Calum Forsyth is managing director of materials manufacturer H+H UK
Despite millions of pounds of government investment, the modular housing industry has seen a series of failures over the past 12 months. Are we on the wrong track with this approach to solving the housing crisis?
The concept of houses built in factories was seized upon by the Westminster government as a means of modernising the housebuilding industry and producing high-quality homes, fast. In the 2017 white paper Fixing Our Broken Housing Market, the government made several commitments to supporting modern methods of construction (MMC), which resulted in a significant amount of funding being directed towards volumetric projects in particular.
“The main issue is the structure of the housebuilding market, which is characterised chiefly by its volatility”
Seven years on and it would be hard to portray the results of this investment as a success. Public sector investment could not save Ilke Homes; the financial clout of L&G couldn’t save its own modular offshoot; and the failures continue, most recently with MMC innovator Modulous.
The vision of modular housebuilding can be very seductive: muddy building sites replaced by clean factories with consistent quality control, and requiring less skilled staff to deliver new homes faster and cheaper. It just doesn’t seem to work for volume housebuilding in the UK. Why?
In my mind the main issue is the structure of the housebuilding market in this country, which is characterised chiefly by its volatility. Aimed primarily at private buyers (with even most social housing funded indirectly by private developers), the market is driven by consumer confidence. A percentage point on interest rates or apprehension around economic forecasts and the order book for new houses can evaporate fast.
The volume housebuilders understand this and have created resilient businesses by stripping as much fixed cost out as possible. Building work is actually completed largely by subcontracted labour and, faced with a slowdown in demand, the large developers can simply slow down the rate of construction on their sites to suit a more subdued market.
It may not be a perfect way to run housebuilding (with little incentive to invest in training skilled site workers, for example), but it’s a pragmatic response that keeps housebuilders agile.
Compare this to a modular factory. Factory-built houses need factories to build them and those factories have huge upfront investment costs. Once fully operational, the factory will be completing houses at a steady rate, and needs steady and predictable demand to make its business model work – the very opposite of the UK volume housing sector.
Reflecting on the MMC review
The Built Environment Select Committee recently published the result of its review of the modular housing sector: Modern Methods of Construction – what’s gone wrong? The affordable housing agency Homes England was one of the organisations summoned to report on the results of investment in MMC, being one of the largest recipients of government money to invest in MMC innovation.
The conclusion of this scrutiny was summarised in January by chair Lord Moylan: “The government needs to change tack. Simply throwing money at the sector hasn’t worked.”
This doesn’t mean that all MMC initiatives are a waste of money. Far from it – and Homes England was keen to point out that ‘category 2’ (2D primary structural systems) MMC innovations are demonstrating far more success.
The distinction indicates one of the difficulties around the perception of MMC and modular construction. The 2019 MMC Definition Framework outlined seven categories of MMC innovation, yet it seems that the volumetric modular (category 1) attracts a disproportionate amount of attention and funding.
In the background, the housebuilding supply chain is supported by a range of companies – many of them manufacturers like H+H – developing practical new solutions. These sit comfortably with the MMC definition framework without demanding government subsidies to make them viable.
There is no doubt that UK housebuilding needs attention – we have the most expensive, oldest and least energy-efficient housing stock in Europe. In trying to address housing market challenges, the select committee’s inquiry highlights that there has been too much focus directed towards headline-grabbing volumetric modular construction. This is potentially driven by a department that does not sufficiently understand the structure and requirements of the sector.
I would argue that government intervention should support a longer-term shift to a more sustainable housebuilding system, with funding and policy support to ramp up social and affordable supply alongside market supply. To do this, the government should focus on creating the economic environment in which housebuilding can grow to meet demand, rather than trying to dictate how these new homes should be delivered.
