The Truth About Modular Construction

Christmas can often be a time for reflection as well as for novelty socks, and 2022 proved to be no exception. This year’s socks were emblazoned with a radical yet surprisingly positive message that caused me to reflect on several things, including my impending gym membership renewal and the perennial attraction of modular construction. Who knew that festive footwear could offer so much?

Putting my new socks aside for a moment, I’ve always found Christmas to be a good time for reflecting, particularly that rather special period right at the end of December. It’s a time when all the relative-visiting, present-giving, carol-singing, and other mandatory festive obligations have been seen to. You’re not obliged to see anybody, telephone anyone, cook something, or visit anywhere.

Even shaving is optional. Yet the time for making (and then breaking) all those New Year resolutions has yet to arrive. And the pressure of bracing yourself for 2023 still lies ahead, as does that rather depressing headlong dive into the cold and murky waters of January’s ‘back-to-work’ routine.

And so, without any noticeable obligations, you become a post-Christmas free agent for around five whole days. Time passes in a haze because all the days blend into one. You even have to look at your phone to check which day of the week it is. You literally have nothing to do, and no one is expecting you to do anything; other than occasionally unload the dishwasher, pass the Quality Street, and fast forward through the adverts. If you open the fridge, there are still some cold turkey leftovers loitering. They may be getting a little thin on the ground, but you’re still in risotto territory and could possibly even run to a curry. The Christmas cake is down to its last third, and there are even some of those fancy chocolates left, albeit from lower down the batting order, preference-wise. In short, it’s a perfect time to reflect on life while eating lots of nice food. And, if I’m being candid, watching quite a lot of TV to boot.

One of the more interesting things I caught on TV during this reflective period was an old episode of Tomorrow’s World. It regrettably pre-dated my secret 1990s crush on Philippa Forrester, coming as it did from the somewhat sterner Judith Hann era. I’m guessing from the hairstyles that it was probably from the mid-80s. The subject of the episode I watched was the electric car, and in terms of predicting the future, it was about as accurate as a two-iron out of the rough.

But to be fair to the otherwise excellent Tomorrow’s World programme, they weren’t alone in being a bit rubbish at predicting how quickly new technology would be taken up. What’s fascinating about past predictions of how people thought we’d live our lives in decades to come is how unerringly inaccurate most of them have been. You’d think that people would learn from previous failed predictions. But no, we keep on falling into the same trap. Back in the 80s, we all thought that life in 2023 would be like something out of Star Wars or the Jetsons. Cars would be redundant since everyone would be zipping around in their personal spacecraft. We’d also have colonised a significant part of the galaxy and have hand-held gizmos which could cure every known ailment, just like Doctor McCoy had in Star Trek.

I don’t need to tell you that the reality is somewhat different. While they’ve contrived to make the Honda Civic look like a spacecraft, regrettably, it still does the same car thing that it always did, just a bit swooshier and with better mpg. The closest we’ve come to colonising anything is firing a Tesla at Mars, and as for healthcare, we seem to have regressed somewhat. Good luck if you can find a GP in 2023 that you can actually speak to, or a waiting list measured in months rather than years. And the only hand-held gizmos we’ve come to depend on are our mobile phones, which are more likely to give you a medical condition than cure one.

The interesting thing about electric cars is that they have at last arrived in the mainstream. It just took much longer than Tomorrow’s World thought it would back in 1983. I suppose we should forgive them since, rather alarmingly, 2023 is to 1983, what 1983 was to 1943 – a sobering thought. It’s surprising what does change in forty years, as well as what doesn’t.

If the world of property development has a parallel prediction, I suspect it would have to be modular construction. As someone who trains property developers for a living, I’ve lost count of the number of people who have told me that modular construction is the industry’s future. Surely, we all need to embrace this cutting-edge strategy today when building the homes of tomorrow, they’ll say. And while modular construction has a lot to recommend it, I fear we’re still some way off from it becoming the mainstream solution that the electric car has become.

On paper, modular construction has some undeniable benefits. The idea is that you manufacture pre-constructed elements of a building and then ship them to your project site. Here you stick them together in a fraction of the time it would take you to build something the traditional way, e.g., using brick and block. To give you an example, a popular form of modular construction involves elements called Structural Insulated Panels (SIPs), which typically consist of an insulating foam core sandwiched between two structural facings. They’re made under factory-controlled conditions and can be constructed to fit almost any building design. The result is a robust, energy-efficient, and cost-effective building system.

There are other advantages too. SIPs have exceptional thermal properties and are around 50% more efficient than timber frame. Their CO2 footprint is also lower as less energy is used in their construction. And, rather importantly, they can be manufactured offsite, so the labour and time required to deliver the on-site construction phase are reduced by up to a half. Your site could be watertight in just a few days. In short, you might be thinking, what’s not to like? And, not surprisingly, I meet a lot of new developers who get sold on the idea that SIPs could be the next best thing since sliced bread – the new wave of latest construction techniques that could be their golden ticket to development success.

