The two previous chapters outline the potential of MMC to deliver quality housing in London, with potential time and cost savings over traditional methods. While take-up appears to have grown in recent years, a number of barriers continue to impede the growth of the sector.
Finance, warranties and insurance
Our research suggests that availability of finance and mortgages for MMC developments is a considerable barrier to more widespread adoption in London, closely linked to the ability to provide warranties and insurance for these novel construction techniques. Compared to traditional methods of construction, MMC requires considerable early capital expenditure. Access to the large amount of finance required excludes many SMEs – who lack access to sufficient capital or debt funding, and for whom cost represents a bigger proportion of turnover – from entering the market.
Housing development financers and mortgage lenders require an assurance that the MMC product will retain value over time. Warranties are an important way of assuring this; without such guarantees the vast majority of lenders are unwilling to take on the associated risk. The emerging and proprietary nature of much MMC technology can make it harder to issue warranties – owing to lack of track record and uncertainty of future supply – thus making it difficult for those involved in its use to secure the necessary finance.
Schemes are also far more diverse in approach than those undertaken by traditional methods. One project can incorporate a number of different MMC approaches, such as the use of both panellised systems and bathroom pods. This can be confusing for lenders and warrantors.
Research by the London Assembly suggests 80 per cent of MMC companies in London find it very difficult to secure funding from high street banks due to a lack of confidence on their part. 57 Anecdotal evidence from our own research paints a similar picture. Some interviewees suggested that a few larger lenders are engaged, but that their engagement does not compensate for the lack of other lenders, who remain deterred by the diverse and innovative nature of the pipeline.
The lack of warranties and insurance compounds the difficulties that developers using MMC in the capital face. Insurance and lender scepticism were frequently cited as barriers to the growth of the MMC sector during our research. Some interviewees suggested that debt financers would be concerned if their portfolio grew to include more than 50 per cent MMC developments. The lack of resilience in the MMC sector – in particular, the inability of developers to withstand the potential insolvency of suppliers when compared with traditional methods – was also seen to fuel mortgage lender scepticism.
However, there is evidence to suggest that mortgage providers are steadily growing more supportive of MMC undertakings, and a better understanding of the nature of the products that precision manufacturing can afford. The Buildoffsite Property Assurance Scheme (BOPAS) offered by Lloyd’s Register accredits manufacturers and constructors as well as approving construction methods that meet lender mortgage standards, representing a positive step towards greater confidence in MMC by the lending community. The National House Building Council (NHBC) offers clients a review process for MMC schemes to ensure adherence to a required level of performance, basing their certification on performance assessment of specific systems (up to a certain build height), rather than on track records of particular builders.
In addition, the Ministry of Housing, Communities & Local Government (MHCLG) has established an assurance, insurance and finance working group, chaired by Mark Farmer. The group is intended to improve the perception of MMC within the construction and finance sectors, and to set out an approach to the management of risk. Outcomes of the working group will be published at the end of 2018.
Immature supply chain
Realising the economies of learning from innovation (and ultimately, economies of scale) that MMC could offer requires volume and continuity of demand. 58
Interviewees suggested that the current modular market in London is seen as immature, and that supply chain inefficiencies inhibit the development of a scalable business model. In particular, supply chain infancy was perceived to inflate the costs of MMC. This is partly a result of the “fluid” state of innovation in the sector, as discussed in the previous chapter. While a wide variety of approaches are tested out, the sector is prevented from reaping the full benefits from MMC techniques at scale.
Some interviewees expressed concerns about the capacity of factories and the risks involved in establishing factories to serve the MMC sector. Precision manufacture factories have to work at a high capacity to break even, a challenging feat for many given the volatility of the housing market and lack of consistent pipeline of demand. Some interviewees also expressed concern that the pre-manufactured components used in bespoke MMC designs would be difficult to maintain and repair if a factory shuts down. To assure themselves of stability and scalability of supply, some developers are setting up their own factories, or buying out their suppliers, a decision which incurs significant costs and a new set of risks. Examples are Urban Splash following their acquisition of SIG, or Swan Housing through their NU Living construction arm.
In some cases a non-factory-based hybrid approach is adopted – using modern technologies to automate on-site construction approaches, such as the use of robotic bricklaying machinery. This partial use of advanced robotics on construction sites represents a transitional adaptation to modern methods in the construction industry. Whilst the use of such advanced robotics may help housebuilders cope with the growing shortage of construction labourers, they are not the required widespread rethinking of the construction industry called for by Mark Farmer’s review of the UK construction industry, which argued for the need for wholesale but positive disruption. 59
Research interviews suggested that a lack of collaborative partnerships and trust within the construction industry is hindering the development of housing innovation within the capital. In their current form, the fragmented and lengthy nature of supply chains makes collaboration within the construction sector hard to achieve.
Interviewees argued that closer integration between stakeholders involved in the development and implementation of MMC, including clients, industry, the government and GLA, would help advance take-up. To ensure resilience and deliver economies of scale in London’s off-site manufacturing sector, interviewees expressed the need for manufacturers to build long-term relationships with developers, for developers to work together in specifying and purchasing modules or components, and for manufacturers and developers alike to clearly communicate the benefits of MMC to clients.
