What needs to happen for modular to really take off?

Interest in modular construction is on the up. Housing minister Gavin Barwell has described it as “a huge opportunity to increase housing supply” and big names such as Berkeley Homes, Legal & General and Urban Splash have made significant commitments in the past year.

However, the wider industry is not expected to embrace offsite construction overnight. So what needs to change for modular to truly take off?

Speaking at a British Property Federation and Capita event last week, investors, planners and modular construction firms painted a picture of a gradually expanding market that was still constrained by a number of factors.

L&G’s decision to open its own modular construction factory to build homes had prompted a “sea change” in attitudes, said Kieran White, managing director of Vision Modular Systems, with more developers now interested in the method.

The government’s commitment to modular - including the potential investment of public money into factories - was another positive, he added.

However, there remained too little demand from developers to allow modular construction firms to ramp up their operations.

Bridging the gap

“There’s a lot of the right sentiment in the housing white paper, but how do you bridge that gap between policy set at that level and us, a small business?” he said. “How do we act on that when we don’t have the resources to do it? We’d [build a second factory], but the nightmare for me is that I have an empty factory.

You’ve got to know you have that continuity of work. We need scale - Kieran White, Vision Modular Systems

“You’ve got to know you have that continuity of work. We need scale.”

One of the constraints holding back developers is access to finance - both development finance and mortgage lending. Mainstream lenders are not yet fully comfortable with mortgages on homes built through modular construction and are waiting for its use to become more widespread, according to Sarah Wilde, policy adviser at the Building Societies Association.

“We haven’t seen demand yet,” she said. “If these properties are built, I think lenders can’t ignore it. They haven’t been pushed; we haven’t had people knocking at the door. They’re willing to support it but someone needs to be brave in this chain and get on and do it.”

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Andrew Stanford, head of UK residential and PRS investment at LaSalle Investment Management, highlighted the risk of insolvency of modular contractors as another major barrier for developers and investors interested in offsite construction.

“If a building is going up and the contractor goes bust, what the hell do you do next?” he asked. “Where are you going to find another modular construction company that’s going to build it?”

Modular guarantee

Stanford suggested that if the government was really serious about modular, it could provide some form of insurance policy or guarantee for investors and developers so they feel more secure choosing modular construction.

The planning system needed to “catch up” with the rise of modular construction, added Stewart Murray, head of the development group at GL Hearn.

Local councillors making planning decisions did not yet have sufficient knowledge about modular construction, he argued, and it was up to the property industry and central government to spread that knowledge.

There was agreement that real momentum was finally building behind modular, however, and it was a question of when, not if, it becomes a major force in the housing market.

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