While plenty of excitement is being generated by the push for modular construction - touted as the answer to the UK's housing crisis - so far the sector has produced very few homes. Joey Gardiner asks if the industry can push past the setbacks
The last few months have seen the government-backed drive to increase the use of modern construction methods suffer a series of blows. In February, Your Housing Group walked away from a joint venture with the China National Building Materials Company (CNBM) that was supposed to be producing 25,000 homes a year by 2022, while more recently insurance giant L&G has spoken about some of the problems that have caused a two-year delay in producing homes from its purpose-built modular housing factory.
Then, last month, the Environmental Audit Committee released a report calling on the government to stall its investment in modular housing because of claims some buildings can overheat in hot weather.
For those with a memory that stretches back before the credit crunch, some of this sounds eerily familiar. The 1998 Egan report inspired a drive to mechanise construction, which foundered as proponents of traditional build hit back and newly-developed technologies encountered the cold, hard reality of the UK housebuilding market. Ultimately, the credit crunch saw factories, such as Taylor Wimpey's Prestoplan timber frame facility, close as production lines stood empty for lack of demand.
"Some of this is about the masonry industry defending its patch. Until recently, it's been so niche they haven't had to bother. Now it's a threat"
Darren Richards, Cogent
But developers' interest in this technology reignited as the market recovered from 2013, generating rapid rises in traditional build costs. In 2016, Mark Farmer's Modernise or Die report for the government identified modern construction methods - what he described as "pre-manufacture" - as the long-term answer for an industry battling chronic skills shortages. So, is 2018 the year that reality will bite once again for those dreaming of a production-line answer to the housing crisis? Or are recent setbacks simply the expected teething problems of a quickly maturing sector?
Cottage industry
Few deny that interest in modern methods of construction (MMC) has grown quickly in recent years. This term encompasses a range of technologies, from timber frame systems such as those that have been commonly used in Scotland for years, and the prefabricated "pods" used within traditional builds, to "volumetric" modular systems where fully-constructed modules are transported to site for rapid installation. Proponents say these technologies offer the ability to sidestep skills shortages and construction cost rises, cut time on site in half, and ensure high quality.
Excitement has been generated by high-profile investments from the likes of L&G - which has said it wants to build 3,500 volumetric homes a year - Berkeley Group, Urban Splash and affordable housing provider Keepmoat, which has teamed up with modular business Elliott to create a new modular housebuilder, Ilke Homes.
This enthusiasm is reflected in the number of requests that warranty provider the National House Building Council (NHBC) sees each year from manufacturers wanting approval for new offsite systems. According to Richard Lankshear, its innovation manager, the NHBC typically receives between four and eight requests a year. But in 2016 this figure jumped to 32, in 2017 it was 20, and this year it is on course to receive around 40 new systems to approve. Tim Hall, executive director of lobby group Buildoffsite, says that taking all the MMC technologies together - including timber frame - production capacity has tripled in recent years from around 15,000 units to around 45,000 a year.
But so far actual output remains low. The NHBC says there has actually been little change in the use of MMC, with Lankshear saying 74% of housebuilding was traditional construction in 2017, with around 15% timber frame, and just 2% steel frame - all typical numbers for recent years.
"We're not seeing anything like the capacity we need, the government should step in with a factory building programme"
Marcus Fagent, Arcadis
Furthermore, much of the production capacity is accounted for by timber frame build, with capacity for the most innovative "volumetric" systems remaining small. There are just a handful of big players in the market - firms such as Elliott, Caledonian and Portakabin - and these dedicate the majority of their limited capacity to other markets such as temporary accommodation, the military or education.
Vision Modular Systems and Elements Europe are the only really established players solely dedicated to residential building. Marcus Fagent, partner at Arcadis, says: "The top five modular players probably only turn out around 2,000 modules each for permanent buildings, which could add up to around 3,500-4,000 homes - but at the moment their capacity is mostly directed at other markets."
