Is it time to incentivise MMC asks Ian Atkinson?
It’s widely accepted that Modern Methods of Construction represent the future of volume housebuilding and are a key part of the solution that will enable the sector to hit big sustainability and net zero targets. Yet significant barriers remain before it’s truly viable on the scale at which our biggest housebuilders operate. Here we examine those barriers and explain why incentives could be the answer to accelerating use of these modern methods.
It sometimes seems that Modern Methods of Construction (MMC) are held up as being the answer to every major issue that the construction industry faces in the short and long term. Quality? MMC improves it, using processes and materials that provide consistency from start to finish. Errors, should they occur, are eradicated quickly and then not repeated. Safety? MMC involves more people operating in safe, controllable off-site environments, with less exposure to height, site risk and adverse weather conditions. Speed? Buildings go up faster using MMC techniques. Sustainability? New techniques and modern materials waste fewer resources and reduce the environmental impact of developments. Flexibility? MMC can deliver easily-adaptable ‘homes for life’, with layouts which can be altered with relative ease to meet people’s shifting demands as they go through life.
Yet, despite what looks like a compelling case, MMC is struggling to achieve the scale and volume needed to really have an effect. According to the RICS, only eight per cent of homes built in the UK rely on MMC. While the RICS says that figure could rise to 20 per cent over the next ten years, it still indicates that MMC is struggling to gain a foothold among volume housebuilders.
The vast majority of the eight per cent built are delivered by niche or small-scale housebuilders, the public and social housing sectors and the growing build to rent market. So, what are the limiting factors preventing widespread adoption of MMC?
The main factor is cost, of course. It’s boom time for volume housebuilders right now, but their margins can be incredibly tight – the effects of the pandemic and Brexit are taking their toll, as we see a continued rise in the cost of building materials and a shortage of labour.
MMC is at a relatively early stage, but as it becomes more widely used, economies of scale will increase, making it cheaper to use MMC. But it’s the ultimate construction Catch-22: until MMC is adopted more widely, the costs involved are unlikely to come down. But until the costs come down, it’s very difficult for it to be adopted more widely.
It has, for some time, been difficult to find a high-street lender prepared to offer a mortgage on a home built using MMC/off-site construction methods. While perceptions of MMC homes are improving, many lenders still have concerns over long-term build quality. There is hope that this will become easier: a number of leading industry bodies, including the National House Building Council (NHBC), have signed a Memorandum of Understanding after the Government agreed to create a minimum standard for MMC-built homes in the UK.
For now, though, any owner of a home built using MMC could find it a challenge to find a lender prepared to lend against it. There are lenders that will offer mortgages on MMC-built homes, but there is likely to be a list of conditions, such as adherence to specific quality assurance schemes or organisations.
The scope for MMC is strictly limited by the size of parts that can be moved across the country. There’s no point assembling a building off-site if you then can’t move it to its location easily. The width of UK carriageways – either on motorways or on local roads is severely limiting.
There is the potential for on-site factories to be used on larger developments in the future, using part of the site as a factory to fabricate the buildings. It would remove the logistics challenge but could be an expensive solution.
We have discussed the construction skills shortage at length, including the increased cost of employing EU migrant workers, as part of our re:build Britain, a major pre-existing issue which has been exacerbated by Brexit.
Although the time required to train people to design and operate MMC manufacturing and assembly processes is considerably less than the time taken to train for traditional skills, there is, due to the relative newness of the industry, a shortage of sufficiently skilled people. As we are short on traditional construction skills at the moment, developing MMC skills may not feel like the top priority for many housebuilders.
Certainly, any skills drive, led by Government or the industry, should consider the development of factory-based MMC skills as a vital part of the training mix to aid long term goals.
Leadership from central government
The Government is certainly pinning its hopes on MMC, announcing in March 2021 the launch of a taskforce dedicated to accelerating the use of MMC across the industry. The government has also made 15MMC a condition of its strategic partnership grant programme, with all strategic partners expected to deliver a minimum of 25 per cent of homes through MMC.
We also welcome the news that ISO is set to develop standards for the adoption of prefab buildings in the UK: this is expected to cover the basic principles of design as well as general performance, construction and installation requirements and will be a major step forward. A consultation launched by the Government in February 2021 (now closed) on the future of the New Homes Bonus has raised the possibility of MMC-built homes being incentivised as part of the Bonus scheme.
We would strongly encourage such incentivisation. Government policy and social housing will help to bring about the wider adoption of MMC in the public sector, and with time this will pave the way for the private sector to follow.
However, with the Government’s own 2025 deadline for all new-build homes to be ‘zero carbon ready’, the clock is ticking and we feel incentivising MMC for the private sector will help to tackle to issue from both ends.
Ian Atkinson is a partner at Womble Bond Dickinson, a transatlantic law firm with more than 1,000 lawyers based in 26 UK and US office locations. The firm provides core legal services including: Commercial, Corporate, Employment, Pensions, Dispute Resolution, Litigation, Finance, Banking, Restructuring, Insolvency, IP, Technology and Data, Private Wealth, Projects, Construction and Infrastructure, Real Estate and Regulatory Law. Womble Bond Dickinson has a particular focus on 11 key sectors: Energy & Natural Resources, Financial Institutions, Healthcare, Insurance, Manufacturing, Real Estate, Retail & Consumer, Transport, Logistics & Infrastructure, Pharmaceuticals, Biotechnology & Life Sciences, Technology and Private Wealth
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