Can modular housing deliver for the private rented sector?

The government wants more than 100,000 modular homes in the UK to support its target of one million new homes by 2020. This means increasing the current level of modular home delivery by 55 per cent as supply levels of UK modular homes stand at just 15,000 a year. There have been recent moves by key companies in the sector to choose modular but is this a viable solution for ramping up supply of PRS homes?

From our experience of consulting on modular schemes, we would choose to highlight the efficiencies in the modular construction process that produce cost savings and increase speed to market. However, there are also areas of the delivery model where there is inherent risk, most notably at the pre-construction stage. This risk has not been adequately recognised among the industry clamour surrounding modular.

Committing in pre-construction

There is a high level of commitment in making the decision to develop a modular scheme and finding the funding for it from the outset of a project. Yes, there are undeniable benefits in terms of faster delivery time on-site and therefore earlier revenue generation from quicker occupancy. But the financial commitment at the pre-construction stage of the project lifecycle represents a significant undertaking.

For each modular project, a specific design and product is going to be manufactured and tailored to the relevant scheme. 70 per cent of this product is being built off site and at least a 40 per cent deposit will have to go down to cover the costs at the point of order. Compared to conventional schemes, this is a far higher cost to be delivered up front.

There is a period of six weeks from submission to planning determination, and then the typical discharge of pre-commencement conditions is between eight to ten weeks; the manufacturing process needs to have already commenced to maximise the on-site programme saving.

With modular delivery for the PRS, there is the period of manufacture to see out before onsite work can began and the final product will be delivered on site at one point in time (and from which revenue accumulation will begin). For residential projects built via conventional methods, developers have the ability to wait until the fit out process to commit to the final product, meaning they can tailor the product to market conditions and consumer demand. But from moment that the decision to build a scheme via modular methods, they are committed to that final fit out and product.

How could risk impact the delivery of modular schemes?

There is also inherent risk in the period of time between planning consent and the moment that revenue can be derived from the development that does not exist to the same extent on conventional schemes. Because of the time scale involved and “fixed” nature of the modular product, any changes to market demand and client requirements cannot be addressed as they might be via onsite construction methods. This includes everything from market drivers on room mix, through to amenity spaces and even the availability of specifics products, i.e. kitchens, bathroom units and so on.

Early design freezes will be required to ensure modular schemes actually achieve reduced delivery programmes. Design revisions that would occur via traditional onsite construction methods are not compatible with the modular world; they would set back the manufacturing process or, at worst, require whole product runs to be abandoned. This is also a consideration for the planning process too due to the limited ability of design revisions throughout the construction lifecycle.

Speed to market – how the model adds up

With all of the above in mind, modular construction in many ways look more expensive but it is speed of delivery which provides the cost benefit. It is the savings on the programme, on the capital costs by scale where money can be made. Modular housing should typically produce a 10 to 15 per cent saving on time; the earlier finish date allows the scheme to generate revenue at a much earlier point in the lifecycle.

Modular may provide real cost benefits for largescale PRS schemes where speed to market is of critical importance and product homogenisation is of less concern. The economies of scale on a pipeline of modular projects will really kick in when unit development reaches a certain critical mass, meaning that successful schemes can be replicated, components re-used and the right supply chain falls into place.

The success of modular PRS hinges on the ability to deliver a large amount of product rapidly and start generating revenue across the scheme ahead of the conventional model. In time, with the development of better supply chains, a streamlined planning model and improved industry awareness then the risks involved will diminish. But, until that time, it is essential that those involved with the schemes go into them with their eyes open and understand the strictures of the development timeline.