Canada’s housing supply has faced chronic shortages in recent years as households and the economy are held back by a lack of available and affordable places to live. Many proposals have been offered, from overhauling regulations to bolstering financial incentives.
A groundbreaking purpose-built rental project in Toronto exemplifies the potential of prefabricated construction.
But one factor often gets overlooked: the construction itself. To build housing more efficiently and inexpensively would help increase the supply and ease the shortage.
That’s where prefabricated construction comes in. It’s housing that is built partially, or even entirely, off site, and then assembled at the construction site. Think of Legos, but on a giant scale.
The idea was discussed at a recent conference in Toronto, “Sustainability in Affordable Housing.” The event featured industry experts including Jonathan Diamond and Gabriel Diamond from Well Grounded Real Estate. In all, about 20 people from the Kehilla Residential Programme’s young professionals initiative attended.
A systems-based approach
Consider the proposal for a mixed-use rental apartment building at 1925 Victoria Park in Toronto. It’s a groundbreaking purpose-built rental project that exemplifies the potential of prefabricated construction.
The plan embraces digital design, standardized product development, just-in-time production techniques, and optimized logistics within a local supply chain. The project is expected to break ground next year. With pre-built hybrid mass timber panels transported to the site and then assembled. On-site construction is expected to take about 11 months, slashing construction time by 30 per cent and embodied carbon by 32 per cent, according to CREE.
These efficiencies lead to a more affordable project. With shorter construction times, financing costs are reduced, less labour is needed at a time when there is a persistent shortage, of workers, and fewer disruptions take place in the neighborhood.
Jonathan Diamond, a vice president at Well Grounded Real Estate, said that the problem with the current development system is that each project has different requirements. The idea with prefab construction is to create a replicable process that can constantly be improved and applied on a wide scale.
Energy efficiency
Sourcing innovative best practices from around the globe, particularly expertise from Europe, will help Canadian developers rethink the status quo.
The Victoria Park building is a 12-story mixed-use rental prototype that prioritizes energy efficiency and electrification to enhance sustainability and benefit the well-being of its residents.
The building is unique because it is built around a central courtyard and has exterior single-loaded open-air corridors. These features not only give the building a more family-friendly feel, but the corridor structure also supports cross ventilation.
Read more of RSM’s insights on Canada’s tax incentives for developers.
The units have windows on both sides of the units, or twice as many as a typical building, allowing natural light to fill the space. Radiant slabs on the ceilings will provide heating and cooling, highlighting the importance of built-in mechanicals. With volatility in gas prices, and the need to replace boilers every 20 years, an all-electric building reduces utility charges for occupants and creates more predictability in net operating income.
The International Valuation Standards Exposure Draft for Consultation released last year outlined considerations for the risks and opportunities related to ESG characteristics in valuation. The consensus is that these environmental, social and governance practices, which emphasize energy efficiency, will yield higher valuations and better returns.
Consideration should be given to incorporating ESG-related capital expenditures upfront or predicting upgrades needed in the future. As noted by Gabriel Diamond, vice president at Well Grounded Real Estate, it is important to think about the long-term costs of owning and managing buildings, and ESG, he added, “is the byproduct to future-proof projects.”
A shortage of affordable housing
The Canada Mortgage and Housing Corp. estimates that 5.8 million more homes will need to be built by 2030 to meet growing demand. A CMHC report in January noted vacancies for purpose-built rentals across the country reached 1.5 per cent last year, the lowest point deviation from the 3 per cent target since 2000.
Vacancies are expected to be further tightened to cater to Canada’s existing needs and aggressive immigration plans.
Source: Canada Mortgage and Housing Corp.
While there are programs to help finance development, which are benchmarked to affordability, sustainability and energy efficiency, these initiatives alone are not bolstering development to meet affordability targets.
While CMHC noted that purpose-built rental units now account for a higher share of apartment starts in most areas, Toronto’s supply levels are down by 0.5% as of October last year compared to the year before.
Source: Canada Mortgage and Housing Corp.
Gabriel Diamond noted that initiatives like the elimination of the goods and services tax at the federal level, and having several provinces following suit, is a good start, but additional government incentives are needed.
The proposal to prioritize construction workers for permanent residency in Canada, as outlined in the Fall Economic Statement, represents a prudent step forward. Government support encouraging innovation in construction, akin to successful programs in battery manufacturing for electric vehicles and clean energy, is the fuel needed to jumpstart a solution.
The takeaway
By 2030, global spending on clean energy is projected to reach $4.3 trillion, with a significant focus on building retrofits, including the adoption of heat pumps. While programs such as Toronto Energy Retrofit and Hi-RIS are critical to make improvements to existing buildings, the focus needs to shift to innovations that can be widely adopted in new construction.
By incorporating up-front investments in sustainability and anticipating future retrofitting needs, developers can unlock long-term value and reduce risks.
