Scaling Up Housing Innovation: Insights from Developers in Canada
Executive Summary
In September of 2023, the Canada Mortgage and Housing Corporation (CMHC) estimated that by 2030, an additional 3.5 million housing units must be built to restore housing affordability. This looming crisis puts immense pressure on the construction industry to ramp up housing production.
Housing innovations, such as permit-ready designs, prefabrication, and modular construction, offer solutions to build faster and more efficiently across the country. However, these innovations can only increase the housing supply if developers and builders choose to adopt them. Therefore, understanding the drivers and barriers faced by developers is crucial for scaling up housing innovation and addressing the supply shortage.
This report will distill insights from interviews with 26 builders and developers across Canada. Our aim is to help innovators maximize their impact by following recommendations to drive adoption, as well as to inform policymakers about the conditions and incentives necessary for fostering innovation in the construction industry. Together, these steps can improve housing supply outcomes.
Our research suggests that the core factors influencing developers and builders remain unchanged; demand, cost, time, and risk are still central to project choices. These elements form the key levers for both innovators and policymakers alike. However, new industry challenges—including rising material costs, skilled labor shortages, high interest rates, and most significantly, delays in approval processes—are problems that innovative solutions can help solve. To succeed, innovations must demonstrate:
- Cost-effectiveness
- Significant time-saving potential
- No greater risk than traditional methods
- Adaptability to local regulations and market conditions
Exploring the barriers to adopting specific innovations reveals unique challenges for innovators. In today’s context, developers are drawn to prefabricated and modular construction to save time and reduce labor costs. However, barriers such as high upfront costs, perceived risks, and uncertainty about time savings hinder widespread adoption. Permit-ready designs, aimed at easing municipal approval bottlenecks, face limited industry penetration and skepticism from developers, who argue that building permits aren't the main obstacle—zoning approvals and neighborhood opposition are the real challenges.
To overcome adoption hurdles and reshape the narrative around their respective innovations, innovators can leverage trusted channels such as professional organizations, conferences, and technical partners to build a portfolio of case studies that address key barriers or perceptions.
Significant opportunities exist for policymakers to support innovation. Developers cite increasingly burdensome municipal requirements as an obstacle to keeping sale prices low, while infrastructure delays in high-growth areas add costly hold-ups, making innovative projects harder to execute. Alignment between federal, provincial, and municipal goals, as well as streamlined regulatory frameworks, is essential for innovations to thrive. Government funding programs that mandate innovative solutions have successfully influenced developer behavior; however, ongoing monitoring is still critical to ensuring these initiatives achieve their intended outcomes.
This report outlines the current landscape for developers and builders, delving into the conditions necessary for innovation to flourish. It highlights key strategies for increasing the adoption of innovations like prefabricated and modular construction and permit-ready designs, offering actionable insights for both innovators and policymakers.
Herein, we use the term “developers” to refer to both builders and developers.
What housing innovations does this report address? Prefabrication and modular construction refers to housing that is built in sections in off-site factories (either individual panels or entire modules) before being transported to the building site and assembled. Building permit-ready designs refer to plans and drawings that have been pre-designed to meet specific zoning requirements and building codes and are ready to be submitted for a building permit. |
Methodology
We interviewed 26 supply-side actors across Canada to understand their perspectives on housing innovation adoption. Most of them (73%) were developers, followed by general contractors. Almost half of them were already using innovative approaches to housing and about a third had experience on projects in rural areas. Almost half of them focused exclusively on small simple buildings (“Part 9” on the National Building Code) while the other half worked on large complex buildings (“Part 3”) or both. Qualitative thematic analysis was used to analyze interview data, providing a structured approach to identify, organize, and interpret trends across participants’ responses.
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The Current Context: Innovation Under Pressure
High interest rates, labor shortages, and unpredictable approval processes have made it difficult for developers to innovate. However, within these challenges lie opportunities to reshape the industry. In the following sections, we will explore these challenges in detail and examine how they can be turned into opportunities for innovation.
Long Approval Processes
Long, unpredictable approval processes, coupled with lagging infrastructure development, remain the top obstacles for developers. A striking 62% of developers we spoke to pointed to long approval processes as their top barrier to project execution.
“The delays are awful… You buy land, and you don’t know when you’ll actually get to break ground.”
In this environment, developers are forced to take on serious risks since high interest rates and holding costs mean that delays lead to significant financial losses. Therefore, developers avoid implementing innovations that could add layers of complexity, fearing even longer delays.
