The UK has a housing supply problem. We’re simply not building enough houses to meet demand, and we do not have enough existing stock of a good enough quality. While the government has tried to address the issue by introducing targets and relaxing regulations, the the housing shortage has persisted. While there is unlikely to be a one size fits all solution, modular construction could play a pivotal role.
Modular construction is a building process in which parts, or modules, of a building are prefabricated and built off site. Modules are constructed beforehand hen taken to a site to be put together and installed. This means developments can often be built more efficiently.
In a very simplified way, it can be compared to Lego, in the sense that all the components are designed and manufactured off-site, and the pieces simply need to be connected together on-site to complete the construction.
Though modular construction can at times be more cost-effective in comparison to standard construction, this is not the primary benefit for developers, which is efficiency and speed. Because modules are delivered to a construction site fully formed and simply need to be pieced together, a huge amount of build-time is saved.
This is especially beneficial for larger projects with matching units, such as flats, student accommodation and retirement living schemes.
Because modules are built off site, often in a factory environment, it means disruption and delays caused by bad weather, which can pause labour on standard sites, are minimised. Another important benefit is the mitigation of waste and environmental disturbance, as elements have already been built.
Although modular construction has benefits, there are also some drawbacks that need to be kept in mind before it is selected as the preferred construction option.
There is no regulation or industry guidelines and standards for modular construction. Without standardisation, modular companies all build to their own specifications. This can cause problems should anything go wrong with one modular building company, as another could not simply take over the build. With many modular companies relatively new to the market, this approach may be too much of a risk for a developer and its lender.
Manufacturers will require advance payments, which can price smaller developers out of this market. Some lenders may also struggle to support a modular construction project until the materials are on site and ready to be pieced together, meaning any advance funds would need to come directly from the developer.
However, with the UK still facing a housing supply shortage, modular construction is an underused building method. The speed of construction and ability to quickly assemble identical units could provide the housing market with fresh stock levels and alleviate some of the pressure caused by demand far-outweighing supply. But lenders, manufacturers and the government all have a role to play to ensure this method is successful.
Manufacturers could lower their deposits, which, at their current level, make it less viable for small or medium-sized developers looking to build a small number of houses to use this construction method. If initial deposits were lower, it could open the market up to more frequent use of this building method, allowing more to take advantage of modular housing and help to provide quality, new stock to the market.
Another key change that would significantly improve viability of modular construction is standardisation. Many are calling for the government to step in and support the industry by laying down approved guidelines to build to. Standardisation would help accelerate processes and ensure that projects could be completed no matter what company were appointed on a particular build. This would provide developers and lenders with much needed confidence.
Ultimately, modular construction should become more prevalent in the UK, but it needs the cooperation of manufacturers, developers and lenders to simplify the process and make it more viable for each other. It must also be borne in mind that there is only so much that can be done without necessary government support.
But with the correct guidance and support, modular construction could be an effective and near-essential way of addressing the UK’s housing shortage.
Terry Woodley is managing director of development finance at Shawbrook
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