Capacity in the homebuilding industry Contents


Off-site construction and modern methods of construction

111.The predominant method of building homes is the traditional bricks and mortar approach with tradespeople working on site, each with a different specialism, such as bricklaying, carpentry or plastering. However there is a growing view that more innovative methods of construction could speed up the delivery of homes, and help address the growing skills crisis (discussed in chapter 6). Modern methods of construction (MMC) is a collective term for a wide range of non-traditional building systems. These include modular construction where units are fully fitted out off-site, panelised systems (such as timber or light steel frames), site-based MMC such as thin joint blockwork and sub-assemblies, and components (such as pre-fabricated chimneys, porches etc).

112.We do not believe that MMC are the panacea for all of the industry’s problems, but they have the potential to make an important contribution. A significant advantage of MMC, particularly modular construction, is the speed at which homes can be built. Essential Living claim that by using modular construction the overall construction period is reduced by 25 per cent.117 Marc Vlessing, Chief Executive of Pocket Living, also emphasised the speed advantage. He told us that across a range of small and medium sized sites across London, his company was reducing a typical build time of twelve to thirteen months down to eight or nine months. Pocket Living are in the process of constructing a 26 storey modular development in Wandsworth, where the use of modular technology is expected to cut six months off the expected build time of two years.118 We also heard that modular units and off-site construction can deliver homes with far fewer deficiencies. Mr Vlessing for example told us that “the snagging on our product is zero”.119 However, as Samantha Fernley of BOPAS (the Buildoffsite Property Assurance Scheme) told us, although many technologies look promising, it is too early to say definitively whether there is a quality advantage:

We are on the edge of this curve. With building things in a factory, there are much tougher regulations; things are much more quality controlled and much more consistent. … If you look to Japan or Europe, they are already using some of this technology and it seems to be working very well for them.120

113.Whilst acknowledging the speed and quality consistency benefits, we do not view modular or other MMC approaches as currently providing a cost benefit for developers. This is because MMC works best where there is a steady demand for identical units. However, as output increases, the cost per unit is likely to decrease. Marc Vlessing told us:

If you want those factories to hum, if you want the sense of continuous ordering to really happen, then this is not about one-offs, however great the factory might be at responding to one-offs. The industrial manufacturing of housing will always be at its most efficient when it is a replicable format.121

114.Off-site construction methods are therefore suited to easily replicable designs such as blocks of flats. We therefore welcomed the confirmation from housing associations that they are fully exploring off-site construction,122 as their product has the potential to be well-suited to it and would offer the certainty of demand that is needed. This certainty and the need for a full order book are vital for MMC and off-site construction to establish themselves and make a meaningful contribution to levels of homebuilding. Many witnesses told us that they would consider using MMC more, if it were better established. David Thomas, Chief Executive of Barratt Developments, for example, told us that:

The reality is that the supply chain there is not fully in place. The supply chain is not geared up for large levels of production. It definitely could be, but it will clearly take time to bring through large levels of production. In the medium term, we come back to the fact that the vast majority of houses will be brick and block construction.123

115.The housing White Paper highlights the benefits of MMC and proposes measures to support their increased use. It also recognises the challenge of creating a mature supply chain: “Firms have told us that the most significant barrier to growth is the lack of a pipeline”. It therefore argues that this can be addressed by encouraging future orders through the Accelerated Construction programme and the Home Builders’ Fund.124 We welcome the Government’s support of Modern Methods of Construction, but believe that it needs to take a more active role to improve the wider sustainability of the MMC supply chain and to encourage the market to grow. This could include the work of the HCA and its support of rental developments.

116.Financing developments that use MMC can also be a challenge. Many lenders are risk averse and do not yet have faith in the new technologies being used, especially in light of the shortcomings of earlier forms of prefabricated housing. We were told about lenders’ caution by Marc Vlessing, who explained that for an average development, banks would require around 65 per cent senior debt levels, with the balance made up by the developer. For modular schemes, the senior debt level drops to between 45 and 55 per cent because the banks view them as higher risk.125 Mr Vlessing also explained that:

When I sign a modular contract, I am signing over my life to a company that, were they not to arrive on Monday with the units, I would not be able to do anything about. With a conventional developer I can sack the bricklayer or the electrician if they are not on site. With modular I have given away all that clout, which, by the way, is why the banks put in a lower senior debt layer. It is a level of trust.126

117.The Council of Mortgage Lenders explained that this perception of higher risk came from lenders’ experiences in the past:

While lenders have no intrinsic preference for any particular mode of construction, they do have one overriding requirement: that properties considered in relation to a mortgage must be capable of standing as security for a loan of up to 35 years. … Some caution in lending on Modern Methods of Construction (MMC) has been, in part, fuelled by the relatively poor track record of past generations of non-traditional construction.127

118.We welcome the attempts to provide more confidence to lenders, such as the development of BOPAS (the Buildoffsite Property Assurance Scheme) and work by the NHBC (National House Building Council) to certify different MMC. However we are concerned that with so many different systems being used to build homes, there is no single recognised scheme to give builders, lenders or home-buyers confidence in the product’s value. Samantha Fernley from BOPAS told us that the industry is very fragmented, and explained that:

The warranty providers do not talk to each other; we would like to but do not do it enough. Every mortgage lender has their own view. We are all doing individual work to push this forward but something needs to bring it together. We almost need a Kitemark or something that encompasses it, to give more faith to the lenders.128

119.We support the increased use of Modern Methods of Construction and note the understandable caution exercised by lenders. In order to address this, homes built using MMC should have a single, recognised quality assurance mark, sponsored by the Government, to give lenders, consumers and builders the confidence to use new methods.