The developers we interviewed called for more alignment across levels of government, pointing out apparent contradictions in their goals: while the federal government pushes to grow the affordable housing supply, developers say that increasingly stringent municipal requirements increase the cost and timelines of projects. This leads to higher sales or rental prices or acts as a handbrake on development altogether. For instance, developers in some municipalities expressed frustration at new municipal requirements that require underground parking, adding significant building costs that translate into unaffordable housing.
Moreover, underinvestment in infrastructure adds another layer of delay, particularly in high-growth areas where the demand far outpaces the city's capacity to provide basic services.
“Municipal servicing is way behind… There isn’t enough power in the city for all the buildings coming online.”
Misplaced Federal Incentives
To survive in this high-interest rate market, developers are increasingly turning to federal funding options like CMHC’s MLI Select program that offers mortgage loan insurance for projects based on affordability, energy efficiency, and accessibility thresholds, opening the door to better borrowing terms. For 68% of developers, these programs are crucial to keeping projects afloat, pointing to the lack of conventional loans they can realistically work with.
“Right now, the only way that we can make projects with private capital is to work with the CMHC products because conventional loans don't work. They're too expensive."
Federal funding options, while largely appreciated in the absence of feasible private loans, influence developer decisions in a way that does not always promote affordable housing. For example, MLI Select requires developers to score points across affordability, energy efficiency, and accessibility. However, developers shared that energy efficiency and accessibility requirements allow them to build a more attractive product for the end user, which can help them increase sales prices. This means developers end up focusing more on scoring points in energy efficiency and accessibility, forgoing affordability in the process. Similarly, developers said that the only way to meet affordability requirements while still maintaining profit margins is to build small one-bedroom units.
"So the only way for us to do [affordable housing], for it to make sense, is that we do some super small units."
Skilled Labor Shortages
Skilled labor shortages are a growing concern, with 40% of developers citing it as a major barrier to development. Some developers are taking matters into their own hands, launching in-house training programs to mitigate the shortage.
While labor shortages are a barrier in urban settings, their impact is even greater in rural and remote areas. Transportation and accommodation costs to bring skilled workers to remote worksites drive the use of prefab and modular in these areas.
"One of the main challenges is the shortage of skilled tradespeople. In rural areas, this issue is even more pronounced, which is why we lean on modular construction there."
Market Disincentive of Affordable Housing
With high interest rates and rising costs of materials and labor, current financial pressures make it difficult for developers to profit from building affordable housing. Custom builds and high-end residential projects provide better profit opportunities but prevent the adoption of innovations designed for mass production and economies of scale. Developers perceive modular, prefab, and building permit-ready designs as incompatible with high-end projects, viewing these methods as less customizable. Developers also believe that purchasers associate prefab and modular with lower quality, despite their own beliefs that these construction methods can deliver equal or superior quality compared to traditional builds.
"We have been coming back to housing of all kinds for a few years. But above all, high-end residential."
Client demand also drives this dynamic—with 48% of developers claiming that single-family homes are their bread and butter, leaving limited appetite for innovations that don’t fit this mold.
Unions and Red Tape
Developers operating in Quebec pointed out several additional barriers to development and innovation in the province. Primarily, they reported that the unionized nature of Quebec’s construction workforce increases construction costs by requiring specialized workers for each task and slows the adoption of labor-saving innovations.
In addition, higher taxes and regulatory requirements such as the 20/20/20 rule in Montreal—which requires developers of larger projects to allocate 20% of units for affordable housing, 20% for social housing, and 20% for family-sized housing—make financial feasibility more challenging in the province and can push developers to look into projects elsewhere.
Key Adoption Levers for Innovators
By understanding the barriers developers face and their choices, we identified four key levers influencing the adoption of housing innovations: cost, time, risk, and demand. These levers can act as either a driver or a barrier, shaping the speed and scope of innovation uptake across the housing sector.
Cost Levers
CMHC financing exemplifies how cost levers can drive innovation by offering lower interest rates for meeting affordability, accessibility, or energy-efficiency requirements. Yet, developers’ tendency to prioritize accessibility and energy efficiency over affordability underscores the need for incentives to be carefully monitored to achieve their intended outcomes.
High upfront costs pose a significant barrier, as developers must control expenses to profit from selling or renting at competitive rates. While some developers are willing to adopt costlier innovations, they need clear justifications for higher spending.
“So there may be a point when the lumber prices were high enough that [...] the cost of installing, for example, for a townhouse, it might've been cheaper to use precast metal wall systems, but no, that's not really the case.”
As more developers shift toward retaining properties for rental income, long-term considerations such as maintenance and operating costs come into play. Energy-efficient innovations, for instance, often justify higher upfront costs through long-term savings and increased market appeal.
