PROPERTY JOURNAL

How modular methods can redress housing crisis

Labour shortages and the net-zero carbon agenda are making traditional housebuilding increasingly difficult – but modular manufacture could prove an effective way to boost provision of new homes

Author:

  • Dr James L. Broun

15 September 2023

A new wooden modular prefabricated house inside in manufacturing facility

The rise of modern methods of construction (MMC) – especially modular methods – in UK housebuilding has been prompted by several factors affecting traditional on-site building. These constraints, including labour and skills shortages, low productivity and limited innovation as well as pressure from net-zero-carbon regulations, have limited the provision of new homes. 

This has contributed to rising house prices in the face of pent up demand from buyers and renters. However, the most advanced forms of MMC, especially factory-built modular homes, aim to use the assembly line to sidestep constraints on traditional building.

Modular methods produce homes faster, use less energy and embody less carbon, while bypassing on-site labour shortages. They are a growing part of the market, providing thousands of homes with a diverse and varied manufacturing base.

Far from being resolved, the underlying issues with traditional building methods are expected to keep spurring innovation in the sector. As such, MMC is set to become increasingly important in the provision of new homes, so surveyors will need to engage with the sector.

Labour shortages deepen housing crisis

Since 2020, the average UK house price has increased by 22% and now sits at eight times the average salary – more than twice the income-to-house-price mortgage multiplier that banks use to cap lending.

In many regions, the ratio is worse: it is more than 12 times the average salary in London. Demand for renting and a dwindling supply of housing also mean that rents have been rising at their fastest rate in eight years – shooting up 5% in the past 12 months alone.

Given the enormous demand for housing, a good starting point to boost supply is to build more homes where they are needed. However, the housebuilding industry has been unable to scale up: fewer homes were built in the UK in the 2010s than in any decade since the 1950s.

In fact, we're still building fewer homes now than we were following the global financial crisis of 2008. Last year, around 210,000 homes were built in the UK – almost a third less than the government's target of 300,000 homes and well below the 340,000 homes that some experts say we need to be building each year as a minimum just to ensure a modest boost to affordability.

Why, when demand is so high, is the market not responding? Some blame the planning process, seeing it as inhibiting the free market. But data from the Local Government Association shows that in 2021 plans for 1.1m homes already had permission granted but were still waiting to be built.

That's not to say that planning is not a problem: it adds cost, complexity and uncertainty to the building process. But it's not the sole or even the main reason for a lack of supply.

Thinking hypothetically, what would happen if the planning system were abolished tomorrow? It might be true that developers would scramble to buy up land and start trying to build. But they would soon run into barriers.

That's because construction is inhibited by chronic labour and skills shortages. Right now, there simply aren't enough tradespeople. To reach the 300,000 homes target, housebuilding alone would need to add 137,000 extra workers by 2030.

But the entire construction industry has seen a net loss of 100,000 workers since 2019. Given its ageing profile, the industry is also set to lose half a million more over the next decade through retirement alone.

At the same time, it's only adding 11,000 people annually through apprenticeships, of which only a small portion will be entering the housebuilding sector specifically.

While it's possible that the gap might be plugged by immigration, the reality is that the UK can no longer rely on the free movement of European labour as it has done in the recent past. The new points-based immigration system will arguably make it harder and costlier to attract skilled construction workers from abroad.

Despite the government adding several trades to the shortage occupation list, the sheer volume of skilled construction workers needed renders it unlikely that immigration will be a magic bullet for this problem.

Hence, even if housebuilders had all the land they needed, the UK would likely not have the labour to build substantially more homes. Construction's inability to move beyond this existing labour model is partly related to two other issues.

First is a lack of innovation. Construction ranks near the bottom of the table in terms of research and development (R&D) spend, and the way low-rise houses are built, for instance, has barely changed for decades.

Second, the construction industry's productivity has grown far slower than that of other industries, and construction of buildings is particularly poor in this regard; data from the Office for National Statistics shows that it is actually less productive today than it was in the 1990s, likely because of the lack of innovation.

