Kim Vernau, CEO at BLP Insurance, discusses how modern methods of construction and factory built houses should be embraced as part of the solution to the housing shortage

Source : Mortgage Finance Gazzette 11th  October 2017

The UK’s housing supply shortage is particularly acute in London. Now in his role for over a year, the Mayor of London Sadiq Khan has published his draft London housing strategy (followed by a three-month consultation period). Increasing the housing supply is one of five key priorities. Pressure on housing supply in the UK comes at a time when the average age of the construction workforce is increasing; creating a potential time bomb that will play out over the next ten years with the workforce reducing by 25% over the period.

The UK construction industry is finding it increasingly difficult to attract new talent and replenish the level of those leaving the country and /or the sector. The result is a critical skills shortage across the industry. According to a report from the Union of Construction, Allied Trade and Technicians (UCATT) – ‘Constructions skills shortages a result of 30 years of failure – the UK is facing its biggest skills shortage for a generation, with estimates showing that the construction industry needs 35,000 new entrants just to stand still.

With a huge shortage of skilled workers in the UK, building firms have been forced to double the wages for tradespeople from abroad, increasing the cost of traditionally built homes. Quality is suffering with an increase in construction defects and buildings not performing according to their design, as evidenced through the findings of the All-Party Parliamentary Group (APPG) Report “More Homes, Fewer Complaints”.

To overcome this critical issue of shortages in housing supply coupled with lack of talent, the industry must look beyond traditional forms of construction to build housing that is both sustainable and of the highest quality. At present, the traditional housebuilding community is finding it challenging to change their business processes thus enabling them to increase output to solve the problem.

There is a simple solution; the industry needs to embrace off-site or non-traditional forms of construction also known as ‘smart construction’. To do this requires modernisation, both to increase the attractiveness of the industry to new entrants and offset attrition and shrinkage and to improve productivity to enable increased output with less labour.

What is smart construction?

Smart construction refers to any non-traditional form of construction methodology. Prefabrication in a factory setting is by no means a new concept and the benefits are clear; speed of construction, reliability of materials and manufacture, improved performance as well as a potential reduction in construction costs if units can be delivered at scale and through repeatable design.

Conventional housebuilders continue to respond to home buyer requirements and are unlikely to move completely to ‘smart’ forms of construction, despite the trialling of various off-site solutions. While they may engage with the concept on the periphery, the key growth area for off-site methods will be the burgeoning private build to rent sector together with housing associations.

Build to rent

Funding in the build to rent sector will come predominantly from institutional investors looking to invest in secure large-scale developments, where the economic benefits will be matched by the consistency and sustainability that off-site manufacturing provides. For example, Essential Living is building a 294 unit build to rent development in Deptford using the Elements Europe Smart Construction system. Smart construction is set to become more mainstream in other sectors, such as hotels and low cost homeownership through registered social landlords.

Quality

One of the main advantages of smart construction is in terms of quality. Buildings in the UK currently fall short by up to 30% in terms of design performance versus actual performance. Properties built in a factory will have a higher level of quality control compared with a construction site, improving the performance of the building over time. This improved performance from off-site techniques should translate into reduced energy and maintenance costs.

For London, the two most attractive features of modular housing are the speed of construction and the potential for reduced cost of development. In addition, it lends itself to ‘infill’ sites, vacant or unused areas of land of which London currently has capacity for at least 100,000 units, and which could attract investors not traditionally involved in the housing sector. Modular construction is also particularly suitable for market renting as the speed of construction means that rental revenue is delivered quickly and investments can pay for themselves within a relatively short period.

What is preventing widespread adoption of smart construction?

The level of innovation and modernisation in the industry has been limited, constrained by a reticence to invest in a cyclical market which also suffers from short-term thinking and low levels of capitalisation. Mainstreaming off-site manufacturing in the UK housing sector will require coordinated action from both the central government, through government policy, and the construction industry.

While the benefits of smart construction are clear, they do not come without challenges. Concerns about systematic failure, fire spread and water ingress have been voiced around the use of off-site techniques, both during and after construction. These concerns are, in part, being addressed by the Buildoffsite Property Assurance Scheme (BOPAS) which provides long-term assurance to mortgage lenders, valuers, funders, landlords and homeowners that properties built using non-traditional forms of construction will be durable for at least 60 years, without the need for disproportionate maintenance.

BOPAS, which was launched in March 2013, was developed by Buildoffsite, Lloyds Register and BLP Insurance with RICS, the Council of Mortgage Lenders and the Building Societies Association. The BOPAS process gives an independent assessment of quality and reassurance from inception through to construction for investors, developers and owners.

Given the reassurance that BOPAS provides, SMART systems and other innovative construction methods can provide a sustainable, cost-effective solution to the increasing shortage of housing supply. We are already seeing major London centric developers such as Essential Living and Pocket Living utilising modular manufacturers such as Elements Europe and Vision Modular for large scale projects in London. Both manufacturers have gained accreditation from BOPAS.