"We understand in due course of time, it kind of helps us reduce the aspect from utilities, the running costs, the operational costs."
Cost-based incentives, whether generated through federal or provincial programs, or by demonstrating long- or short-term cost savings, offer developers a compelling reason to adopt new approaches.
Time Levers
Demonstrating time savings, which often translate into cost reductions, is another powerful driver of innovation adoption. However, developers stress the importance of certainty in these savings.
For example, although prefabricated or modular construction offers potential time savings, developers say that savings can quickly be eroded by delays in production, shipping, and on-site adjustments. Similarly, developers considering building permit-ready designs want assurance that approval processes would be passed rapidly in the specific municipality they operate within.
“...we originally thought when we did it, that it would expedite the construction process, which is not the case… and that's not the case because of all the modifications that were needed or the shipping delays.”
Highlighting a track record of consistent time savings that were actually achieved, and the innovation’s flexibility, can promote certainty in time savings, unlocking this driver of adoption.
Risk Levers
Most developers prefer proven construction methods, minimizing risk by avoiding untested innovations. While a few are eager to gain first-mover advantages, the majority prefer a cautious approach, waiting for more widespread adoption before taking the plunge.
"It's all about predictability…I like to see that it's been used a few times and it worked before we use it. I don't want to be a guinea pig.”
Innovators can address these concerns by sharing case studies, project examples, and field visits which allow developers to experience the innovation first-hand. In the early stages, focusing on early adopter partners can help innovators build their portfolio of projects and drive wider adoption.
More developers are building rental projects—properties they will retain and rent directly to tenants—rather than building to sell. In these cases, long-term durability becomes more important to developers. As a result, developers may avoid innovations that lack solid examples of long-term performance, particularly in Canada’s unique meteorological conditions.
“Nobody really wants to be the first one to risk their money in something that may have problems 10 years down the line.”
Demand Levers
Consumer demand drives innovation adoption. Energy efficiency, for example, appeals to buyers and renters, giving developers a clear market advantage. Promoting consumer acceptance is therefore key to driving adoption among developers.
“[Energy efficiency technology] makes for a better product… better for the consumer.”
In the same vein, developers are sensitive to what they think consumers may perceive around innovations, particularly prefabrication and modular construction. To promote adoption, innovators must demonstrate how these construction methods align with consumer expectations for their home, including individuality and customizability.
“When people think of a modular home, they think of, like, a 1960s trailer that's falling apart."
Developers are cognizant of the local demand in the communities they operate in, and this demand drives their decisions.
“There's definitely places that we would not consider doing, a modular home community in—it wouldn't fit the community. But then there's definitely others that are more suited to that. So it really comes down to: what does the market support?”
Adoption could be promoted by highlighting the alignment between housing innovations and the demands of a specific community. Providing developers with tools to identify demand-side opportunities at a localized level can support all parties in bridging this gap.
Deep Dive: Prefabrication and Modular Construction
Drivers: Saving Time and Labor Costs, Particularly in Rural Applications
Developers are drawn to prefab and modular construction to save time and reduce labor costs—both crucial amid high interest rates and labor shortages. However, to capitalize on these advantages, innovators must reassure developers that time savings will materialize, as delays from manufacturing, transport, or on-site adjustments often erode these benefits, along with developers’ trust in them.
Similarly, modular and prefabricated construction seem like obvious solutions to the labor crunch, especially in rural areas where skilled labor is scarce, but not everyone is convinced. Some developers see prefab as reducing the need for a skilled workforce, while others view it as more complex to execute and manage, requiring higher precision, specialized on-site staff, and advanced management skills.
"Modular construction hasn’t quite gained traction, partly due to the skilled labor shortage and the complexity of managing the projects."
"The issue with modular is… everything has to be incredibly precise, within one-eighth of an inch, so when the pieces are shipped to the site, there aren’t issues with joining panels."
Looking to the future, training programs and partnerships with training institutions can help innovators secure prefab and modular as a solution to labor shortages.
"There are training programs that cover 50% of training costs, but it would be great to have a similar program for innovative building systems."
It is worth noting that builders have mixed opinions on whether work in prefabrication or modular manufacturing would be more or less attractive to the construction workforce. Some see the factory setting as a more comfortable work environment than a traditional building site, offering a stable work location, air conditioning, heating, and better facilities, while others see this work as more repetitive and inherently less attractive for construction workers.
