Three factors set to drive modular housing to success
Whilst there are many proponents of modular construction, many veterans say they’ve ‘seen it all before’ and it doesn’t work, but I want to tell you that it’s already here and will become a common way of delivering developments in the UK.
Consulting for one of the UK’s leading manufacturers over the past year, I’ve seen the way many housebuilders, investors and the wider property community have completely changed their views of these new systems. Here are three factors that will drive the success of modular housing.
Components through to volumetric solutions
Modular construction is a term used across different Modern Methods of Construction (MMC) systems, ranging from bathroom pods being inserted into buildings on site and panelised systems assembled on site (like the famous Huf Hauses used on homes of the elite on Grand Designs), to 3D volumetric systems where a fully-formed box structure is brought to site and craned into place.
The shared characteristics of these solutions is work is done offsite, manufacturing components or even whole buildings in a more suitable environment and bringing to site.
The biggest benefits to a project would come from constructing a larger share of a project away from site, reducing the amount of preliminaries and other site specific costs.
‘Pre-Manufactured Value’ (PMV) is often referred to by MMC industry advocates such as Mark Farmer in his ‘Modernise or Die’ government sponsored review of the UK construction labour market. It looks to quantify this as total construction cost, less onsite labour and related onsite costs, and points towards volumetric solutions, although the principles still stand across the modular spectrum.
Not just manufacturing capacity
When pitching that modular construction is the future, the modular industry’s party-line is that they will not replace traditional construction, but add additional capacity to ‘solve the housing crisis’. I’ve always found this a deeply flawed proposition, although understand it’s crafted to not upset the masonry fans and an attempt at clickbait.
The ‘housing crisis’ is far too complex of a social and political issue to argue a new method of construction will ‘solve’ it, but conference organisers and editors often think crowds will love it. Although it can contribute to adding construction capacity, I’m sceptical to whether a significant number of additional sites will be delivered now that modular construction is an alternative delivery method, other factors limit that.
For this reason I’d say modular will take a share from, although never fully replace, traditional construction and here’s why:
Three reasons modular will succeed
Demand – growing need for better + more cost-effective forms of construction across all housebuilders
Social housing providers and private developers are both finding both material and skilled labour costs have risen over the past years, and in many cases they are simply not available. This not only makes traditional construction more expensive and in cases impossible, but also adds volatility and uncertainty. For this reason, people are seeking out ways to ensure projects will be delivered on time, and on budget. They are willing to invest in pilot projects and take some reasonable risk, a good example being Home Group’s Gateshead Innovation Village which is trialling five new systems against traditional construction.
Supply – Modular manufacturers are building businesses to meet these needs, funded by long-term committed capital
Modular housing manufacturers are reducing some of the constraints their traditional counterparts suffer from. For example, modular suppliers talk about ‘manufacturing’ homes, rather than constructing them (another of the party-lines). This is because each is assembled in a factory environment, with defined and detailed processes which are specific and repeatable. This means much of the labour force can be unskilled general operatives hired from a wider talent pool, thus removing a barrier to production and reducing labour costs.
Also, new technologies, not just covering physical construction, but also design and project management are emerging, such as Building Information Modelling. During my time consulting, I was helping identify and implement such technologies which would make the whole processes more efficient and importantly a truly scalable solution.
Of course, this is a difficult and expensive challenge and takes time to get it right; the BBC showed L&G’s huge empty factory in September 2018 two-and-a-half years after they initially set huge targets. Despite this, the parent company continues to invest in the business. Some manufacturers such as Top Hat and Project Etopia have taken a different approach, ensuring demand from their own pipeline of developments and giving themselves space to iterate and develop their products with themselves effectively as clients.
As modular suppliers increase their efficiencies through higher volume, better implemented technologies and more sophisticated supply chains, pricing should continue to fall. Currently some volumetric suppliers are offering finished mid-range homes, excluding groundworks and services, for £1,000-£1,200/sq m.
Whilst pricing for the equivalent construction using traditional methods can vary hugely between £800/sqm and £2,000/sqm, many SMEs in the South East would bite your hand off for that price, but larger regional housebuilders will also become enticed as their traditional costs continue to rise and diverge with the falling costs of modular solutions.
Government support – Various reports and initiatives encourage investment into the sector and adoption of MMC
A number of supportive papers have been produced such as by the House of Lords’ ‘Off-site manufacture for construction’, which I was requested to contribute to. These papers highlight the benefits of offsite construction, including modular, and have led to supportive initiatives from the government, such as from Innovate UK as part of the Industrial Strategy Challenge Fund which aims to stimulate further R+D into the sector.
One of the most notable signs of support is the specific objective of Homes England, who describe themselves as the ‘government’s housing accelerator’, within their five year Strategic Plan to help increase construction productivity using MMC such as modular housing.
Separately, important working groups such as the Ministry of Housing, Communities + Local Government’s MMC Working Group have also been set up to help harmonise the industry and help address issues such as insurance and financing, factors key to the success of these new systems.
So keen is the government to show its backing of MMC, the housing minister appeared at Explore Offsite, one of the industry segment’s key conferences, to show his support, despite all the chaos going on across the road from the QEII Centre on Parliament Square where the event took place.
In summary, the modular construction industry has emerged with great promise over the past years. The ‘perfect storm’ of high cost and limited supply material and labour has meant more people want it, and seeing the opportunity, investors and new businesses are committing to make it work. Recognising these trends, the government has shown its intention to support the implementation of new systems by helping facilitate innovation and adoption. It’s still early days, but I’m optimistic that with new technologies and better collaboration, modular construction will become a major contributor to UK housing.
Jitin Mitra is a management consultant and property developer with a deep interest in Modern Methods of Construction and has spent the past year consulting for one of the UK’s leading modular homes manufacturers. You can follow him on Twitter at @jitinrm or get in touch on LinkedIn or via firstname.lastname@example.org