MMC will soon dominate the housebuilding market, says Man Group

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Alibhai remarked that while affordable housing may result in a lower income stream for investors, it’s a lower risk proposition. “If you can create a business model that has clearly risk-adjusted returns, that’s very attractive for institutional investors,” he said.

“In the first instance, you have to offer a financially viable product. You have to let investors know that they’re not missing out by focusing on social and environmental outcomes.”

Before joining ilke Homes, Bergin was chief executive of Crest Nicholson. He reflected on the changing landscape: “A lot has changed in the industry since I first joined Crest Nicholson in 2006. In the 2000s, land speculation was a huge issue. Since then, there’s been more consolidation, there’s less access to easy credit, and people have learned hard and painful lessons. So many people who are now at the top of the large housebuilders are aware of the hazards of chasing land values up.”

Political impulses are still affecting housing supply, according to Bergin. “If a local politician needs to supply 5,000 homes, 100 schemes of 50 units will potentially irritate 100 different sets of your constituents. So the size of the site makes a significant difference to housebuilding supply.”

The conversation then moved on to modular construction. Man completed its first MMC deal with ilke Homes when the modular housebuilder was still a newcomer. Alibhai admitted that “the risk on tendering a contract for 227 homes with a start-up MMC builder was something we looked at closely. Why would we take those risks?”

Alibhai explained why investing in ilke made financial sense. First, he said, the homes are built quicker, translating into higher returns, but also benefiting the community in that homeseekers don’t need to wait as long.

Second, the homes are higher quality. “There’s a wide variation in quality with subcontractors,” he added. “You don’t want the house that was built by a brickie on a Friday morning.”

Third, is the environmental impact. “The tolerances are five times better than traditional construction, so the fabric of the building creates less carbon through the life cycle of that asset,” Alibhai said.

From humble beginnings, ilke Homes has now become a leader in the sector, having been valued as a £200 million business with a full order book of 3,000 homes in its pipeline. Momentum shows no signs of slowing either - the firm recently secured new equity investment from TDR Capital, SunCapital Partners and Middleton Enterprises.

Ilke Homes’ latest headline-grabbing move was the purchase of a 43-acre plot from retail and pharmacy giant Boots’ historic Nottingham headquarters, on which it intends to build a 622-home modular “model village”, in what will be the largest low rise modular housing development in the UK.

Speaking about ongoing carbon impact reporting, Alibhai is unconvinced that the government will lead the way. The community housing team at Man GPM are including carbon reporting in their impact reports, but Alibhai thinks that this will be common practice in as little as three years.

Bergin added that environmental impact goes beyond reporting. “Waste on traditional building sites is a major issue,” he notes. “When I left the traditional industry, about 25 percent of everything that went into a site came out in a skip.”

This anecdote led the conversation toward the “productivity crisis” that the UK has experienced since the 2008 global financial crisis.

Modular construction provides a means to address current skills shortages within the UK housebuilding industry, Bergin pointed out. “Traditional construction suffers from extreme skills shortages, and here we are with a factory employing anywhere from 500 to 1000 people in the north of England with a highly engineered, productive process.”

Alibhai had himself visited the ilke factory. “I was in ilke’s factory two years ago, and again two months ago,” he said. “I could see the improvements in productivity and quality control – if I had gone to a building site 100 years ago, it would be the same as a month ago.”

For this reason, Alibhai argued: “It’s only a question of time before the only product in the UK for housing is the MMC product.

The structure of the sector supports this thesis. “You get a factory, get it humming, and build another one just like it,” Bergin explained. “It’s very scalable, and there’s no obvious limit as to where modular can go.”

Concluding, Alibhai predicts that social impact is going to become a crucial metric for investors. “You can’t build a house that’s affordable to ten percent of the population,” he said. “That’s an outdated way of delivering returns to your investors – they’re going to ask for a lot more around what you’re doing to tackle societal challenges, affordability, and the environment. If you can’t answer those as an asset manager, you’ll be out of the game very quickly.”