Barriers: Costs, Risks, and Challenges from Supply and Demand
According to developers we spoke to, prefabrication and modular are often more expensive on a hard-cost basis and present additional risks. This means that cost-benefit calculations don’t make sense, unless developers are operating in remote or rural areas, forming the most significant barriers to adoption. Innovators can tackle this barrier by developing and promoting a broader set of use cases where modular and prefab make financial sense.
“You had to almost pay more for that... [modular] needed to be over-designed for it to respond to different site conditions, different aspects, different orientations, which would cost more money upfront."
In addition, attitudes toward the long-term costs of prefab and modular construction are mixed. Some developers associate prefab with high quality and therefore lower maintenance costs, while others remain skeptical, believing these structures haven’t yet proven their longevity. Showcasing examples of the durability of prefab and modular buildings can help drive adoption.
“These are buildings that have not yet aged a lot… [the funder] does not yet have the evidence that it is more effective, that it will cost me less, and that it will last over time.”
Developers also shared concerns that the current lack of standardization in the industry leaves them reliant on a single provider, emphasizing that a provider going out of business can jeopardize the entire project and can make resolving any future problems more difficult. Standardization across prefab and modular innovators can mitigate this risk by reducing reliance on individual companies.
“It would kill the project [if the modular provider went out of business]. It's because you're putting all your eggs in one basket.”
Payment terms can make or break the adoption of prefabricated construction. Developers resist paying one hundred percent upfront, as this means they bear all of the risks associated with transport, manufacturing, and assembly. Innovators can ease these worries by exploring shared risk models, such as restructuring payment milestones, offering contingency agreements to remedy on-site delays, and providing targeted training to minimize assembly issues.
"If we pay 100% upfront… what happens in between? I know there could be certain ways of insurance, but what if it hits the site and it’s then not the right thing?"
Finally, developers face challenges obtaining approvals for modular and prefab projects, especially if municipalities are unfamiliar with modular techniques. Innovators can address this barrier by targeting adoption in areas that are most open to innovation, using these as proof-of-concept examples to educate and gain buy-in from other municipalities.
Opportunities: Developers as Trusted Messengers
While developers are aware of a general stigma around prefab and modular among the general public, many believe that the product is actually of higher quality than traditional builds due to being built in a controlled environment and to a standard that can withstand transportation. In some cases, developers associate prefab and modular with greater energy efficiency which can be used to market the product. This suggests that builders and developers may be effective messengers in educating consumers about the benefits of prefab and modular.
A Developer’s Checklist for InnovatorsIn a world where minor missteps can cut into profits or make projects unfeasible, innovators must think from a developer’s viewpoint. These are the questions developers want to know the answers to before considering adopting an innovative solution.
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Deep Dive: Building Permit-Ready Designs (BPRDs)
Barriers: Low Awareness and High Skepticism
Developers are open to tools that speed up design and approval processes, including BPRDs. However, most developers we interviewed were unfamiliar with BPRDs, having limited, if any, exposure to them in practice. This lack of familiarity has bred skepticism about their practicality and adaptability.
Developers expressed concern that BPRDs might lack the flexibility needed to adapt to varying rules, sites, and market demands. Our conversations with developers centered around three main areas where flexibility is crucial:
- Municipal regulations. Developers worry that BPRDs may not be accepted in the specific municipality where a project is taking place, and may struggle to keep up with shifts in municipal requirements or interpretations of the building code. Their experience of constantly changing municipal demands led to doubts about whether BPRDs could consistently meet these requirements.
“The problem with that notion is that the requirements change for the city. The building code changes….is it feasible? I don't know.”
“...you could build it one way and design it one way in [municipality A] and the demands will be completely different, say in [municipality B].”
- Site variability. Developers doubt that BPRDs can accommodate the unique requirements of different sites, concluding that the modifications needed to adapt BPRDs to a site could negate any time or cost savings promised by the innovation.
“Every site has its unique requirements, so if it’s sloped or if there's trees that you're trying to keep or whatever…. so I like the concept, but there needs to also still be some flexibility there.”
- Market expectations. Developers perceived that BPRDs would be short in delivering unique and customizable designs that attract buyers in competitive housing markets. Most developers did not think BPRDs were a good fit for market-rate projects, saying that individuality was a necessary requirement to attract buyers.
“What will differentiate a project from another is the twist or the flavor of the project. If it's all the same, the developers won't buy these types of projects. A not-for-profit could go there. A private developer, I don't see it. A not-for-profit that wants to do affordable housing… it could work. For medium-sized housing, I don't see it.”
As a priority, BPRD providers need to raise awareness of their product and its flexibility. Showcasing examples of BPRDs adapting to changing regulations, different sites, and producing an attractive product will be essential in changing perceptions.
