Modular Construction – Is It a Better Way to Build?

Promising to be environmentally sustainable, cheaper to manufacture, and faster to build, modular construction is an attempt to bring the efficiency of the assembly line to the construction industry.

Modular construction is a form of prefabrication where the building is produced in a factory and assembled on site. The factory produces standardised modules, which are completed rooms, that are transported to the site and fitted using a crane. The technique is not new. After the Second World War, over 150,000 homes were built by modular construction, as a quick replacement for those destroyed by Axis bombings. These buildings were seen by many as a low quality and temporary fix to the housing shortage. The new wave of modern modular construction, however, is different. Modular housing hopes to be a permanent solution to the housing crisis, providing a variety of attractive properties built to high building specifications.

The prefabrication technique used in modular construction has many advantages over regular construction, where almost everything is done onsite. Research conducted by the University of California, Berkeley, based on modular construction in the San Francisco Bay Area, discovered that the largest benefit was 50% faster project completion. By completing quicker, construction sites benefitted from lower management costs and interest costs. Other savings come from less material waste and fewer onsite workers – leading to an overall 20% reduced cost. As the building is produced on an assembly line the developer also has a fixed project budget, whereas traditional construction is often burdened by the cost in time and capital caused by change orders.

Another central benefit is environmental sustainability. Firms, such as ilke Homes and TopHat, develop their homes to be energy efficient, use sustainable materials, and reduce the environmental impact of construction on the building site. The UK government published an estimate that modular construction leads to a 67% reduction in energy usage than traditional construction and up to 90% less onsite waste. TopHat claim their projects release only 1/27 of the carbon dioxide emissions of traditional construction. Norwegian start-up Othalo, on paper, hopes to use recycled plastic and modular techniques to build affordable housing to service impoverished communities.

Modular houses, due to being up to 30% lighter, require shallower and simpler foundations. This allows them to be built on brownfield sites with underground considerations normal construction would not be able to access, which is vital in space-limited cities and to prevent the building on natural environments. The London Assembly Planning Committee celebrated the potential of modular construction on infill sites and the potential to increase housing density, dual effects which could decrease house prices in cities, along with deflated construction costs.

Environmental sustainability is a key opportunity for modular buildings. Over 50,000 homes are demolished every year in the UK as they reach the end of their useful lives, and it is hoped modular buildings, where the space can be easily added to and adapted with additional modules, could be more adaptive to the changing needs placed on a building. Current modular construction techniques do not allow easy extension according to the Home Builders Federation.

A final benefit is working in a housing factory rather than on exposed construction sites is seen as more appealing and could encourage more people to enter the industry.

Despite these benefits, the market is small. In the UK modular housing made up just 7.5% of new homes in 2017, in the US only 3% of single dwellings in 2020. The unconventional manufacturing technique has some major drawbacks.

One is financing. This was significant in the collapse of ZETA Design + Build, a Californian modular manufacturer, that chronically struggled with having sufficient capital available to buy materials and labour. They required 50% of the total budget upfront but developers were only willing to fund between 10% and 25%, which is more in line with the traditional construction financing model. In modular construction, paying so much before receiving any goods is risky, especially because the industry is dominated by small idiosyncratic factories without proven track records. UK homebuilder Galliford Try Partnerships and Regeneration, in a statement praising the potential of modular construction also highlighted this financial concern of such a large upfront payment: ‘this requires a greater level of trust and creates nervousness as a high value of money would not usually be handed over until start on site.’

Another financing concern is an unwillingness to mortgage modular houses due to historic difficulties with novel construction methods. Saying this, ilke Homes advertises HSBC, NatWest, and Nationwide as partner lenders, so for more established firms, this may become less of a concern as the industry improves its reputation. Insurers have raised concerns that damage to a modular home could be far more expensive – particularly if it requires the entire module to be replaced.

There are also technical limitations. Rooms cannot be larger than what can be transported on a lorry, which normally limits the width to about 2.9 metres, with many firms’ modules approximately the size of a shipping container. Furthermore, while modular housing’s requirement of shallower foundations means they would work well on brownfield sites, it may be impossible to build on such sites due to restricted access and the requirement of a crane. Moreover, until order numbers rise, most modular manufacturers are relatively small scale – meaning they cannot yet access the economies of scale which would lead to the highest cost reductions.

On top of this consumers also have perceptions against modular homes, seeing them as temporary and low quality. Despite some developers like nHouse, which also targets self-builds, offering more luxury products up to 380,324 GBP for the nHouse6, most are focussed on affordable housing and council housing. For example, in 2019 one of the UK’s largest housing associations, Places for People, made a 100 million GBP deal for 750 new modular homes.

In a UK Parliamentary report titled ‘Modern methods of construction,’ modular construction was criticised for its inflexibility, with praise instead focussed on the more conventional prefabricated panel construction. Despite this, the unrivalled speed and low cost of modular construction mean it currently has a niche in the more affordable end of the market. If a reliable financing model can develop to accommodate the different structures of modular developments, and public opinion shifts to recognise the benefits and quality of these builds, then perhaps modular construction could become a widely adopted alternative to traditional construction methods and a trusted solution to the current housing shortage.

Analyst: James Miller

Sector Head: Charlotte Snell