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Net-zero carbon agenda adds challenges

Alongside these chronic issues, the UK housebuilding sector faces a major challenge with achieving net-zero carbon. Building and heating our homes are major sources of carbon dioxide, with the built environment accounting for 25% of all national emissions according to the UK Green Building Council. We cannot reach net zero without rapidly retrofitting existing homes and building greener ones.

In 2022, the government tightened Part F and Part L of the Building Regulations, and introduced Part O. Altogether, these changes are intended to reduce operational carbon dioxide emissions from new homes by 27%. 

In 2025, the government will introduce a much bigger uplift to the Building Regulations through the Future Homes Standard, which aims to reduce operational carbon emissions from new homes by 75% from 2021 levels.

Alongside this, the government has committed to consulting on how to measure and limit the embodied carbon in new building. This is a major component of the total emissions related to buildings, and is currently unaccounted for in regulations. It's not unlikely that government will implement something akin to the Part Z proposals put forward by many in the construction industry.

While all these changes are welcome, they will add costs and complexity to housebuilding. For instance, airtightness – the resistance to air leakage out of a building – is a key part of boosting a home's energy efficiency, but it's not easy making a house highly airtight on site. Also, it can be harder to monitor embodied carbon or optimise waste reduction when building on site.

Novel materials and technologies, such as those used to better insulate homes and reduce overheating, will require new skills to install as well. This is at a time when the wider retrofitting programme will also require more than 200,000 extra workers, according to the Construction Industry Training Board, piling on further pressure.

In short, not only does construction face long-term issues around access to labour and skills, but it's also going to have to make swift progress on the net zero agenda – which is not going to make it any easier to build more homes than are already being completed.

Modular manufacture can reduce shortfall

This may all sound pessimistic, but there is a lot to be hopeful about. As these problems have grown, so has the urgency of doing things differently. New ways of building – MMC – have emerged in the UK housebuilding market to bypass these constraints.

The most advanced of these are modular building methods, where the production of entire houses is moved from the building site to the factory. This allows for homes to be built using completely different technologies and skills, and a different workforce.

Modular homes are constructed in factories using the same assembly line processes and principles that underscore all manufacturing. The houses are constructed step by step, with walls, ceilings, floors and roofs all built as individual components along a continuous production line.

In panellised modular systems (sometimes called 2D modular) these walls, ceilings and roofs are made in the factory, then shipped to site where they are combined together to make a home. In volumetric modular (or 3D modular) the walls, ceilings and roofs are combined in the factory, usually around a steel or timber frame, to become 3D portions of the final house or apartment. These portions are known as modules and can then be shipped to site, winched into place and combined to make a house or apartment block.

Since the early 2010s, more than a dozen modular manufacturers have emerged, with the capacity to build thousands of new homes annually. More than 3,000 volumetric modular homes were built in the UK last year alone.

Our research has shown that such homes offer several significant benefits:

  • Modular houses can be built with less than 50% of the workforce needed by traditional housebuilding. This is because of the efficiencies gained by shifting production to an assembly line process, where continuous improvement and technology can generate major savings.
  • Modular manufacturing is up to 40% more productive than on-site building thanks to the efficiencies and precision of the process.
  • In larger modular producers, more than 65% of the workforce are in manufacturing roles, and potentially as few as 10% are in traditional trades because so much of the work is compartmentalised by the production line process. This means that modular methods can avoid the skills shortages in on-site building.
  • Modular production attracts a more diverse workforce and is lowering the barrier to entry, bringing more people into work who would otherwise struggle to enter the building profession. This includes career changers, school-leavers, people with caring responsibilities and people coming out of economic inactivity.

Taken together, this means modular manufacturing could close the shortfall between housebuilding and the government target with half the traditional workforce needed, and potentially as little as 10% of the skilled trades.

It's worth stressing that this isn't about replacing traditional building. The UK housing market needs all the extra housing it can get, and not every development opportunity will be suited to modular homes, which do not work so well on small sites or with complex off-plan builds. Instead, this approach is about increasing the workforce and therefore building more homes. 

