RICS Policy position: Modern Methods of Construction

The UK construction sector is a strategically significant part of the UK economy and we provide the policy position on modern methods of construction.

Representing around 6% of GDP and 10% of employment, every year an estimated £150bn is invested through the public and private sectors. It is not only important in terms of its contribution to the economy, it is also an enabler of wider economic growth and development, providing the homes, infrastructure and environment that allows the nation to function and prosper.

The sector has been struggling to meet growing demand for its services in residential, with the Government’s target of 300,000 new homes per year unlikely to be met. Supply and demand imbalances contribute to unaffordability and in extremis, homelessness.

Market-led solutions alone have not met the needs of large segments of the population, as housing affordability has moved beyond the reach of many. The construction sector for residential is part of the challenge. It is characterised by low productivity, variable quality, output lagging behind target, and slim margins for builders. This is partly due to the cyclical nature of the residential sales led trader model, creating unstable foundations for the construction sector to operate and invest in.

Offsite manufacture and Modern Methods of Construction (MMC) represents an opportunity to address many of these issues in addition to increasing capacity and investment in the industry. Its properties and characteristics can supplement our existing capacities, supporting alternative models for delivery and allowing for more options to be considered when tackling the complicated process of housebuilding. While MMC is not a panacea that will resolve all the problems in the sector, once fully embedded, will go some way to improving our capacity to meet need.

Government must support MMC both, directly through investment and indirectly through planning, education and construction and design quality standards and programmes, including encouraging and incentivising construction of MMC factories in areas of high unemployment as part of the Industrial Strategy.

RICS research paper, ‘Forward Thinking Solution to the Housing Crisis’ looks at several different technologies as constructed on site. The locations and design standards of the projects were impressive with the mortgage-ability demonstrated by sale into the owner-occupied market.

The stage is set for MMC homes to achieve scale. The concept has potency in the generation of a new model of home design, selection, and consumption especially in the submarkets of ageing population, social housing and build to rent.

Recommendations:

Government should strengthen its presumption in favour of MMC in public infrastructure schemes.
Government should support local authorities and housing associations through financial incentives and policy to meet housing need through MMC.
Government should acknowledge the potential social value benefits of MMC including for elderly, disabled, and homelessness needs.
Government should promote for MMC products, the development of guarantees, warranties and accreditations which have a similar level of lender and consumer confidence as those available for standard construction.
Government and industry should endorse or acknowledge the guidance to be released by RICS which will create familiarity with products on offer, their properties, and their value;
Government needs to support through policy and funding, the upskilling of the existing workforce to meet the needs of MMC.
Government should explore encouraging and incentivising construction of MMC factories in areas of high unemployment.
Government should look at updating building regulations recognising the differing construction methodologies of MMC to traditional build, including its use of information technology.
Government should seek to give risk mitigation to potential new entrants, SMEs and suppliers.

Definitions of MMC

RICS supports the MMC definition framework published by MHCLG working group chaired by Mark Farmer. We have been one of the influential voices on the group, particularly with regard to survey, valuation, digitisation and metrics.

A key challenge has been to describe MMC typologies, rather than to be too granular, scheduling out every possible manifestation. The typology is sevenfold, including 2D and 3D structures, structural components and non-structural assemblies and non-assemblies.

The diagrammatic gives various examples of the typologies, including timber frame, panellised and steel frame.

Social value

Faster delivery of MMC newbuild compared to traditional builds allows for them to be a greater server to the social housing sector, providing a premium as rental cashflow comes onstream sooner. Many housing associations are already utilising this new technique to deliver much needed housing, with some setting up their own production units.

As MMC is more adaptable/customisable housing authorities can also build more housing to meet the requirements of different participants, such as those with disabilities or the elderly. It is also being increasingly utilised in the build to rent industry as the customisable nature allows for standardisation, increasing yield and reducing voids and costs to users, as well as specification fit-out for frequent tenancy turnover including wider door sets and cassette replacements.

Offsite manufacturing requires a large investment up front and returns over the long term. If you have a factory, you must supply it with orders, so for modular to reach scale it will require a stable market. This is where the build-to-rent sector, local council housing including housing associations, and Homes England could stimulate offsite by committing to more offsite building developments. This would create growth within the industry achieving faster and increased delivery.

There is also opportunity for local housing companies (LCH) or housing authorities to become manufacturers and set up their own factories following the example of housing association’s such as Swan Housing which has already successfully started to meet need and opened their own housing factory.

MMC is able to deliver on whole of life housing it’s ability to be able to adapt and to be recyclable can serve them across many differing life stages. The four accessibility elements of a house that makes them age and wheelchair friendly (level access to entrance, flush thresholds, wide door sets, and a bathroom at entrance level) are also elements that make for a good family home, especially those with young children and pushchairs.

Traditional builds are generally not built with the four elements of accessibility and their upkeep means that adaptions to make them fit for an aging population are often of great cost.