Without wishing to deny the apparent benefits of these modern construction methods, I think it’s worth having a reality check. In my view, they’re not the panacea many new developers hope they may be. The first thing to understand is that these construction methods aren’t new. You may be surprised to learn that most have been around for a long time, with SIPs being used since the early 1970s. And that little nugget should fire a big warning shot across your bow. Because, just as 1983’s Tomorrow’s World thought electric cars would be ubiquitous within a decade or so, here we are, some forty years on, and we’re only just beginning to get the hang of them.

So, if SIPs were so good in 1970, why haven’t they become the byword for modern construction over the past 50 years? To understand this, we need to look at some of the less well-publicised downsides of modular construction when compared to traditional brick and block.

The first challenge arises because you’re not building from scratch on-site. So, rather than ordering lots of small parts and then gluing them together in situ, your gluing is being done at a factory and then shipped to your site in a partially built state. As a result, your transport costs will be higher because you’re shipping bigger items and, in some cases, partly constructed units that are effectively full of air and so carry significant volume. And when your large jigsaw puzzle pieces arrive on site, you’ll need to put them together. To do this, you’re going to need a crane. But unlike more traditional construction methods, your on-site cranage costs will be more expensive because the things being lifted are much heavier and bulkier, which incurs additional costs.

Another challenge concerns lead times. Your bespoke panels are being built at a factory, so the work must be scheduled. If the factory has long lead times, you could incur significant finance costs while you wait for your job to be completed. You may also have to pay the factory upfront, impacting your cashflow and overall costs. Any deferred build slots could also lead to you incurring time extension penalties with your contractor, which could negate much of the cost-benefit. Also, it’s worth noting that SIP manufacturers enjoy economies of scale when they supply multiple identical units. If you’re building a dozen similar properties, the factory will make a dozen of each panel. This gives them, and therefore you, economies of scale, making each unit cheaper to build. However, if you’re building just one property, you won’t get this benefit and will be effectively paying a premium.

Not everyone will work with modular construction, so your talent pool will also be smaller when it comes to recruiting a contractor. Coordination is then required between the groundworks team and the main structure contractors, who will typically be different businesses, unlike brick and block. You’ll also be required to sign off the final design much earlier than you would with a traditional build since a great deal will be set in stone at the factory. As a result, you’ll have less flexibility to change design elements down the line, should you want to (or need to).

So, while these modern construction methods can give you a quicker build time on site, the overall timescales may not be that different once you’ve factored in the longer lead times. One of the key reasons why I suspect they’ve not been fully embraced during the many decades they’ve been around is because the savings in cost and time simply don’t materialise. It’s still generally more cost-effective and easier to build using timber frame or brick and block, plus you have a lot more design flexibility and a bigger pool of contractors from which to choose.

That said, there will always be instances where modular construction could be the right solution. For example, if you had a one-off, high-level penthouse where access is restricted and time on site needs to be controlled, then dropping a modular box on top of an existing building can work well. But schemes like this are few and far between, particularly for small-scale developers.

The final and most critical consideration is all about focusing on the lowest-hanging fruit. The sweet spot for small-scale development in today’s market has to be the conversion of existing brownfield sites using permitted development rights.

There are simply thousands of potential projects dotted about all over the country, including shops, offices, light industrial buildings, and other commercial properties of many different varieties. And because you can change these buildings’ use to residential without applying for full planning permission, it will take you less time and involve less risk.

Modular construction is mainly suitable for new build projects, preferably where you can build multiple units using the same design, thereby getting greater economies of scale. Unfortunately, modular construction doesn’t lend itself to brownfield development. To take advantage of brownfield permitted development rights, you’ll need to work within the envelope of the existing building and not add to its volume. As a result, commercial conversions usually involve a bespoke solution for a single building with no new build elements required.

My advice, then, is to park modular construction and its ilk in the ‘too difficult’ pile. Or possibly the ‘maybe tomorrow’ pile at a pinch. If you’re about to embark on your first small-scale development, there’s never been a better time to do it. It’s easier than it’s ever been, plus traditional buy-to-lets seem unlikely to become flavour of the month any time soon. Creating new homes is catering to a very needy market with huge demand. But it makes sense to make your first project as straightforward as possible and with the least amount of risk. While modern construction methods can look sexy, for my money, they don’t bear closer scrutiny for new developers for the reasons I’ve outlined. Instead, my advice would be to stick to doing conversions using the traditional route of brick and block, where I believe you’ll make more profit and endure a lot less stress in doing so.

As I write this, I’m sitting at my desk at home on the cusp of 2023, a mince pie reassuringly close at hand. I cast a downward glance at my new novelty socks, which served as a surprising yet timely reminder that embracing change isn’t always a good thing. Their “The more I weigh, the harder I am to kidnap” message reminds me that there are always some benefits to be had from sticking with the status quo. And in the case of modular construction methods, I fear we’re not yet at the place where the pros are guaranteed to outweigh the cons. And it may be a few more Christmases before we are.

A very happy New Year to you all.