'Modular homes are constructed in factories using the same assembly line processes and principles that underscore all manufacturing'

Enabling carbon reduction and other benefits

Alongside this, modular manufacture is helping to address the climate challenge. Many producers are making homes that can meet the Future Homes Standard and are actively minimising the embodied carbon in their products. For instance, Vision Modular Systems in Croydon reported a 45% reduction in carbon from a traditionally built equivalent.

This is easier and cheaper using modular methods: the National Housing Federation (NHF) Building Better project has early evidence to suggest that producing net-zero homes requires only a minor uplift in cost relative to traditional methods, and can often be the more viable option.

Take, for instance, one NHF case study, where the costs for homes with net-zero embodied carbon are an extra £3,000–£5,000 per apartment – very good value for West London. In other parts of the country, traditional contractors are charging so much for an uplift to net zero that it's sometimes cheaper to build a basic home and then retrofit it.

Because manufacturers need a long lead time to set up factories and optimise production, it's in their interests to anticipate future increases in environmental standards and get ahead of regulations. In this way, modular manufacturing is pioneering the next generation of green homes at a time when traditional building is still grappling with the latest uplift.

Additional benefits include the following.

  • Data from our members shows that modular manufacture can complete homes 50% faster than on-site methods such as brick and block, due to more productive building methods, the use of more advanced technology and the ability to carry out on-site groundworks at the same time as building the modules off site.
  • Modular manufacturers have spent around £200m of R&D spending since 2016, representing about 30% of all such spending in building construction – this is enabling innovation and major increases in productivity.
  • The manufacturing process can drastically reduce snagging issues, and therefore maintenance costs.
  • The quicker build time reduces borrowing costs for clients.

Sector can ride out economic turbulence

There's no denying that housebuilding is entering a challenging period as the wider economy cools down and high interest rates put off would-be buyers.

In the last year, we've already seen some traditional builders leave the housebuilding sector or go into administration. In recent months, two major modular producers have also closed, citing issues with inflation, reduced demand and challenging financial markets. On the client side, confidence has unsurprisingly taken a hit in some quarters.

Yet this loss of confidence is premature: modular housing is a growing and dynamic market with a wide range of manufacturers. It is highly diverse, with providers adopting varying methods and materials and some companies using multiple types or hybrid methods.

There are still large-volume manufacturers but also many medium and smaller businesses offering a wide range of products. We have start-ups operating alongside decades-old enterprises.

Modular has also taken off in sectors such as commercial building, education and healthcare, where it is now mature, accepted and well-established. Housebuilding is at an earlier stage on this journey, but it is now off the ground and offering a sophisticated range of products.

Manufacturers recognise the importance of safety: they have invested in R&D, fire testing, and the implementation of quality control processes in their factories. Accreditation services like the Buildoffsite Property Assurance Scheme (BOPAS) and NHBC Accepts – which are specifically geared towards MMC homes –  offer widely recognised warranties; most modular home builders are accredited to one or both of these schemes, which guarantee minimum lifespans comparable to (and sometimes exceeding) the lifespan of a traditionally built home.

Most importantly, the underlying reasons for adopting modular building aren't going anywhere. If anything, the need is going to grow. Modular has emerged in housebuilding because of its ability to bypass labour and skills shortages in traditional building, its capacity to provide affordable, greener homes, and its benefits in terms of quality and speed.

We still need more homes. We need greener homes and we need them built faster. These issues will only become more urgent in the longer term – but after a bruising couple of years, traditional housebuilding is going to be in an even worse position when the economy recovers.

Ultimately, only modular approaches will be able to meet our needs. As such, it will be essential for surveyors – and anyone involved in development – to increase their awareness of this new sector.

'Modular has emerged in housebuilding because of its ability to bypass labour and skills shortages in traditional building, its capacity to provide affordable, greener homes, and its benefits in terms of quality and speed'

Dr James L. Broun is policy adviser at Make UK Modular
Contact James: Email

Related competencies include: Design and specification, Housing strategy and provision, Sustainability

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