are also working to build up supply of wood and mass timber product. As builders increase the use of the low-carbon materials, the sector could see a jobs boost.

Trinh Theresa Do (she goes by Theresa) is responsible for strategy development on the Thought Leadership & Economics team, with occasional forays into podcasting, research, and writing. Previously, she was a strategy advisor to senior management and executives at RBC’s Personal & Commercial Banking business.

Disclaimer

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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