What next for modular after L&G’s factory closure?
Legal & General’s decision to end production at its modular housing factory in Selby, north Yorkshire, has shone a light on challenges facing the nascent sector.
L&G pinned the closure of the 550,000 sq ft factory – which had turned out buildings such as those in L&G’s Bonnington Walk scheme (pictured) – on factors including long planning delays and the impact of events such as Covid-19, saying the business had not been able to secure the necessary scale of pipeline to make its current model work.
Nick Whitten, head of EMEA and UK living and residential research at JLL, told EG: “Innovation is really hard and about 60% of UK start-up businesses fail within the first few years, in line with global averages.”
Legal & General’s decision to end production at its modular housing factory in Selby, north Yorkshire, has shone a light on challenges facing the nascent sector.
L&G pinned the closure of the 550,000 sq ft factory – which had turned out buildings such as those in L&G’s Bonnington Walk scheme (pictured) – on factors including long planning delays and the impact of events such as Covid-19, saying the business had not been able to secure the necessary scale of pipeline to make its current model work.
Nick Whitten, head of EMEA and UK living and residential research at JLL, told EG: “Innovation is really hard and about 60% of UK start-up businesses fail within the first few years, in line with global averages.”
He continued: “One of the problems we have been through recently is quite a public declaration by the housebuilding industry that it will scale back through this period of uncertainty.”
Whitten added that what the modular sector needs is political incentive and visibility of workflow.
“There are dozens and dozens of master developer-style schemes across the country,” he said. “You could be opening that conveyor belt approach that will provide certainty of supply for two or three years in a row. Modular housebuilders need to know what’s coming down the conveyor belt. It’s very hard to turn a factory off and then back on again. It needs a steady flow of orders.”
Individual problems
Trade body Make UK Modular last year said modular manufacturers could produce 3,300 homes per year, representing one in 60 of all new homes in the UK.
Steve Cole, director of Make UK Modular, said: “It is disappointing to see L&G pulling out of modular in an extremely difficult housing market for all builders. It is important to remember that in the midst of a national housing crisis, fraught with planning difficulties and a chronic labour shortage in the sector, modular housing will continue to play a major role in the delivery of high-quality, green homes that are significantly cheaper to heat and run than traditional builds.”
Richard Valentine-Selsey, head of European living research at Savills, said L&G and a collapsed joint venture between Urban Splash and Sekisui “have their own individual peculiarities around why they have fallen”.
“One of the positive spots to look at in the sector is the fact you do have both ilke Homes and TopHat continuing to raise significant amounts of funding and expand,” Valentine-Selsey added.
“Both have said part of the reason for fundraising is to allow them to invest into additional manufacturing capacity. Both have said you do need scale to make this work. To be viable as a modern manufacturer, you need to have a large pipeline in a large scale to deliver, and both of them expect to have a manufacturing capacity of more than 4,000 homes when the new systems come online.”
Nonetheless, Valentine-Selsey believes L&G’s announcement will cause a period of reflection and caution in which companies will look carefully at their counterparty risk.
Fundraisings
Earlier this year, TopHat raised £70m to help fund the development and fit-out of its factory in Northamptonshire, which is set to open next year and will quadruple the company’s production to 4,000 homes a year.
Its investors include Persimmon, which has injected £25m in equity, Aviva Capital Partners and existing investor Goldman Sachs Asset Management.
A TopHat spokesperson told EG: “It is sad to hear the news about L&G’s modular business, but while this news reinforces the fact that the modular sector is still nascent when compared to traditional home building, it doesn’t diminish its huge potential and the vital role modular will play in addressing the housing crisis.”
They added: “Not all businesses in the sector are the same – scale and investment do matter but so too does the specific business model, including the materials the homes are built with, the design and technology used, and the way in which each business works with customers to build its pipeline.”
Ilke Homes raised another £100m from investors last year in what is thought to be the largest fundraising by a British modular housebuilder. The investment will allow the company to develop 4,000 homes a year by opening another factory.
An ilke Homes spokesperson told EG: “The problems faced by L&G Modular – namely planning delays, macro events and labour shortages – are not exclusive to the modular housing sector, with builders across the country facing similar conditions.”
They added: “Investing up front in capital-intensive manufacturing capability will help address growing skills shortages in construction, and we are proud of the training and employment opportunities now being provided at our Yorkshire facilities. Without the kind of investment we are making, Britain will not be able to achieve the capacity needed to tackle the housing and climate crises.”
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Image courtesy of LGIM