Drivers: When Affordability and Scale are Priorities
While developers harbor skepticism, they see potential value for BPRDs in situations where affordability and scale outweigh attractiveness and individualization. Affordable housing initiatives or non-profit projects were seen as promising applications for BPRDs.
Additionally, while developers questioned BPRDs’ adaptability, they recognize that even an imperfect BPRD can provide a helpful starting point that can create time savings in the design stage.
“...It would save a lot of time because… you at least have a starting point that you can take in. You can always modify that package to include any of those changes. So you'd be starting, rather than at 0.0, you'd be starting at like 0.7 out of 10… so there would be substantial savings.”
Developers also view BPRDs as an opportunity to democratize entry points for non-developers, especially as many provinces undertake blanket rezoning projects. BPRDs can help individuals engage with these opportunities without deep technical knowledge.
“...they're allowing blanket rezoning in many provinces, in many communities… non-industry people who have not been part of construction will hop onto this very quick. It becomes like a plug-and-play kind of thing for them.”
Educational campaigns (e.g., workshops and digital resources for entry-level developers) in areas where blanket rezoning is occurring can establish BPRD providers as trusted partners for those looking to capitalize on this opportunity.
Limitations: Addressing the Most Pressing Problems
While BPRDs show potential for streamlining the building permit process, some developers noted that this would not address their most important barriers, which relate to gaining approvals for a specific site (e.g., rezoning applications) and adapting plans to the site—steps that BPRDs alone cannot fulfill.
This highlights an important distinction: BPRDs may create more value for users without extensive industry experience and for whom design and building permits may be a significant barrier. On the other hand, seasoned developers concluded that, even if BPRDs work perfectly, they would still not resolve their key challenges.
“Here's the thing: the building permit is not the issue…The part that is the hard part, like I said, is the zoning bylaw stuff and the neighborhood association stuff. That's the issue.”
Effectively Reaching a Developer Audience
Messaging is a key tool for bridging awareness and perception gaps identified in this research, but effective messaging first requires innovators to capture developers’ attention and build their trust. The following sources of trusted industry information represent key opportunities for innovators to address drivers and barriers to adoption through targeted messaging:
- Professional organizations. Organizations like the Canadian Home Builders Association and the Urban Development Institute are trusted by developers who look to their written publications and events to learn about new trends and innovations.
“We look to the Home Builders Association when it comes to [...] new product.”
- Conferences and expos. In particular, innovation-focused conferences provide direct access to developers who are open to innovative methods and ideas.
“...events like Contech, where we see all the new materials, the new innovations, exhibitors' salons like Expo Habitat."
- Networks and partners. Developers lean on technical partners to stay up-to-date with emerging technologies and best practices, indicating that indirect channels are as important as direct outreach.
“We hire a general contractor, so we kind of lay on them for them to be up to date with the latest technologies… and often the architects… they know what's out there and what's coming up.”
- Case studies for direct outreach. For direct-to-developer outreach, case studies are indispensable. Developers trust regional, context-specific examples with detailed cost comparisons.
"We feel more confident when we see referenceability… regional case studies would really help.”
Harnessing these industry channels provides innovators with the opportunity to shape the narrative around their innovation.
Conclusion
Meeting Canada’s housing goals will require a three-way alignment between developer needs, innovative solutions, and policies at all levels of government. Developers face barriers that innovations can help to address, but these innovations must show cost, time, and risk benefits to be adopted by developers.
This report identifies strategic steps that innovators and policymakers can take to promote the scaling of innovative solutions and unlock the efficiencies that these innovations offer:
- Cost efficiency: Well-monitored incentive programs can be powerful tools in promoting adoption. Demonstrating short- and long-term cost savings can further secure support for adoption.
- Time savings: Training programs can ensure time savings related to an innovation by reducing on-site delays due to mistakes or unfamiliarity. At the same time, streamlining approval processes is key to reducing barriers for developers.
- Risk reduction: Standardization across the prefab and modular landscape can minimize perceived risks by reducing reliance on a single provider, and payment milestones can be restructured to share risks across stakeholders.
- Aligning with demand: Socializing the benefits of innovation for the end consumer—for example, sustainability and energy efficiency—can help tap into demand drivers.
Our conversations with stakeholders across the housing ecosystem make it clear that a one-size-fits-all approach will not address the unique needs that exist across Canada. To address this diversity, innovators and developers need access to evidence-based, local insights that can channel innovations where they best align with local needs and conditions. This report provides a foundation for future work to effectively target and drive the adoption of housing innovations across Canada.
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