According to a 2016 McKinsey report (PDF), the construction industry remains one of the least digitized sectors. Out of 22 industries reviewed, construction ranked second to last – just ahead of…hunting and agriculture. Nearly a decade later, little progress has been made in how we build homes.
Canada’s housing sector feels stuck in an everlasting hunting-gathering era, resisting modernization. A large part of the solution to digitize our housing industry lies in scaling up to generate sufficient financial, human and technological resources to innovate.
Canada can learn from the Netherlands, which has achieved scale in the housing sector, including with not-for-profit affordable housing providers.
In 2024, Canada had 40,349 businesses that employed workers in the residential construction industry. Of these, only 6 businesses had more than 500 employees. The majority (69.5%) were micro businesses with just 1 to 4 employees.
The same trend applies to the real estate lease management industry. While specific data for residential leasing is not available through the Canadian Industry Statistics, broader data for the real estate leasing and management sector tell a clear story: Of the 30,099 businesses that employ workers, 81.4% had less than 5 employees. By comparison, 59.2% of businesses across the entire economy fall into the micro-business category.
While there is not as much data on the size of not-for-profit housing providers, anecdotal evidence from key industry players assumes the same conclusions: Not-for-profit housing providers could benefit from scaling up their operations, according to the National Housing Council. Most Canadian not-for-profit housing providers manage a few hundred housing units, with larger ones overseeing between 1,000 and 2,000 units.
In contrast, the Netherlands offers a different model. Not-for-profit housing associations there manage an average of 10,000 units, with larger organizations overseeing significantly more – up to 80,000!
Why is getting to scale so critical to modernize our housing sector?
Larger businesses and not-for-profit organizations have more resources and capacity than smaller ones. Ray Sullivan, Executive Director of the Canadian Housing and Renewal Association (CHRA), captures this dynamic in his blog post, Community Housing Has a Size Problem.
The benefits of scale go beyond what Ray describes as managing the day-to-day challenges without disrupting the organization. Scaling up also allows housing organizations to accumulate funds, resources and dedicate talent to innovating how housing is built and provided.
In the private residential construction industry, scaling up can lead to innovation in building techniques, adoption of new materials and overall increased productivity. Larger builders, for example, may have capacity to adopt technologies such as AI, which shows potential for better resource management and automated prefabrication of housing components.
In Canada, prefabrication is often seen as innovative—even exotic—but in other countries, it’s standard practice. For example, in Sweden, more than 80% of houses have at least one prefabricated component. Ultimately, having larger homebuilders with a business model based on technology may create a base demand for modular and prefabricated housing. This would make these building techniques viable for large-scale deployment across the country.
For not-for-profit housing providers, getting to scale could reduce reliance on ad hoc government project funding. This would enable providers to address housing needs more quickly and independently.
The Netherlands offers a compelling model. It is decentralized across several associations and operates without direct subsidies (PDF). Instead, these associations fund new housing development through rental income and loans. Housing associations in the Netherlands design, fund, build and operate affordable housing projects, meeting a range of needs – from deeply subsidized housing to options for the missing middle housing.
Decades ago, governments incentivized the sector’s consolidation with initial capitalization, expecting it to become self-sufficient over time. While governments still play a role in the Netherlands’ affordable housing provision, their involvement is more remote, focusing on preventing bankruptcies in the sector.
Even in cases of financial failure, housing associations are the first to step in. They have collectively established a mutual insurance fund—a shared financial safety net—to support struggling associations. Only if this fund is insufficient do governments intervene, with municipal governments being second in line to provide support.
In the Netherlands, the national government may be called to intervene as an ultimate bailor of funds. This is only the case if the mutual insurance fund and the municipal governments together don’t have sufficient funds to avoid an association’s bankruptcy. Imagine what could be achieved if Canada leveraged its AAA debt rating to strengthen and expand the not-for-profit housing sector!
Scaling the housing sector: What’s in it for Canadians?
Consolidating and scaling the private residential construction industry would first benefit Canadians by accelerating the supply of housing. As CMHC’s research shows, we need to double the current pace of housing starts, making faster construction timelines essential.
Currently, AI adoption in the residential construction industry focuses on shorter turnaround times. Over time, it could also lead to significant cost savings. For example, AI can optimize building plans to maximize the use of standard 10-foot timber, reducing waste and time spent framing. Other AI tools can estimate and plan material needs more accurately, reducing excess material procurement and further improving efficiency.
Consolidating and scaling the not-for-profit housing sector would benefit Canadians by reducing reliance on government subsidies for affordable housing. The Netherlands demonstrates that it is possible to empower the sector to deliver a range of affordable housing options with minimal financial commitment from governments.
This approach reduces dependence on taxpayer dollars and increases the capacity of organizations to respond to housing needs quickly. By streamlining administrative processes and minimizing the number of organizations involved in funding a project, the sector can respond more efficiently to demand.
A necessary first step in driving this change is to allow and facilitate for not-for-profits to leverage the equity in their current assets to build new affordable housing projects. This would unlock millions in dormant capital. While some not-for-profits may already be doing this, the vast majority are facing program and contractual barriers to do so.
The Government of Canada is seeking to double the pace of housing starts, leverage AI and technologies to boost productivity and adopt a more sustainable fiscal position. Now is the time for the housing sector to rise to the challenge. This could include creating a base demand for modular and prefab housing through the new Build Canada Homes agency, as well as incentivizing not-for-profit consolidation through targeted government initiatives and funding.
With the federal government’s focus on modular and prefabricated housing, the question is: What steps are home builders and not-for-profit housing providers taking to be ready to jump on this train?
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