Even Buildoffsite's Hall admits modular housebuilding remains thus far a "cottage industry", while the NHBC doesn't even collect data for volumetric build. Darren Richards, managing director of offsite consulting firm Cogent and another supporter, admits the numbers are "pretty moderate". "There's currently less than 10,000 units of capacity in the volumetric industry," he says.
Overheated
This small scale heightens the perceived risks that developers face when opting for MMC, with fears over lack of manufacturing capacity, and what would happen if any one company went bust. Other barriers preventing more rapid uptake include the capital cost of building factories, the lack of construction flexibility with MMC, and lingering negative consumer and mortgage lender perceptions over the product.
On top of this, the charge sheet from the Environmental Audit Committee is serious - that modular buildings, due to their lightweight construction, are more prone to overheating than traditional buildings, an issue that with climate change is rapidly becoming a serious risk to health. The committee's finding, based on evidence from the Mineral Products Association (MPA), which represents brick, block and concrete manufacturers, was unequivocal. It said: "Modular homes are not resilient to heatwaves, and should not receive support from the government."
The MPA's evidence to the committee said this was because lightweight construction contained materials with lower "thermal mass", and therefore heated up more quickly. "Factory-produced housing", it said, "is largely made from lightweight systems and materials of unproven durability", and was "likely to offer poor resilience to the effects of future climate change, specifically overheating and flooding." A spokesperson for the MPA said its claims were based on scientific research, including a much-cited 2008 paper by Arup, and were reflected in the government's system for calculating energy use in buildings, SAP.
Supporters of MMC, however, refute these claims, arguing that reports on this issue by the Zero Carbon Hub, among others, demonstrate that thermal mass is just one of a number of factors affecting overheating, and can easily be compensated for by designs that take account of the effects of solar gain and active and passive ventilation. A response from Buildoffsite states that "good offsite design gives excellent mitigation of overheating as well as enhanced winter insulation", while "poor design for solar gain and a lack of natural ventilation is equally detrimental to traditional and offsite technologies", adding that because brick buildings, once warmed, retain their heat for longer, they can actually suffer more in periods of prolonged hot weather.
Cogent's Richards dismisses the Environmental Audit Committee's findings as part of an expected backlash from the traditional building materials sector. "Some of this is about the masonry industry defending its patch. Until recently, it's been so niche they haven't had to bother, but as soon as it's getting big traction, it becomes a threat," he says.
Certainly Alex Johnson, associate director at architect Assael, which has designed a range of MMC projects including the 249-home Creekside Wharf scheme, says he sees no evidence of clients being put off by the Environmental Audit Committee's warning. "People aren't taking it seriously. Overheating can be dealt with through a holistic design approach taking account of orientation, shading and ventilation."
Assael's 249-home Creekside Wharf scheme in Greenwich, south-east London - the construction of the ground floor, podium level and core will be made in traditional concrete, but the rest of the blocks will be built using offsite construction methods. Each unit or apartment is pre-fabricated (including electrics and plumbing) using a volumetric modular system
Arguably, the setbacks to MMC initiatives such as L&G's is potentially more damaging to confidence, given the offsite sector's track record of failing to deliver. L&G announced in February 2016 it would have factory-built homes rolling off the production line by the summer that year, but this is yet to happen following production problems - with the company now targeting launch in the autumn.
Meanwhile, CNBM's 15,000-home-a-year initiative is widely perceived to have stalled due to the exit of Your Housing Group. A spokesperson for the MPA said: "One of the pitfalls in modular/MMC is simply the weight of expectation on numbers of delivered units - an expectation that is unlikely to be met simply because it is unrealistic."
Likewise, Richard Jones, head of regeneration at Arcadis and a supporter of MMC in principle, admits that while "there is momentum behind MMC", "it's a slow journey as there are still six or seven barriers to widespread adoption. People aren't going to invest in factories without certainty of demand."
