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31 Mar 2017

Modular Construction – Benefits and Risks

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Those of us of a certain age will be familiar with, and may even have grown up in, prefabricated housing.

In the UK, the word “prefab” conjures up images of the cheap council houses constructed in volume after World War II. Originally intended as a temporary measure, with a design life of around 10 years, large numbers were still inhabited decades later in the 1970s and 80s. The original emphasis on speed of construction came at a price – the post-War prefabs had a well-earned reputation for poor quality.

But time moves on, and the current generation of young professionals, increasingly priced out of homeownership and making their way through the private rented sector, are unlikely to know or care about the stigma historically associated with prefab housing. This is handy. Achieving large scale build-to-rent housing has been identified as key to solving the longstanding housing crisis in the UK, and the key to the profitability of build-to-rent is modular construction – prefab housing.

The commercial viability of build-to-rent schemes is dependent upon scale. London in particular is in dire need of new homes across a range of price points and tenures, but one person’s affordable rent may be far beyond the reach of another. The ability of a developer to offer a broad range of pricing within its development through a variety of rent bands will allow the developer to maximise the development’s rental potential. But this is only possible if the development contains a sufficient number of units. Building at scale, and quickly – in order to start realising rental income at the earliest point in construction of the development – is made possible by offsite construction. In turn, offsite construction becomes more economical as the scale of production increases.

In this context, prefab seems like a necessity. Are there any drawbacks? Historic concerns around quality of prefabricated elements are no longer appropriate. The quality of construction techniques and materials have advanced significantly since 1945. In addition, the nature of construction offsite rewards rigorous pre-planning and lends itself to the factory-monitored maintenance of control over the process – with enhanced predictability of the quality and utility of the end product.

The remaining key concerns – for example around legal ownership of the goods manufactured offsite prior to delivery, and damage in transit – can be managed through careful drafting of the contract between the developer and the contractor. The contract should provide for the developer’s monitoring surveyor to be allowed sufficient access during the process to the manufacturing facility to inspect quality and progress.

The contract will need to be clear that title in the manufactured elements passes to the developer on payment, even if the elements remain in the contractor’s factory, and that those elements must be appropriately marked out as the developer’s property and kept separately from the property of others. The contract should contain adequate provisions for the ongoing liability of the contractor for damage to the elements in storage or transit, as well as adequate provisions setting out who is responsible for insuring the elements, and the point at which that responsibility passes to the developer.

It would also be sensible for the contractual arrangements to include provisions governing compliance by the contractor with a defined schedule for delivery of the manufactured elements to site, encouraging just-in-time delivery rather than having elements stored unused on-site for extended periods before incorporation into the development, with the associated increased risk of damage to or deterioration in those elements.

Subject to these concerns, the timely renaissance in prefabricated housing could help the industry to finally find a cure for the broken housing market…

This article first appeared in the March 2017 edition of Professional Housebuilder.