Modular housing approaching its ‘Betamax or VHS’ moment

The modular housing industry is approaching its ‘Betamax or VHS’ moment within the next five years when a dominant model will emerge, Pocket Living’s Land Director has said.

Nick Cuff, Land Director at Pocket Living, told delegates at our London Property Club that modern methods of construction (MMC) housing is still a “very nascent” industry: “It’s not come to the point where there is a dominant design that people can hang their hat on.”

This lack of standardisation posed risks for funders and developers, he said: “From a funding perspective, there will always be a level of risk associated with that if there is a specific technical methodology or method.” [emaillocker id=”71749″]

If a manufacturer using its own technology went bust, Cuff expressed concern about how any project it was working on could be resurrected midway through the construction process.

But greater standardisation would emerge as the modular sector matured, he said: “It’s not quite at a Betamax or VHS point yet but it will get there in five years when we find out whether there is a winning modular design that all funders can feel happy with.”

Cuff said modular housing posed additional challenges because it requires a lot more commitment by developer upfront. That requirement for more equity upfront is “prohibitive for really small developers” possessing “less substantive war chests”, he added.

However, Cuff said Pocket can build homes one third more quickly by using modular techniques than via traditional methods, and these shorter construction lead in times tie up money for shorter periods, reducing the company’s cost of capital, he said: “The future for construction in this country is very much about MMC. It enables us to bring forward lots of small sites that would not otherwise be delivered.”

The use of such techniques would enable Pocket Living to hit its target by 2020 of 1,000 homes, which will remain affordable to young people on modest salaries in perpetuity, doubling to more than 2,000 by 2022.

Val Bagnall, Managing Director of Apex Housing Group, said that the airspace development specialist is about to submit proposals for a fresh development programme to the Greater London Authority – with a fresh programme of 600 affordable homes in the pipeline. The company already has a GLA-backed programme to deliver 500 homes, half of which will be affordable.

Bagnall also said that Apex is on the verge of securing planning permission for its first fully affordable housing project, but he acknowledged that some owners of potential roof space development opportunities could not be tempted by the potentially rich pickings that if offered.

Apex had spent two years trying to whet the appetite of the owners of a central London site, which could be worth up to £27m, Bagnall said: “We can’t get them to talk to us because the people who live in the flats believe it’s not worth it.”

But resistance to airspace developments from NIMBY neighbours can be overcome, such as by offering first refusal on flats to existing tenants or their extended families, he said: “Putting existing residents first keeps down some of the Nimbyism.”

And Apex has received enquiries to work Europe, Asia and America, Bagnall said: “We don’t have a supply chain in those markets but it’s something we are seriously considering.”

Rob McDonnell, Fund Manager at Aberdeen Standard Investments (ASI), said the asset management giant has a pipeline to increase the number of flats that it owns and manages to more than 4,000. The company, which already operates about 840 units, has £250m of capital to deploy in the residential sector, including build to rent funds.

Having a single secure entrance points can help to control arrears, he said: “They encourage tenants to have interactions on site on a daily basis and help to keep control over the building and ensure there is no sub-letting.

He said: “Across the portfolio, the bad debt record is 40 times better on buildings with a concierge service. Ultimately, we want buildings to be optimised for tenant retention and for the building to operate as efficiently as possible so we can maximise our net operating income.”

Jessica Taylor, Partner at solicitors Ashfords, said that the cost of personal indemnity insurance construction projects is becoming “prohibitive” saying: “At the moment, we have series of tri partite contracts with individual contractors and consultants and designers where they are advised by their insurance brokers in a vacuum without particular reference to the bigger project.”

But the evolving insurance market is evolving new products that cover those whole projects, she said: “There is room for a bigger dialogue with insurers particularly on bigger regeneration projects.”

Across the board, Taylor said that the construction industry would benefit from greater collaboration and curbing late payment practices: “We are not good at paying people in the construction industry and we need to improve. You could say we need a better Construction Act because we haven’t done it ourselves.”

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