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Build-to-rent developers and the public sector are providing powerful new clients for modular construction. It could be a game-changer, says David Thame.
Modular housing has been the Next Big Thing in housebuilding since most of us were children. For decades, modular construction has been promoted as the efficient, quick and quality-controlled route to mass house building. And for decades it has failed to live up to expectations.
Yet today, the modular sector’s cheerleaders have their tails firmly up. The burgeoning build-to-rent sector and increasing public sector interest in modular commercial buildings are combining to give modular methods the boost they have long needed.
Could now be the moment for modular housing?
Spoiler alert: the answer is no – not yet.
But there is real evidence that the niche that modular construction methods occupy is widening in a way that will produce opportunities. The big take-away is that, as a source of new work for the interiors business, modular is worth watching in a way that would have been eccentric only a few years ago. So how come? What has changed?
Simon Bayliss is Managing Director of HTA Design, the consultancy behind the world’s tallest modular project, the 44-storey 101 George Street, Croydon. Along with a second tower of 38-storeys, the scheme will provide 546 new homes, and is all but entirely constructed off-site.
The 430,000 sq ft project is a mighty and conspicuous test of the modular method, says Simon, and one that reveals the new market dynamics. That’s because the Henderson Park/Greystar development consists of build-to-rent apartments.
‘The Croydon site is very tight, so modular made sense. It means you have 60-70% fewer people on site to manage. But the appeal here is to BTR developers. Quite simply, modular is quicker, and if the scheme is built in half the time, then that is more time to earn rental income from the apartments we’ve built.
‘At the same time as they have more time to earn rental income, they also have less building defects to manage for tenants. So that is another saving. These are the reasons that BTR developers are going heavily into modular construction because, even if it is 10-15% more expensive than conventional, you get a better product and you get it quicker.’
Craig Taylor, Associate Director at Lungfish Architects, points out that speed of construction has another happy consequence for BTR developers; it helps them draw down their finance.
Craig has completed over 80 modular builds over the last 12 months – the most in the UK – and, in common with many in the sector, is seeing BTR drive business.
‘The issue is speed of construction,’ he says. ‘On sites where timescales are tight, modular is ideal, so developers use it when the project has implications such as it is reliant on drawing down funding, and there are key construction milestones for realising that funding. Modular construction is fantastic for that because it should guarantee the programme.
‘The time saving of modular construction has financial implications. And yes, BTR developers can realise their rental income more quickly. Modular is great from the programme point of view, because you can get units out quickly, and for repeatability because you can roll them out time and again.’
On top of the obvious financial appeal to BTR developers, modular also appeals to another set of housebuilders in a hurry: local authorities and housing associations. Manchester City Council has ambitions to substantially expand its housebuilding – and modular will be the leading route. In September 2019 that ambition took a concrete step forward with a plan for 75 new affordable homes on a site in the north of the city at Newton Heath. A new council-sponsored development company, launched in May 2020, will build 500 new homes a year.
Birmingham City Council is also heading in the same direction. The West Midlands Combined Authority has gone a step further by looking at supply chain management and investment, part of a wider push for Advanced Manufacture in Construction (AMC), the latest fancy name for modular methods.
The WMCA believes AMC can help the West Midlands bounce back more quickly from the coronavirus pandemic. The need to build more homes faster is a key priority for the region’s post-COVID-19 economic recovery plans. Led by Mark Farmer, the Government’s champion for modern methods of construction in homebuilding, the expert group will lead bespoke training courses commissioned to equip local people with the AMC skills needed to build the new-style homes.
Meanwhile, Urban Splash – who is developing modular housing at Birmingham’s Port Loop site – will deliver 10,000 modular homes in partnership with the WMCA over the next 11 years.
Graham Edward, Managing Director of Edward Architecture, says these kinds of initiatives are already providing new workflows in the modular sector.
‘We’ve recently completed apartments in Shrewsbury and bungalows in Brighouse, both for housing associations, and I genuinely think modular is getting more traction, but in very select circles,’ Graham says.
‘I don’t think the main open market housebuilders have done more than talk about it, but local authorities and housing associations are far more likely to consider modular. I think the open market housebuilders still see it as too expensive.’
These are serious initiatives and will undoubtedly make a difference to modular’s profile (and housing start numbers). Yet too much shouldn’t be expected.
Relying on local authorities and housing associations will not get modular moving fast enough, or at the kind of scale that will make the factory-built system work at maximum efficiency. The most recent Ministry of Housing figures show that local authorities were responsible for just 470 housing starts in the last quarter for which data is available (October-December 2019, before the coronavirus pandemic). Housing associations produced 5,200 in the same period. The private sector started 28,400 units in the quarter, and it is here that real growth and volume is to be found.
Data is hard to come by, but the often quoted figure (from a document published by law firm Pinsent Mason) is that roughly 15,000 of the UK’s 200,000 a year housing starts are modular.
If modular output doubled, it would still be a niche business.
That said, serious money is moving into the sector with an eye to the short-term opportunities and the long-term structural change that will push modular from niche to mainstream.
Yorkshire-based modular housing company, ilke Homes, is one of the businesses on which many hopes are pinned because they could, potentially, become the kind of Tier 1 contractor the modular sector needs. ilke has opened new offices in London, Birmingham and Bristol thanks to near-200% annual growth of the company’s pipeline.
ilke aims to deliver 5,000 homes a year by 2025, and already has a pipeline of around 3,200 units.
If a turnkey contractor such as ilke can develop momentum, and in the process allow customers to purchase complete developments sourced and delivered by ilke Homes, one of the big obstacles to growth in the sector will be diminished.
Legal & General are also pushing into the modular sector. Legal & General Modular Homes has gained planning consent to deliver 154 homes, using modular construction, at an eight acre site at Portholme Road, Selby in North Yorkshire. From its factory not far away in Sherburn-in-Elmet, Legal & General Modular Homes has ambitions to build its annual housing delivery to 3,000 modular homes a year by 2024. The delivery pipeline continues to grow, with 350 homes added to the pipeline so far this year.
Selby is the first scheme where Legal & General Modular Homes will deliver a full development proposition from buying land, developing the product, achieving planning consent, and through to delivery: so that is another potential Tier 1 contractor in the making.
Surveying the changing modular sector, HTA’s Simon Bayliss sees reasons for soundly-based hope.
‘The last five years have been game-changing,’ he says. ‘We’ve got people like Legal & General and ilke in the market, and a lot more people talking about it. It’s not an explosion, no, but pledges from organisations like Homes England mean more modular construction is on the way. Things really have changed.’
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