Most houses are still built utilising the same materials and techniques that have been used for at least a century. There is a perception among policymakers that this needs to change, and there have been several initiatives to boost the adoption of Modern Methods of Construction (MMC). But the industry has remained largely resistant.

Perhaps that is because these traditional homes have primarily been built for sale to individual owner-occupiers or small-scale landlords. If that were to change towards a greater share of new homes being built for institutional owners, then the spotlight would switch to consistency of product, ease of management and fast delivery, as well as longer-term savings through energy efficiencies – things that MMC is well placed to deliver.

Increased regulation is also likely to focus on energy efficiency and a push for more sustainable construction techniques.

Cross-party support

The Communities & Local Government select committee report on MMC, published in 2019, showed that there is strong cross-party support for a paradigm shift in how we deliver housing, and made the case for wider adoption of MMC. As long ago as 2005, a National Audit Office report suggested that using MMC for housebuilding could cut on-site construction time by more than half.

Homes England uses adoption of MMC as a key scoring criteria for the sale of public land. This has already been seen at Northstowe, Cambridgeshire, where Urban Splash, which will build homes using MMC, was selected as delivery partner ahead of a number of well-known housebuilders.

The Greater London Authority (GLA) published Designed, Sealed, Delivered in 2017, which called for the use of offsite construction to meet the capital’s housing needs. Mayor Sadiq Khan has since launched Prism, a free web-based tool that aims to accelerate the design process for precision-manufactured housing in London. It combines London’s spatial planning rules with data from manufacturers to quickly test a site’s suitability for MMC.

Long-term thinking

To fully realise the potential of MMC requires a change of mindset from housebuilders and a widespread adoption of Design for Manufacture and Assembly (DfMA). This aims to simplify design and increase the efficiency of constructing houses.

Full adoption and integration of digital technology into housebuilding, for example using Building Information Modelling (BIM), makes it possible to create a database that would store and track all data about the built environment. This will allow the full lifecycle costing and management of homes to be undertaken with much-increased accuracy – especially important for institutions and housing associations that will be owning and managing properties for the long term in relation to their returns and valuations.

This is of huge value to investors in Build to Rent and housing associations, who are looking for greater consistency of product, lower and more predictable operating costs, and ease of management.

Why not build modular?

The most obvious deterrent to offsite construction is that it costs on average 10% more than building in the traditional method. Incurring this cost is unlikely to result in higher sales values to individual buyers. Many remember the post-Second World War prefabs, highlighted by a YouGov poll for Home Group that found 52% of respondents would be unlikely to want to live in a modular home. This perception is being countered by a range of accreditations, assurances and warranties set up to thoroughly test the manufacturing quality of MMCs.

In contrast to traditional contract terms where payment is due after products arrive on site, MMC requires advanced payment, prior to the fabrication of offsite components. This increases not only manufacturer insolvency risk and the delivery of components but also the cash-flow burden for developers.

For institutional investors and housing associations, there may be advantages if the additional cost of construction results in lower ongoing maintenance costs. But housing associations often have a limit on the proportion of their loan security that can be of non-traditional build. Currently, most banks have a cap of around 10% of stock being built using MMC. This isn’t yet a major barrier as so few MMC homes have been built: only 14% of housing associations build more than 25% of their new homes using MMC. But 50% expect to be doing so in five years’ time.

When will the balance tip?

At present, only about 10% of new build homes are delivered using some form of MMC, equating to around 20,000 homes each year. We currently estimate that manufacturing capacity is between 25,000 and 27,000 homes a year. And it’s growing; Savills has identified more than 75 companies seeking to use MMC to deliver housing at volume.

There are new entrants to the housebuilding sector, including Goldman Sachs, which invested £75 million in TopHat, a modular manufacturer, and Boklok, which already has a successful track record in Scandinavia. Japan’s largest housebuilder, Sekisui House, signed a £90 million deal with Urban Splash and Homes England to enter the UK market.

Traditional housebuilders are also changing their approach. Berkeley Group set up its own modular factory in Kent in 2018; Barratt delivered 20% of its completions in 2019 using MMC, and aims to reach 25% by 2025. Timber-framed housing accounted for 45% of all its MMC completions in 2018 and roof cassettes a further 37%.

Housing associations are looking for ways to increase delivery beyond the capacity of the traditional construction sector. Swan set up its own modular factory in Basildon to deliver homes at its Beechwood development. Places for People struck a £100 million deal with ilke Homes to deliver a total of 750 new homes across multiple sites.

The signs are that outlooks are changing. We could be on the cusp of a revolution in how we deliver housing.

_{Read the articles within Spotlight: Disruption in development below.}