Recommendations:

Government should strengthen its presumption in favour of MMC in public infrastructure schemes.
Government should support local authorities and housing associations through financial incentives and policy to meet housing need through MMC.
Government should acknowledge the potential social value benefits of MMC including for elderly, disabled, and homelessness needs.

Finance

From a cost, value and performance perspective, modern offsite construction is relatively untested and is still in an evolutionary phase. Data on the costs of construction, value and performance of using offsite is not robust yet, and as techniques evolve, cost information and performance changes, and previous data becomes obsolete. This makes it hard for the industry to estimate costs, assess benefits and plan appropriately.

This is an issue for investors, lenders, valuers and insurance/warranty providers naturally concerned about product durability, value and ongoing maintenance cost. The Build Offsite Property Assurance Scheme (BOPAS) constitutes a significant provider of confidence and assurance in this sector by warranting specific construction systems.

BOPAS accreditation of non-traditional build was one of the first systematic attempts to assist mainstream MMC. This offered durability and maintenance assessment carried out by Building Life Plans Ltd (BLP), process accreditation carried out with Lloyds Register, and a web-enabled database providing valuers, lenders and chartered surveyors with details of housing units by scheme.

Accreditation for MMC such as BOPAS needs to be championed and strengthened. Stakeholders need to be satisfied that there is an industry seal of approval which builds assurance for warranty providers and Insurers, as well as for lenders and investors. Accreditation models like BOPAS can help to mainstream MMC.

Investors and lenders must engage with the sector to recognise and calculate the long-term value of products. Improved integration and collaboration between lenders and builders – through schemes like BOPAS – will help lenders better understand products and build confidence in the quality, durability and marketability of the product. Regardless of tenure, investment approvals must become systematised, like mortgage approvals for second-hand property despite, arguably, resales having a greater risk profile in regard of the three criteria; quality, durability and marketability.

At the moment, the second-hand home sales process is clear and lenders have tolerances for bulk retail lending. Chartered surveyors and valuers also have a key role to play, and must add knowledge of MMC technologies, especially regarding their durability and cost in use, to their reporting skillset. We are therefore updating our guidance to reflect this by producing a new home survey standard to be released in autumn 2019 and updated valuation guidance.

Recommendations:

Government should promote for MMC products, the development of guarantees which have a similar level of lender and consumer confidence as those available for standard construction.
Government and industry should endorse or acknowledge the guidance to be released by RICS which will create familiarity with products on offer, their properties, and their value.

Skills

MMC can help stimulate economies in less preforming areas of the country. Much has been made of the Northern Powerhouse and Midlands Engine, regions which have been traditionally industrial and manufacturing hubs now experiencing contraction as traditional industries move out or shut down.

MMC requires many of the same skills base and simple retraining could utilise the work force of these regions, especially the steel, car manufacturing and other fabrication industries.

Government and industry need to collaborate to establish apprenticeships and training products that support the rollout of MMC and encourage new entrants into construction.
This will need to be funded and enabled strategically, including the encouragement of SMEs.

Recommendations:

Government needs to support through policy and funding for upskilling of the existing workforce to meet the needs of MMC.
Government should explore encouraging and incentivising construction of MMC factories in areas of high unemployment.

Technology

The utilisation of pre-manufacturing technologies brings construction into the modern age by transferring production to the factory. With greater quality control and more efficient use of materials and labour, employing manufacturing techniques will boost productivity. This will enable faster scheme delivery with less risk of programme disruption on site, such as through bad weather. With scale, costs can be reduced through greater efficiency, delivered in a safer, controlled environment for workers.

Digitisation may be deployed both in the production process to achieve precision engineering and assembly, and through Building Information Modeling (BIM) (and successor models). BIM is a dynamic database which can track the unit through design, specification, procurement, construction/assembly, quality control and finishing, handover, letting/selling, residential occupation and management, repair, depreciation and replacement, and recycling and renewal. Digitisation has the potential to transform stakeholder confidence in the product including that of investors, manufacturers, builders, surveyors, lenders, insurers, managers, and, of course, consumers.

Performance will be much more closely monitored and scrutinised through digitisation and manufacturing. Through BIM, Prop Tech, big data, AI and the internet of things, performance can be tracked throughout the building’s life. This means there is continuous data from design, manufacture, build, and management, which can feed back into design.
Government and industry must work together on the creation of apprenticeships and training products that support the rollout of MMC and encourage new entrants into construction. This must be funded and otherwise enabled strategically, including the encouragement of SMEs. This requires resourcing and incentivising new delivery agencies such as local authorities, local housing companies, special purpose vehicle’s (SPV’s) and joint ventures to recognise and utilise emerging technologies.

Private sector investment in MMC is already widespread. However, more can be done to create an environment of cooperation and joint venture, particularly to encourage SMEs to access and invest in larger production plants.

Recommendations:

Government must look at updating building regulations recognising the differing construction methodologies of MMC to traditional build, including its use of information technology.
Government should seek to give risk mitigation to potential new entrants, SME’s and suppliers.

Kindly shared by Royal Institution of Chartered Surveyors (RICS)