I’ve been involved in several events in recent months concerning Modern Methods of Construction (MMC) – predominantly describing significant off-site manufacture, combined with varying levels of on-site fabrication and assembly. And it’s certainly beginning to feel that opportunities in this sector are being realised, albeit by a limited number of suppliers, and that momentum is building.
Watching units, similar to large static caravans, being delivered to sites by truck and positioned together to create a new property is very impressive. Within a few hours it’s possible to have structures in places for several homes. Furthermore, these arrived pre-decorated with kitchens and bathrooms fitted, meaning less work to complete on site.
The application of MMC is not limited to houses. Stacking units to surprisingly high levels makes high-rise flats and hotels a possibility. Early adoption of MMC has also delivered commercial units, affordable housing, student accommodation, residential care homes and schools.
Construction costs
The perceived benefits of faster construction and lower costs are attractive, although recent NHBC Foundation research suggests it is not so clear cut. The research did recognise reduced costs and greater profitability were achievable; “44% of housebuilders and 27% of housing associations pointing to benefits such as reduced preliminary costs, improved cash flow and faster sales revenues”. However, there is risk within the supply chain and in scalability, particularly if anticipated growth in schemes such as pods and full off-site construction is achieved.
Construction cost is clearly a major driver. London trails only Zurich and New York in average cost of construction. San Francisco and Hong Kong are next, with “UK South” coming in 6th in the world. In fact, London is expected to achieve construction tender inflation of 4.9% in 2016 alone.
Despite the accuracy that can be achieved in off-site manufacturing, there of course remains a question over final on-site assembly/fabrication, and with new and innovative methods there is also an increased risk of something going wrong. Like the innovation in flat roof extensions in the 1970s, some have survived to the present day but many allowed water ingress within a few years due to the quality of installation.
So how do lenders achieve confidence in the quality of manufacturing and construction, and satisfy themselves the property is a good security against the loan? Manufacturers and constructors are likely to have sought accreditation from Buildoffsite Property Assurance Scheme (BOPAS) or similar, demonstrating both parties are competent and followed best practice in developing new property.
So if you’re providing mortgage advice on MMC, look for lenders who allow for such accreditation within their valuers’ guidance.
Green living
As a common driver of current innovation, strong environmental progress is being made within MMC through reduced wastage and use of renewable materials. MMC might also contribute towards the UK’s 2020 CO2 emission reduction targets, through selection of materials and techniques, as well as through lower energy consumption of the final product.
Scandinavia and Japan lead the world in use of off-site manufacturing, however, the housing shortage driving usage in the UK. In addition, if concerns over labour, particularly since the EU referendum, materialise then the lower labour requirements could encourage uptake, making high, initial capital costs more palatable.
Large MMC residential developments are progressing and these schemes are gaining greater acceptance. Technological innovation, investment and skilled implementation has created new trust, but aforementioned market forces and legislation will determine MMC growth.