Custom and self-build

120.The National Custom and Self-Build Association (NaCSBA) argue that there is evidence of unmet demand for people who want to custom or self-build. It highlights that in other developed countries, around half of the homes built are custom or self-build, and that:

53% of the UK population would like to build or commission their own home at some time in their lives (14% / 7 million people in the next 12 months) but only around 10,000 succeed. Around 10% of this market want to do the full ‘Grand Designs’ self-build approach. Around 12% are happy with the minimal choice offered by a speculative volume house builder. The remaining 78% of prospective new home buyers are not catered for in the UK currently.129

121.The home construction industry is dominated by volume builders, and we therefore welcome any market diversification and the opportunities presented by custom and self-build homes. Chris Brown, Executive Chair and Founder of Igloo Regeneration, told us:

You have heard quite a lot of evidence about the market being driven by sales rates of primarily speculatively developed standard house types. For me, the constraining factor is how many people there are in that relatively small geographic market who will buy that standard house type, because people tend not to move very far. Most of the population do not actually want to buy any new house from a big house builder … when you remove that constraint of standard house types and you allow the customer to have the house they want, the sales rate goes up … by three to five times. The increase is potentially a very significant increase in the speed at which you can sell and, therefore, the speed of supply. That is different from how fast you can build: how fast you can sell.130

122.However, despite the opportunities presented by custom and self-build homes, there are a number of obstacles for people wishing to build a home using them. Michael Holmes, Chair of NaCSBA, summarised the situation: “if you have money, you can self-build; if you are in the ordinary housing market and do not have a big deposit, you are probably excluded from the custom and self-build sector”.131 We have discussed how homes built using MMC can present a higher risk investment for lenders (paragraph 116), and this also applies to custom and self-build homes. Chris Brown told us that the supply of mortgages was a long way off meeting any expansion of custom or self-build and that “we are in this catch-22 situation at the moment: without the big mortgage providers being in the stage payment mortgage market, we cannot ramp up production”.132 We welcome the recognition from the Government in the housing White Paper that accessing finance is a major obstacle to custom and self-building, and its commitment to continue working with lenders to address this. We ask that the Department provide the Committee with an update on this issue in twelve months’ time.

123.Accessing land is also a challenge for custom and self-builders. Local planning authorities are required to keep a register of people who would like to have a custom built home and they are required to identify land to meet this demand. However the implementation of this duty varies greatly. Michael Holmes told us that “Where there is a will, there is tremendous progress. There are also lots of local authorities who have a housing strategy document that says, “There is no discernible demand for custom and self-build in our area” and therefore are doing absolutely nothing about it”.133 We also heard from Sarah McMonagle from the Federation of Master Builders that local authorities can charge as much as they like for people wishing to be on the register, and that this could be putting people off from pursuing custom and self-build further.134 However despite this, planning policy guidance states that the registers are a good measure of demand when a planning authority is completing its SHMA (strategic housing market assessment).135

124.The challenges faced by small and medium sized builders when trying to access land are magnified for custom and self-builders. Michael Holmes, Chair of NaCSBA told us: “Basically it is a lot more work to deliver for custom-builds. It is a lot more work to deliver sites for small to medium sizes house builders. It is a lot easier to zone large strategic sites and wait for them to be brought forward by land owners and major house builders for hundreds if not thousands of houses at one time”.136

125.The housing White Paper makes a commitment to supporting custom and self-builders through the Home Building Fund and the Accelerated Construction programme, and states that if the Government believes that local authorities are not supporting them adequately, it will consider changing legislation to address this.137 We believe that the Government needs to review planning policy guidance to ensure that the measures promoting custom and self-build in the NPPF lead to greater opportunities for such development in local plans. In particular the fees charged by local authorities for the custom and self-build register should be reviewed to ensure they are not prohibitive.

126.In 2012, our predecessor Committee published a report on the financing of new housing supply. As part of the inquiry the Committee visited Almere in the Netherlands and observed a model whereby 800 homes had been built by people self-commissioning their own homes on publicly owned land. The local authority designated plots, put in place purchase arrangements, and provided roads and other infrastructure. In response to our findings, the Department was very enthusiastic about custom and self-build housing.138 We are therefore disappointed at the lack of progress in the five years since the Committee’s report, and call for a more proactive role to support custom and self-build by Government and local authorities as investment by public bodies can encourage private investment.

117 Essential Living (BLD077) para 4.6

118 Q133

119 Q126

120 Q329

121 Q128

122 Qq188–189

123 Q84

124 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, paras 3.37–3.39

125 Q125

126 Q133

127 Council of Mortgage Lenders (BLD019) Annex A

128 Q313

129 National Custom and Self-Build Association (BLD 079) para 2

130 Q133

131 Q136

132 Q138

133 Q136

134 Q11

135 Q139

136 Q139 [Michael Holmes]

137 Department for Communities and Local Government, Fixing our broken housing market, Cm 9352, February 2017, para 3.18

138 Communities and Local Government Committee, Eleventh Report of Session 2010–12, Financing of new housing supply, HC 1652, paras 149–155, and the Government Response, July 2012, Cm 8401, para 33

28 April 2017