Edmonton's Affordable Housing Solution Stuck in a Financing Loop
As Canada grapples with a housing crisis, factory-built prefabricated homes are emerging as a potential game-changer, promising to deliver homes faster and for less cost. This is particularly relevant in Edmonton, where there is high demand for affordable single-family dwellings. However, a significant financial obstacle is preventing this modern building method from making a substantial impact on the local market.
The Federal Push and Local Reality
The recent federal budget has thrown its weight behind the prefabricated home industry, announcing funding support for the construction of close to 50,000 factory-built homes on federal lands. This initiative is part of the broader Build Canada Homes program, which aims to boost the supply of affordable homes, especially for first-time buyers.
Despite this national momentum, the scene on the ground in Edmonton tells a different story. Local realtor John Carter, broker/owner of Re/Max River City, notes that prefabricated homes are still rare in the city's housing market. This is puzzling, given their clear advantages.
The Untapped Benefits of Prefab Construction
The potential benefits of opting for a modular home are substantial. According to a report from the Real Estate Institute of Canada, prefab construction costs are approximately 20 per cent less than traditional construction. For a single-family detached home, this can translate to average savings as high as $150,000.
Furthermore, the speed of construction is a major selling point. Modular homes can be manufactured and assembled in about half the time or less than a home built entirely on-site. This efficiency also allows for better quality control in a factory environment.
The Financing Gap: A Critical Hurdle for Buyers
The primary challenge, according to local mortgage broker Cheryl Wilkes with Dominion Lending Centres, lies in financing. For prospective buyers, the process is not as straightforward as with a traditional build.
With a standard construction project, lenders provide funds in draws as the home is built on its foundation, with the increasing structure serving as collateral. For prefab homes, the situation is different. Lenders are often hesitant to provide financing for components being built in a factory when there is nothing yet on the land.
This creates a financing gap between the manufacturing phase and the final assembly on the foundation. “The lenders are like, ‘Well, there’s nothing on the land yet, so what are we financing?’” Wilkes explains. This leaves buyers with two difficult options: come up with a huge cash up-front or turn to expensive private lenders. Only after the prefab home is largely complete and on its foundation can buyers access traditional mortgage financing.
While the new federal budget invests $13 billion over five years into Build Canada Homes, it did not include a specific program to address this critical funding gap. Until a solution is found, the promise of prefab homes adding significant, affordable supply to markets like Edmonton will remain largely unfulfilled.
