Chapter 5: Breaking through: realising the potential of Modern Methods of Construction in the capital

Made for London: Realising the potential of modern methods of construction

Chapter 5: Breaking through: realising the potential of Modern Methods of Construction in the capital

This report has outlined how the increased adoption of MMC could make a real difference to construction speed, cost and quality, as well as helping to address the acute workforce challenges within London’s construction industry. We have demonstrated why innovation within the housing sector is necessary to maintain and increase London’s current levels of housing delivery. But if MMC is to be a solution for the current difficulties faced by the industry, a step change is required, pushing MMC from the margins to the forefront of London’s housebuilding sector.


Addressing the construction skills shortage

Converging workforce pressures mean that construction faces a growing skills shortage and lacks the required capacity to meet the necessary increase in housing supply.

The Mayor has demonstrated his commitment to improve skills in the sector through the Mayor’s Construction Academy (MCA). This includes supporting the development of training provision for the construction of precision manufactured housing, as set out in the July 2018 Skills for Londoners Framework which sets out priorities for devolved Adult Education Budget and other skills funding streams.

Recommendation 1: The Mayor should consider how to use devolved skills funding to help existing construction workers develop the skills needed to implement MMC, in the context of a growing commitment from City Hall to deliver MMC homes at scale across London.

Future-proofing housebuilding

With a growing skills shortage in the construction industry and higher than average labour costs in the capital, both of which are likely to increase costs of traditional construction faster than MMC, the cost savings and certainties of MMC are likely to become even more appealing over time. MMC can also help contribute to a more environmentally sustainable construction industry that is less disruptive for local communities.

Some developers are already experimenting with modular prototypes; however, only seven per cent of the UK’s construction output in 2013 was off-site construction. To address this, the Farmer Review has proposed that the government should consider introducing a charge on business clients of the construction industry to further influence commissioning behaviour and to supplement funding for skills and innovation.

Recommendation 2: To build capacity and realise economies of scale, housing developers and construction companies should commit to increasing adoption of MMC throughout their supply chains.

Recommendation 3: Faced with construction workforce challenges in London, developers and industry bodies should invest in upskilling workers for the transition to MMC.

Establishing a buying club to pool demand for MMC

Reaping the benefits of MMC requires volume and continuity of demand, but the cost of MMC currently remains particularly high in London, owing to the limited number of manufacturers, the immaturity of the supply chain and the need to recoup the high setup costs incurred.

MMC can be appealing for new entrants to the housing market (such as councils and smaller developers) who are not constrained by existing supply chains. It can also appeal to existing actors (such as housing associations) attracted by the prospect of the lower manufacturing costs on suitable sites. Given that the time savings and cost benefits of MMC are realised through purchase at scale and standardisation of layouts and specification, joint collaboration between housebuilders through a MMC buying club would allow resources to be combined to build at scale across London. This would be similar to the current PLACE vehicle backed by the GLA and London Councils, but at a greater scale and for permanent housing.

Recommendation 4: Councils and housing associations (with support from the Mayor and the government) should pool expertise and purchasing power to form an MMC buying club. This would allow them to build at scale across multiple London boroughs, thereby helping sustain levels of factory production.

Sharing and showcasing knowledge through a dedicated MMC exhibition

The lack of collaborative partnerships and trust within the construction industry is hindering the development of housing innovation within the capital. There is a need for manufacturers and developers to build mutual long-term relationships, and for them to clearly communicate the benefits of MMC.

Recommendation 5: Housing providers and the Mayor should set up an exhibition to bring the industry together and showcase examples of well-designed modular housing and high-quality placemaking to Londoners.

The Mayor has announced £50,000 towards the creation of a common design framework to address the current lack of standardisation and increase the delivery of off-site manufactured homes in the capital.

Recommendation 6: The Mayor should use this exhibition as a platform to discuss what can be achieved through his proposed common design framework, and encourage its widespread use as an open source tool for residential developers and manufacturers.

Understanding consumer perceptions of MMC

The lack of public enthusiasm for precision manufactured housing is often cited as a barrier to its adoption. However, it may be that consumer perception is underdeveloped rather than openly hostile. There are few differences between MMC-built homes and traditionally built homes; and modular schemes are often advertised to potential occupants without mention of their modular nature, which is not yet seen as a strength as it is in other countries.

Consumers could lead an important role in driving demand for MMC take-up in the capital, but we first need to better understand consumer perceptions of modular homes. Is the final product sufficiently attractive to consumers? Would spaces that adapt to consumers’ needs be a unique selling point? The exhibition mentioned could also contribute to a better understanding of the public perception of MMC, as well as increased engagement with the public.

Recommendation 7: The Mayor and partners should commission further research on customers’ perception of MMC.

Offering preferential mortgages for energy-efficient MMC homes

Our research suggests that a considerable barrier to MMC take-up is the lower availability of mortgages for MMC developments, which is closely linked to the ability to provide warranties and insurance for these novel construction techniques.

From June 2018, Welsh Help-to-Buy loans have been adjusted according to the energy rating of the home being purchased, meaning that those purchasing the most energy-efficient homes may be offered a larger loan as a consequence of their smaller anticipated energy bills. Barclays also announced that it will begin offering discounted interest rates for highly efficient homes. These initiatives should be extended to energy-efficient modular homes, and could significantly help potential homebuyers in London to boost the demand for modular schemes.

Recommendation 8: Mortgage providers should offer preferential loans for energy-efficient MMC homes.

Ensuring clarity in the planning system

Currently there is a perception that planning may be hindering MMC schemes, especially with regard to planning policies on the employment of local people and the appearance of schemes. However, MMC also often entails reduced disruption to local communities. There is a role in the planning system to help establish MMC.

Recommendation 9: Councils should include a general statement in local plan policy to support MMC, and identify small sites for SME builders. Where an MMC scheme could override policy on local employment, planning policy should recognise the specific construction requirements of MMC.

London’s housing crisis could be worsened by continued slow housing delivery and a growing skills crisis. To address this, London needs to make the most of innovations in construction techniques. Our research shows how modern methods of construction could make a real difference to construction speed, cost and quality. But realising this potential will require better collaboration within the construction sector, the development of standardised techniques and financing models, and a strong lead from both the GLA and national government.