Some interviewees also expressed frustration with the planning process, which they perceived as rigid and unaccommodating to MMC. This was particularly the case with projects of a smaller scale, and with specific aspects of MMC such as construction employment being off-site rather than local. Others suggested that more clarity from developers can help accelerate the planning process and alleviate setbacks. In other words, those wishing to undertake MMC need to be clear as to whether a development will incorporate MMC from the onset and undertake fewer alterations thereafter.
Planning policy in the UK starts with the presumption that new development should broadly fit with its context. In many parts of London, this can lead to the prevalence of brick buildings. More often than not, however, the appearance, design and quality of schemes are more important for local planning authorities than the construction method. Though many planning authorities do focus on local employment, this should not on its own be a material consideration for rejecting an application. And planners should also note positives, such as the speed of construction, and the lesser impact of MMC on local residents during construction.
Lack of guidance and standardisation of design
Our research identified that a lack of standardisation of MMC design and method act as barriers to the take-up of MMC in the capital.
Interviewees suggested that a lack of design standardisation was to blame for the high costs that precision manufactures incur. For design costs to be reduced – and the benefits of scale reaped – information sharing between MMC housebuilders is required. Yet, our research found reluctance within the sector to do so, particularly – and understandably – when a company has invested significant capital into the research and design phase of their development.
Within the construction industry, there is also sometimes a sense that the use of MMC risks restricting architectural freedom, but our research found that this was not always the case. Architects that we interviewed said they favoured the greater control that MMC affords during the initial design process and the higher level of technical detail required from the onset. Others in the industry have expressed the benefits for architects involved in MMC schemes, suggesting that the need to make final design decisions at the beginning of the construction process offers architects more control over detail and an opportunity to reclaim build quality, rather than allowing the final form and quality of a building to be dictated as much by contractors as the architects. 60
Some felt that the standardisation of MMC housing components could also enable greater customisation of home design by the homebuyer, allowing a similar degree of flexibility to that offered by kit-of-parts structures. Swan Housing already allows homebuyers to choose the layout, specification and external appearance of homes at their development site in Basildon using online configuration software.
The GLA is taking steps to address the lack of standardisation across MMC manufacturers and residential developers. In the latest Housing Strategy, the Mayor pledged to invest £50,000 in a project to develop a standardisation tool and a common framework with the aim of increasing the delivery of off-site manufactured homes in the capital. 61
MMC is struggling to shake off negative public perceptions surrounding its use. Following World War Two, housebuilders across London used extensive prefabrication to quickly replenish the stock of public housing. Prefabricated houses built in London during this period – such as the Excalibur Estate in Lewisham – were of a low density and often low-quality due to their planned temporary status.
62 Higher-density housing blocks built in London during the 1960s that incorporated techniques such as precast concrete panels were of the same low quality, with explosions such as that at Ronan Point shining a spotlight on the industry’s poor safety record. Despite the passage of time and a change of terminology, many remain sceptical and believe that MMC creates unattractive, poor-quality
and disposable housing.
Elsewhere in Europe, MMC has attained a reputable status in the construction industry. In Germany, MMC is now associated with high quality of construction and bespoke design (though often of low density and on large plots of land). This was not the case in the 1980s, but in recent decades the industry has regained its position through the development of quality standards and certification schemes, alongside consistent promotion of the merits of MMC. Sweden also struggled with quality concerns in early years, but has now adopted prefabricated timber elements across the industry (see Case Study 2).
The lack of public enthusiasm for precision manufactured housing is often cited as a barrier to its adoption. However, evidence from interviews and previous research shows that the issues may actually be the way that the supply chain operates in the UK, the lack of warranties for buyers, and problems around long-term maintenance and costs. It may be that consumer perception is underdeveloped rather than openly hostile. Indeed, there are few differences between MMC-built homes and traditionally built homes, besides the potential difficulties in obtaining a mortgage as outlined above; and modular schemes are often advertised to potential occupants without mention of their modular nature. 63
If MMC were to offer perceivable benefits to consumers (in terms of capital cost, running cost, appearance, maintenance, environmental credentials, and acoustics), there might be a stronger consumer demand for MMC-built homes, which would likely represent a turning point in impacting housebuilders’ decision-making (see Case Study 2).
Case Study 2: MMC in Sweden
In Sweden, market adoption of MMC has been successful, with 84 per cent
of detached homes incorporating pre-fabricated timber elements. The MMC sector in Sweden is home to a number of vertically integrated companies – such as Eksjöhus (saw mill, manufacturing and transportation) and Derome Timber (forest, sawmill, hardware and residential build) – some of whom can manufacture 20 housing units per week, both for sale within Sweden and export to external markets.
As in the UK, there was a post-war drive in Sweden to build homes using prefabricated methods. The Million Homes Programme sought to build one million new homes between 1965 and 1974, and turned the country’s housing shortage into a surplus by 1970. 64 Swedish people perceived these homes as uniform and architecturally poor, 65 not unlike the UK’s public perception of prefab homes; however, this did not prevent Sweden from adopting prefabrication at scale in the following decades.
Though there are lessons to be learnt from Sweden – such as the need for positive public opinion to drive reliable consumer demand – there are also great differences. The take-up of precision manufacturing in Sweden is encouraged by favourable environmental conditions, most notably an abundance of premium forest-grown timber. Harsh climatic challenges also help drive take-up, as the Scandinavian climate leaves a very short construction season (six-seven months on-site), making the time savings afforded by precision manufacturing all the more appealing. 66