13 February 2019

Could the flat pack revolution solve the housing crisis?


The UK construction industry has long been overdue a market disruption to challenge the complacency of the major housebuilders. Over the past 20 years productivity growth in UK construction has averaged just 0.4 per cent per year compared to manufacturing’s 3.2 per cent.

This is part of the reasons for our housing crisis, as noted by CapX editor Oliver Wiseman when he highlighted the problems with Britain’s planning laws and the need to turn NIMBYs into YIMBYs.

One technology that may be joining the fight is modular homes – factory-built houses that can be made faster, more sustainably and help even out the UK’s geographic employment disparity while helping to fend off any impending Brexit-induced skills shortage.

Most disruptive innovations come from unusual suspects. That’s also the case with modular homes with the likes of financial services company Legal & General behind a big push for modular houses. L&G have invested £50m building a factory in Yorkshire with the capacity to produce 3,500 homes a year.

In the same way Henry Ford transformed car making with the efficiencies of factory production, it is hoped similar gains can be made in the manufacture of homes. The controlled conditions mean houses can be made in half the time with 80 per cent less waste and a 95 per cent recycling rate. Employee safety and well-being is improved by less time spent working at height and stoppages or mistakes from inclement weather are removed. Space is saved as, unlike conventional building sites, fewer materials are stored on-site and only come into the factory when needed. And factory assembly can allow for greater precision helping to improve energy efficiency, keeping bills down.

But the real gains could be in breaking the correlation between housing demand and employment availability. The greatest need for homes are in the South East where employment rates are highest, while the north of England has more homes but higher unemployment.

Modular factories can be placed where jobs are needed (and wages are lower) and then the homes sent where they are required. This seems to be happening with L&G’s Leeds plant, a new modular factory from housebuilder Countryside located in Warrington in the North West and another from Ilke Homes in North Yorkshire.

Many in the construction business fear that a severe skills crunch is likely coming down the chute. According to the Federation of Master Builders, 44 per cent of its members say the skills shortage is already a “major barrier to their ability to build more new homes”. The construction industry has an ageing and shrinking workforce with many young people happy to avoid spending their days on freezing building sites covered in mud and dust.

The Prime Minister’s insistence on using Brexit to end freedom of movement is also likely to hit the European labour that the housebuilding industry increasingly relies on. The Royal Institute of Chartered Surveyors estimate the sector could lose 176,500 EU construction workers after Brexit.

Consultant Mark Farmer, who was commissioned by the Government to write a report looking into the problems affecting housebuilding, is clear that modular is the way forward: “Skills is the one thing that will force the industry to change,” he said, “because we ignore it at the industry’s peril”. Factory-based housebuilding attracts staff who wouldn’t consider working on a building site and the specialisation lends itself to retraining of people from other sectors. Modular home builders have also attracted more female employees than conventional building sites, where they make up just 1 per cent of the workforce.

The modular homes revolution is already underway elsewhere with tech giants Google and Amazon buying up factories in the US. In Japan, which has a well-established modular industry, Toyota has built on their production line expertise and become the country’s fourth biggest housebuilder.

Part of the problem in the UK is that like most factory production you need economies of scale to maximise profits. Already modular homes are slightly cheaper to make than the equivalent conventional home in the South East but the upfront costs of factory construction means companies need to invest before they see a return. The need for cashflow, and patience, is where financial giants like L&G have an advantage.

‘Prefabs’ helped to solve the homes shortage in war-ravaged Britain in the 1940s and ease the housing crisis of the 60s, although those were generally poor quality, temporary buildings, unlike their modern predecessors.

Decades later, maybe the time has come for factory-built homes to once again come to the rescue in Britain’s hour of housing need.

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Joe Ware is a journalist and writer who works in the field of international development.