Investment
Many others, though, are much more optimistic. Assael's Johnson says that, paradoxically, L&G's experience may have given the sector additional confidence. "The industry understands L&G needs to take the time to get this right. I don't think they're being put off - quite the opposite. They're seeing L&G continue to commit to this despite its difficulties." Neil Brearley, founding director of consultant Cast, agrees. "I don't think the sentiment is changing. Because the thing that really kickstarted this is the pull from the market to change the way things are done," he says. "On most of our projects, clients are interested to explore the different methods of construction, right up to volumetric."
Buildoffsite's Smith says potential investors in new MMC capacity certainly aren't being deterred, professing he knows of "credible plans" to raise the industry's capacity to 150,000 homes per year. Cogent's Richards says he is talking to investors about seven or eight new facilities, with "a new client coming to look at this" every week.
However, this doesn't mean investors are not learning from L&G's experience. In contrast to L&G's £50m production-line factory, he says many investors are considering relatively low-tech facilities, which essentially mimic traditional build techniques indoors, and which can be set up for less than £5m. "Our advice is not to be fixated by the need to create a heavily industrialised process. Once you have a matured product and a confident pipeline of orders, then - three, four or five years down the line - is the time to invest in mechanisation and automation," he says.
One potential example of this approach is that being taken by US build-to-rent developer Cortland Partners, which announced a £4bn plan at the start of the year to build 10,000 homes in the UK in the next seven to eight years. Clay Landers, chief construction officer at the firm, says it is considering whether to go down a volumetric MMC route for these homes, with a final decision due by the end of the year.
The firm is already in the process of working up plans for its own house types, which it would either seek to find a manufacturing partner to build, or potentially set up a factory to build itself. "We're intrigued by the offsite route and are heavily into our research and development for a product we might introduce. It's a real option for us." Driving consideration of this option, he says, is the potential to reduce construction time and ensure quality, as well as the relative lack of MMC capacity in the UK at the moment.
Meanwhile, Fagent says Arcadis is working on plans to aggregate demand for new homes among housing associations and local authorities in a way that they can together justify setting up a local factory to supply it.
So while many question marks remain about MMC, it certainly appears that recent events have not derailed the offsite train. But whether the current interest and investment will ultimately result in a significant slug of housing output is yet to be determined.
Homes England's take on MMC
The government has made clear its support for MMC, with the announcement in 2016 of the £2bn Accelerated Construction fund and an ambition to build 100,000 "modular" homes by 2020. Launching Homes England (the rebadged Homes and Communities Agency) at the start of this year, chairman Sir Edward Lister said part of its role would be to "stimulate demand for MMC and ultimately disrupt the housing market". However, last year when five government departments committed to favour MMC in their procurement, the list didn't include the housing ministry, and many say Homes England's support has been more rhetorical than practical so far.
A spokesperson for Homes England said it had already invested, through its Home Building Fund: "Tens of millions of pounds to support offsite manufacturers across the country and we aim to do much more". The spokesperson said it will also use its Affordable Housing Programme to give more generous grants to schemes that use MMC "where it can be demonstrated it costs more".
Homes England has given, for example, developer Pocket Living £33m to build a series of affordable housing schemes in London using modular technologies. It also sold Berkeley Group the site on which it has located its new modular factory.
However, the spokesperson declined to confirm rumours Homes England plans to itself invest in an MMC factory. When asked, the spokesperson said it was using its investment capability to support the MMC sector, but that money from its £3bn Home Building Fund was only available "to businesses wanting to use MMC in their developments".
Consulting firm Cogent managing director Darren Richards says he hadn't seen "much if any real subsidy" from Homes England for MMC, but nevertheless that its positive rhetoric had been "incredibly supportive". "They understand the most important thing is to create a medium- to long-term pipeline of housing demand," he says.
However, Marcus Fagent, partner at Arcadis, said that without more direct government support, the industry will not develop quickly enough the capacity necessary for MMC to make a big impact. "We're not seeing anything like the capacity we need, there's a need for government intervention. To meet its 2017 industrial strategy, it should step in with a factory building programme," he said.
For the latest developments in the volumetric modular offsite sector why not attend www.modularmatters.co.uk in Birmingham at the end of October?
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