Home » Despite recent woes, modular has much to offer

Despite recent woes, modular has much to offer

by BDigital_Admin
Des Duddy, joint managing director, Protrade

Back in 2022, Des Duddy predicted a golden year for modular and offsite construction. Despite the sector’s bumpy fortunes since then, he believes it still has an important role to play

A couple of years ago, I predicted that 2022 would be a golden year for modular and offsite construction. The reason I made this prediction is that modular construction was enabling the industry to achieve incredible feats.

This was particularly the case in China, where a prefabrication business had built a 57-storey building in just 19 days, and Huoshenshan Hospital in Wuhan had been constructed in just 10 days in response to the COVID-19 pandemic.

It seemed as though modular could be the answer to many of the threatening issues the UK construction industry is facing, from skills shortages and rising material costs to housing developments.

While in theory modular construction painted a promising picture, the reality hasn’t been as commercially successful as it had seemed it would be. 2022 certainly saw the modular industry rise to its height, with methods being used in 17% of new build projects – up from 9% in 2017 – before dropping to 16% in 2023, but figures released from the UK’s top modular companies show combined losses exceeding £285m over the past few years.

Modular has seen an onslaught of challenges that were not anticipated, such as high fixed costs and unstable production pipelines, which has prevented it from living up to expectations.

But, despite the major setback, I firmly believe modular still has a significant role to play.

The state of modular today

Last year saw major setbacks for the modular construction industry in the UK after huge losses were made by all key players in the market such as L&G Modular Homes, Ilke Homes, and TopHat.

While the concept of modular construction wasn’t new in 2022, production at a wide scale very much was, and still is. The benefits of wide-scale production seemed to answer many of the issues facing the construction industry, and with implementation beginning off the bat, no one had a chance to mitigate the problems it might face.

The UK’s sudden jump into the industry, directly after the pandemic, highlighted significant challenges in scaling up, and with high fixed costs. These issues need to be overcome before modular can become commercially viable.

There are hurdles to overcome but modular still offers an important contribution to solving key issues if we utilise it on a smaller scale.

Understanding the UK’s commercial challenges with modular

Ultimately, there are several issues currently affecting why modular construction has not been commercially viable so far in the UK.

The cost of the overhead is massive, with a huge factory, cranes, and a large full-time employed workforce needed, which doesn’t become viable until production is at a significant scale.

On top of this, securing a reliable project pipeline is challenging, particularly when there are hold-ups in the planning process as a result of a lack of understanding within local authorities.

The need for high production levels means there’s a lot of over-promising and underachieving when it comes to winning a contract and running a project, and when planning and pipeline issues are piled onto this, companies are often unable to sustain high fixed costs before the job is finished.

Modular construction is on a completely different playing field in terms of pipeline and production compared to traditional construction; where a company might win a contract to build five houses, it’s now about who can build 3,000 houses and fast.

While the construction industry is still finding its footing in modular, local councils are even less familiar with modular methods, delaying planning further and prohibiting the ability to secure enough volume.

Debt is shifting from other stakeholders onto the modular companies – the manufacturer – so there’s less risk of debt for the builder.

There’s certainly still an appetite for it to become successful in the UK, particularly when the industry knows that continuing traditional construction methods is only widening the issues we’re currently facing.

A hybrid solution to construction is the answer

Despite the incremental losses that the first companies venturing into modular have faced, modular construction remains a crucial part of the solution to major challenges plaguing the industry and housing sector.

The CITB estimated that around 45,000 people would need to join the sector every year for the next five years to keep up with growing demand, while the National Housing Federation (NHF) states that 340,000 new homes per year need to be delivered across the UK to address the crisis, with 145,000 of those being “affordable housing”.

The Conservatives have pledged in their 2024 manifesto that they will build 1.6m homes in England during the next parliament, while Labour has pledged 1.5m homes in their manifesto. This equates to 320,000 homes per year in the Conservative’s case and 300,000 in Labour’s, just below the NHF’s target number of homes needed to solve the crisis.

Modular construction remains the most efficient option for mass-constructing homes and solving this crisis.

On top of that, leveraging the technology used for modular construction will help to automate the mundane processes, maintaining specialised roles which provide more interesting career paths.

Raw construction materials saw a huge surge in price between July 2020 and July 2022, and while it’s good news that prices are beginning to settle, costs remain elevated compared with pre-pandemic levels. Modular construction will help to keep costs down for the industry.

Modular’s success lies in working hand-in-hand with traditional construction

What’s needed is a hybrid solution where traditional construction methods are complemented by modular practices.

The industry has been guilty of overselling modular as the “new way” of building houses but the reality is, it was never going to replace traditional construction methods fully.

Modular’s strength lies in creating standardised, repetitive elements quickly and efficiently in a controlled setting, but certain bespoke elements are simply better suited for skilled tradespeople working on site.

This hybrid approach can be applied to something like hotel construction, for example. Modular’s productivity can be utilised to manufacture hundreds of bathroom shower pods in a factory very quickly but then can be integrated into a traditionally built steel frame core and finishings. We don’t have to pick one over the other, both modular and traditional methods have their strengths and weaknesses.

Significant change and increased construction efficiency will happen when offsite manufacturing for creating the standardised components that drive production schedules combines seamlessly into a hybrid model with traditional onsite crews working on the complex, customised aspects of the project.

The future remains promising for modular

The key component holding modular back from being commercially viable at the moment is our inability to accurately quantify what modular construction can realistically deliver.

Once an algorithm is determined that considers square footage, costs, and production rates, and gives us a real-world figure for the volume that is commercially viable, more construction companies will be willing to invest.

The hope is that we will see less grandiose promises from huge corporations building purely modular, and more smaller companies confident in their ability to meet demand consistently with a smaller output.

That’s when modular construction will become an interesting and attractive proposition for investors again.

Main image: Des Duddy is joint managing director at Protrade


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