Improving Canadian Housing: A Pillar of the Innovation Economy

By Laurent Carbonneau
CCI Director of Policy and Research

Housing is Canada’s thorniest public policy challenge. While it’s not a topic we normally talk about at Mooseworks, the new federal government’s ambitious housing policy piqued our interest.

The Liberal Party proposal would create a new agency, Build Canada Homes, to deploy $25 billion in financing for modular, prefabricated housing, and the government would use the power of public demand (procurement!) to stimulate innovation.

This is an exciting concept, and it dovetails with ideas we laid out in our recent report, A Mandate to Innovate, where we called for Canada’s new government to supercharge our traditional industries. If we can leverage our strengths as the world’s forestry superpower and if we can become a leading innovation nation in housing, we can both tackle our own housing shortages and branch out to global markets.

Housing policy in particular is important to Canadian innovation for a few reasons:

• First, the high cost of housing is bad for innovation. The cost of living makes Canada a less attractive destination for top talent: striking out on an entrepreneurial venture or signing on with a dynamic startup or scaleup is riskier if you’re paying down a big mortgage or face a high monthly rent payment.
  ‍
• Second, expensive housing also slows or prevents the formation of innovation hubs — by keeping people further apart from where they work, we’re throttling the natural ferment of innovative places.
  ‍
• Third, high-cost housing diverts Canadian capital away from higher risk but potentially enormously rewarding investments in innovative companies — why take even a calculated risk on investing in a company with an established track record, let alone a flyer on a startup, when land and buildings sit there getting more valuable by the day?

So, if the government can fix the housing crisis, this is good for Canadian innovators (and of course it is good for Canadians who need homes to live in.) But if fixing the housing crisis was easy, we would’ve done it already.

The cost of land alone contributes about 50-60% of construction cost in a high-cost city like Vancouver, but even if we were able to bring that down by liberalizing zoning and other fixes, so-called hard construction costs make up more than half of the cost of building in more normal housing markets.

This is where innovation can bring costs down.

The construction sector is actually one of Canada’s worst productivity performers. It’s fragmented, small-scale, and basically still artisanal in many ways. The industrial revolution of assembly lines and mass production never came to Canadian housing.

This is starting to change, and there are pockets of innovation – companies like Levven, for instance, make wireless power control switches that remove the (costly!) need to install wires between light fixtures and wall switches.

Modular or pre-fabricated housing has been the Next Big Thing for decades, and many people are wary of the hype. There are reasons to think, at least, that it’s not a silver bullet on its own. Proponents of prefab say that construction time is so much faster that you save money on financing. But overall, financing during construction isn’t an enormous cost driver compared to other things like land, materials and labour.

That’s not to say that prefab isn’t an important part of the answer. But there’s another technology Canada should look at closely that we can combine with prefabrication at scale to make both even better tools to take on our housing crisis — mass timber construction.

It’s a full circle moment for a country built one log cabin at a time; the future could be turning back to one of our oldest construction materials. But I’m not talking about your great-great-great-great grandfather’s wood. Modern mass timber — a family of engineered wood materials that includes cross-laminated timber, glulam (glue-laminated timber) and others — is a technology that is really coming into its own and presents an enormous opportunity for Canada.

This great report from the Transition Accelerator lays out the case fairly well. Canada already has over 700 mass timber buildings completed. Building out of mass timber emits between 2/3 and 3/4 less carbon than concrete construction, and they’re approved for heights up to 18 storeys (at least in Ontario and BC). In many ways, mass timber is the ideal solution for the missing middle of low/mid-rise housing in cities and near transit — assembling mass timber structures is less disruptive, less noisy and less prone to weather delays.

Another reason Canada should take a close look at this is because, of course, we’re the world’s biggest wood exporter, followed by Sweden, Brazil and Finland. We can move further up the value chain by becoming an innovation leader in producing mass timber products. Meeting our own housing needs is of course critical, but we can also become an export leader. The US and Europe have their own housing cost issues. And where the US market has its own challenges (leaving aside the current unpleasantness, forestry issues in particular have always been a cross-border sticking point), the carbon advantages and enormous scale of Canadian forestry and timber can make them competitive in the EU even with shipping costs if we’re able to innovate and bring down cost curves.

Mass timber is a very exciting technology, but the Canadian housing situation is a microcosm for innovation policy writ large.

The big takeaway here is that there are promising technologies that can solve serious global problems. Canada has many natural advantages, and it’s eminently possible that we can commercialize and further develop technologies like mass timber, and then sell our innovations to the world.

The $25 billion that the Liberal Party has talked about would be more than enough to kickstart a housing construction revolution. And with policies like forward commitment procurement— which we discussed in Buying Ideas — the government can incentivize private sector companies to do the hard work of commercialization.

The key idea here is recognizing the sectors where Canada has natural advantages, and then using government policy tools to help co-ordinate and unleash the competitive innovation energy of the private sector. We explored similar ideas related to mining a few weeks ago.

And if we do it right, we can fix the damn housing crisis too.

--

Laurent Carbonneau is CCI's Director of Policy and Research. He can be reached at lcarbonneau@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here .