Modular construction has been long talked about as a major part of the solution to the UK's housing crisis. It was symbolic that Boris Johnson's 'Build Build Build' speech on 30th June 2020 was delivered in the factory of the modular construction company, Totally Modular. And yet, despite government support there remains significant challenges for the sector if it is to become the mainstream construction method that so many advocate. As I will explain purpose built student accommodation (PBSA) could be a trailblazer in helping modular construction breakthrough into the mainstream.
What are the challenges that modular construction face?
Modular construction is not new but the fact remains that it is yet to be universally adopted in the UK. In 2019, a mere 7.5% of houses built were modular construction. Sweden, by comparison delivered 81% of all new builds by modular construction. But why is this?
The stigma. For those who are not part of the construction industry (i.e the majority of the population) modular construction comes with associations of post-war prefab classrooms. Given such experiences there is scepticism concerning the quality and durability of modular homes. In addition to this we would seemingly rather live in older properties. In 2019 a YouGov survey carried out for Shelter only 29% agreed with the statement “I would prefer to live in a new home rather than an older one”.
A lack of expertise/experience. We are creatures of habit. The UK construction industry typifies this with a sloth like malaise towards moving with the times. We simply prefer to do it as its been done before. Modular construction, naturally sits outside of this mentality, as it requires change. This has led to a lack of expertise and experience in developers, design teams, builders, surveyors and valuers who understand the intricacies of modular construction. You often find 'specialists' within the sector, which in itself provides an indication that the majority of the industry are not suitably equipped with the required knowledge or expertise.
Lenders. Historically lenders have been understandably reluctant to lend where the majority of the construction is completed before reaching the site that they hold a security over. This has made it hard for developers to secure competitive development finance.
Restricted mortgage market. First time buyers, movers and buy to let borrowers still face a restricted market when trying to secure a mortgage on a modular property.
How can PBSA light the touch paper?
COVID-19 resilient production.
PBSA construction schemes are extremely time sensitive. It is critically important to a schemes success that practical completion is achieved in time for the identified academic year. Otherwise investors could stand to lose a whole years income and have a development stood empty. Where pre-lets have been achieved, temporary housing such as hotels would come at the expense of the developer and/or associated parties. COVID-19 provides an added and significant challenge to this, within traditional building sites having to operate with social distancing measures. In addition to such constraints traditional construction methods has been more exposed than modular construction, to a shortage of materials in the supply chain during the pandemic, as a result of manufacturers closing or operating with reduced productivity.
Modular construction, however, has proved to be resilient to COVID-19 due to the factory environment. Production requires less people that can more easily socially distance and, unlike on a building site, can be scheduled to work around the clock. As we begin a second national lockdown, never has this been a more pertinent consideration.
Not only can PBSA modular developments showcase the ability to continue production to definite timelines but also demonstrate the cost saving that modular production provides through the overall reduction in time (up to 50% compared to traditional construction) and resource required to complete a build.
Quality of design to create advocates.
If modular construction is to shake off the preconceptions of prefab classrooms and generally poor quality builds, PBSA offers the opportunity for the students of today to live in the most up to date offerings. PBSA providers create stunning spaces that are akin to hotels. The fact that this can be delivered with modular construction banishes those long standing preconceptions. This in turn makes the idea of then purchasing a modular apartment or house following university a natural progression.
In effect, PBSA can create advocates for modular construction, something that hotels, hospitals and office buildings cannot achieve given that you do not live in any of these buildings (even if it might feel like you live in your office at times). This could go a long way to overhaul the scepticism that currently pervades our national attitude to both modular construction and new build property.
The eco consciousness of todays students.
Whilst the forward thinking designs of PBSA can impress students and help generate a new level of acceptance regarding the quality of modular construction compared to that of 20+ years ago, there is key benefit to modular construction that really hits a chord with the students of today; its eco friendliness.
In terms of construction, it is reported that there is as much as a 90% reduction in waste when comparing modular with traditional construction, with less machinery required on site, less man power, and less requirement to heat and light large areas. The designs of the buildings are also 'greener' than traditional builds. Architects can select energy efficient materials that ensure sustainable designs with minimised heat loss. Once built this also reduces running costs.
Whilst the specific details of the what makes the modular offering more environmentally friendly is unlikely to trigger particular interest in students, the overall concept will be of appeal. By raising the consciousness of the benefits of a modular construction, this will aid the removal of the stigma attached to such methods of construction. It cannot be ignored that this is also to the benefit of the operator, who in looking to market their particular accommodation and is likely therefore to gain a competitive advantage over traditionally built schemes within the same city.
Will this translate to the wider adoption of modular construction?
Modular construction has certainly never had a greater opportunity to break through the shackles of being an 'alternative' to traditional construction, rather than a mainstream choice. The government is pushing the agenda hard, with Boris Johnsons delivering a key note speech from a modular construction factory floor, and the Housing Secretary, Robert Jenrick following up with the commitment that 20% of all new housing is to be built using modular construction through the £12bn Affordable Homes Programme. And some of the big house builders are clearly taking notice. Berkley Homes has set up a modular construction division, Barratts has said that it plans to build at least 20% of its homes off-site and Countryside has invested c.£20m in a modular construction factory.
But, the government pushing the agenda will not deliver consumer engagement alone. We are, after all, a nation that typically does not like to be told what to do. Government targets will come and go, but unless there is a wider engagement developers will work around them and consumers will refuse to change their buying habits. For modular construction to be truly adopted there has to be a wider engagement, and a demand needs to be created in order for suppliers to respond.
COVID-19 will certainly drive a new level of engagement from developers who remain concerned that traditional building sites will be unable to operate at full capacity for the foreseeable future. A second national lockdown for November and possibly into December and beyond will certainly focus the mind. Modular construction offers a solution and increased certainty that a build can be completed on time. PBSA with its time sensitive nature provides a shining example of how this can be achieved.
But the biggest benefit that PBSA can offer to modular housing is by creating advocates in the next generation of home buyers. The home owners of the future will expect their homes to be environmentally friendly and sustainable. If their first experience of living away from home delivers on that expectation through a modular construction, why would they object to their homes of the future delivering in the same way?
How can Montpelier Private Finance help?
Montpelier Private Finance is a huge advocate of modular construction. We, through our established relationships, are able to advise developers on how their PBSA schemes can be developed using modular construction with links to modular products, design teams and engineers.
We also assist developers in securing market leading funding for their schemes. Traditionally lenders have not been keen to support modular construction, but we have a panel of established lenders who understand modular construction, allowing us to achieve development finance up to 90% loan to cost (LTC) / 75% loan to gross development value (LTDGV), even in these challenging times.