Legal Update | Investing in modular construction

Legal Update | Investing in modular construction

modular construction
Ruby Giblin is a Partner in the Housing Finance team at law firm Winckworth Sherwood. Ruby can be reached by email:

Ruby Giblin, Partner in the Housing Finance team at law firm Winckworth Sherwood, says it’s time for local authorities to reap modular construction benefits.

Local government finally freed from caps on borrowing following the Government’s announcement in October 2018, is now able to directly tackle their property waiting lists and the 340,000 new homes target by restarting a local authority build programme, typically through JVs or by appointing developers and Registered Providers. About £1bn is expected to be borrowed to build another 10,000 homes, against the 3,500 built in 2016/17.

Modular construction – sometimes called modern methods of construction (MMC) or offsite manufactured (OSM) – has a part to play with its promise of cheaper, quicker and better quality buildings, and Brexit-proof labour costs.

To date, a trickle of MMC buildings have been built for social housing tenants, although councils have led the way and are perfectly placed to invest in MMC. Unless MMC homes can be built in bulk, councils will not be able to realise the cost and time savings through economies of scale and allow the sector to gain traction. There is some movement in this area, for example, Swan Housing has built an OSM factory in Essex and is supplying Southend Council with properties through a JV.

The Government has also launched its Government Construction Sector Deal by way of encouragement, promoting innovation, particularly for OSM methods.

The Ministry of Housing, Communities and Local Government, with one eye on the 340,000 new homes target, has sponsored a working group led by Mark Farmer consisting of representatives of the big players in the industry – from warranty providers, insurers, lenders, and housebuilders – to find out how to ‘enable demand led change that underpins increased capacity to build more homes in a more productive way to a higher quality’.

Agreed principles
The Working Group will encourage stakeholders to invest in an OSM future in uncertain times, (covered in Mark Farmer’s report ‘Modernise or Die’). Recommendations have been delayed and are now expected later this year, but the agreed protocols and principles fall into three sections:

Consistent terminology, definitions and data collection requirements creating standardised methods of construction
The whole industry should speak the same language, and work to agreed standards, categorising OSM from an entirely factory–led approach, to virtually traditional build.

Integrated and unified approach to Quality Assurance and Warranties
BOPAS and BRE are available as quality assurance schemes, but not warranties. Four of the leading warranty providers, NHBC, Premier, LABC and Checkmate (part of the Working Group) should soon be able to issue ten year warranties on the same footing as other products, OSM or not.

Storage of evidence confirming what methods were used to build each building scheme and easily accessible Data Collection for all future stakeholders
Data and evidence of every MMC Scheme will be stored in an independently hosted platform, to share with interested parties, so statistics will be available to navigate future policy decisions and monitor MMC uptake.

RICS has also published a note dealing with maintenance issues and valuations. Councils have begun exploring the benefits that OSM can deliver, with JV developments with Swan at Purfleet, Tower Hamlets, Basildon and Southend. OSM manufacturers, like ilke Homes, are in discussions with councils, as well as RPs.

With strong demand and an ever-diminishing public purse, are councils poised to fully take advantage of their new borrowing powers and utilise such funding to stretch as far as possible, at the same time kick start the modular construction market?

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