Could modular housing help Britain build the homes it needs?

Pre-fabricated housing being moved into position in Los Angeles in 2012. Image: Getty.

We’ve got ambitious government targets, an appetite to build and huge numbers of people who need housing. But we’ve known all this for some time, yet we are still in the same situation – a housing crisis.

So let me start with an obvious yet uncomfortable truth - relying solely on traditional construction methods will not halt the housing crisis. This isn’t a comment on the traditional product or its processes, more a reiteration of a well-known fact: skills capacity is also at crisis point. 

It’s a stalemate situation. In 2016, the Joseph Rowntree Foundation released a report on the relationship between housing and employment. The report found that neighbourhood investment creates a sound basis for employment, and that affordable rent provides a greater incentive for people to work.

One relies to some degree on the other. After all, a home is about so much more than bricks and mortar. So why aren’t we jumping at the chance of doing things differently to get out of this impasse?

The UK is something of an outlier when compared to many of our continental neighbours. Areas like manufacturing have seen steady productivity growth over the last twenty years, allowing more economic growth with the same or fewer number of workers. However, the UK construction sector has seen productivity flat line for the past two decades. This limits growth, and means a loss of more than £100bn a year of economic benefit.     

There are alternative products and processes we can take advantage of – but we seem to be simply dipping our toes in the water. Personally, I think we’re suffering from a lack of confidence. We need confidence in the quality of modular products (which, clearly, from our recent YouGov research, the public doesn’t have). We need confidence in the durability of MMC (modern methods of construction) products.

And we need confidence in the sector that the intention of modular suppliers is to add to capacity, not to replace traditional processes.

This is why my team are currently working with a range of modular and MMC suppliers to robustly compare and contrast a range of housing products. It’s a live research project in Gateshead that will monitor and evaluate the build process and lifestyles on offer through a range of different construction methods – including traditional. The homes will be for affordable rent and tenants will be involved in the ongoing evaluation.


So why are we doing it? If we make this research available to other developers perhaps as a sector we can make more confident and informed decisions about new construction methods.

Because while MMC is being used across the sector, we’re not using it at scale. And its scale that we need to affect change: 300,000 homes is no small number, after all. (What’s more, according to a survey by the Royal Institution of Chartered Surveyors, only 12 per cent of surveyors believe we can hit that target – another confidence boost needed).

 MMC isn’t as affected by the crisis in construction skills capacity. It’s an entirely different skillset. So it’s not about skilled tradespeople jumping ship.

You could almost envisage two different pathways into housebuilding. Studies have told us that millennials are purpose-driven, and therefore most likely to be attracted to organisations that are driven by purpose. So maybe that’s how we have to think about careers in construction.

There may be two distinct pathways being formed with two distinct skillsets – but ultimately, both are responding to the housing crisis. Perhaps that’s the draw. And having increased opportunities may well see an increase in people working in the sector overall. 

We’re not competing in a crowded marketplace. There is a desperate need for more homes. We need to embrace every construction method available to us and work collaboratively to meet the government’s targets.

Let’s keep the end goal in mind and not be restricted with the way we’ve always done things. It’s time to take a different approach.

Mark Henderson is chief executive of the housing association Home Group.

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High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.