Can offsite construction solve Britain's housing crisis ?

Britain faces the dual crises of a serious housing shortage and a construction industry that's losing skilled workers faster than it recruits them. Offsite construction techniques might enable a smaller workforce to build houses faster, but only if the government takes a lead in transforming the industry to adopt them.

This post is part of our series on offsite construction techniques. The others are:

Modern offsite construction techniques: an overview

Offsite construction: advantages in costs and efficiency

Constraints to offsite construction in Britain

When offsite construction techniques solved a housing shortage

Not very long ago, a nation faced a housing crisis. A lot of people needed new homes, but the nation's construction industry couldn't keep up with the demand. Skilled workers were retiring from the construction industry faster than new workers were being recruited and learning their skills, and the hard-working families of the nation couldn't have the homes they aspired to.

The nation solved its crisis - which shows that the nation in question was not Britain. It was in fact Japan, which led William Johnson to look into how they did it [PDF] and see if Britain can learn anything from Japan in facing a similar set of problems. He paid particular attention to the enthusiastic uptake of offsite construction by the Japanese construction industry, which Johnson credited as a major reason why Japan is able to build houses much faster than the UK.

Johnson acknowledged the substantial differences between the housing markets in the two countries - much of the demand in Japan is driven by a culture of rebuilding houses every generation, while we Brits expect our homes to last decades if not centuries - but the fundamental problem of meeting demand for new homes was similar enough that Johnson believed that offsite construction may contribute to the solution in Britain as it did in Japan.

Britain's twin crises: why offsite construction?

The housing shortage

It's no secret that there's a serious shortage of housing in Britain, but it's a sign that a situation is really bad when the government department acknowledges a crisis in the title of one of its own documents: Fixing our Broken Housing Market was the title of a Department for Housing, Communities and Local Government (DCLG) white paper published in 2017. Prime Minister Theresa May's foreword drives home the point: 'Our broken housing market is one of the greatest barriers to progress in Britain today'.

The numbers are damning: the government has set a target of 300,000 new homes to be completed every year. The National Housing Federation regards that figure as being too low, and has stated that 340,000 homes must be built every year until 2031 in England alone to make up for the four million new homes needed.

Whether it's 300,000 homes per year that are needed or 340,000 is a moot point given that less than 200,000 homes per year are actually being built. Worse, they're disproportionately built for the higher value end of the market to be bought as investments rather than being affordable to the people on lower incomes who are feeling worst of the shortage. The result is that more and more people are struggling with ballooning rents while the prospect of owning a home becomes less attainable by the year.

The homeless charity Shelter recently reported on what that means among people with the lowest incomes: 140,000 families are classed as homeless, living in temporary accommodation, while the number of people sleeping rough every night has tripled since 2010. Shelter's commissioners, who were a diverse bunch including civil society activists and former Tory ministers, called for a large investment to stimulate the building of homes to be used for social housing. While the Shelter report does not specifically mention offsite construction, it does recommend adopting modern methods of construction (MMCs). Offsite techniques are so central to most MMCs that some documents use the terms almost as synonyms.

In our response to the Shelter report, we welcomed the call for investment in affordable housing but stated our view that the planning system is one of the major inhibitors of home building in the UK, which will need to be overcome before the best use can be made of the investment they called for. Not coincidentally, we also identified the planning system as one of the main reasons Britain has been slow to adopt offsite techniques.

The construction skills shortage

Among the myriad reasons for Britain's housing shortage is the state of the British construction industry. The Construction Leadership Council's 2016 review, written by industry veteran and Cast Consultancy CEO Mark Farmer,  summed up the situation in its stark subtitle: Modernise or Die [PDF]. Farmer's summary of the current state of the industry was as cheerful as that subtitle:

Deep-seated problems have existed for many years and are well known and rehearsed, yet despite that, there appears to be a collective reluctance or inability to address these issues and set a course for modernisation. P6.

Farmer described an industry suffering from a serious skills shortage as skilled construction workers are retiring faster than they are being recruited.

A recurring theme in the Farmer Review, and indeed in much of the literature on Britain's housing shortage, is the potential for offsite construction to accelerate home building even with a much reduced workforce, following the approach that was so successful in Japan.

Offsite construction has been adopted by many of the larger developers, but Farmer also pointed out that the backbone of the British construction industry is fragmented into of small firms. Most of them have little capital and subsist on contracts for relatively small-scale developments so do not have a predictable income stream.

Such firms tend to be highly skilled in the methods that their workforce trained in, but those techniques are usually traditional rather than MMCs. Given the small number of new entrants into the industry and the fact that most of them are trained by apprenticeships to such small firms, there is little opportunity for a small firm to expand its expertise to techniques that have only become available in the last few years.

For a small firm to adopt offsite techniques, it would not only need to retrain its workforce but to invest in a factory in which to carry them out. Even if it could raise the capital, it would need to be confident that they would get enough work to both return the initial investment and to cover overheads of running a permanent facility. A firm dependent on receiving contracts for small-scale developments simply does not have that confidence.

If the industry is to be changed, which it must be if the twin crises are to be addressed, the lead will have to come through incentives from central government.

What central government is doing

In its Fixing Our Broken Housing Market white paper, the DCLG committed to taking such a lead. Their initiatives included the Accelerated Construction programme in 2017, in which central government will support local authorities in their housing development programmes. The scope of the programme was disappointingly modest, aiming to deliver a mere 15,000 homes in total which amounts to around 10% of the number by which the government's building target is missed every year.

The Accelerated Construction programme aimed to encourage local authorities to consider offsite construction, showing a willingness for the DCLG to put at least some money where its mouth is:

Accelerated Construction will…catalyse changes in the wider housing market, through supporting offsite manufacturing techniques and increasing the number of participants in house-building. Fixing Our Broken Homes p48.

The same document committed to reforming the planning system to make it less restrictive, which would enable it to embrace offsite construction on a larger scale than it currently does.

The DCLG's responsibility is for delivering on the government's 300,000 homes per year target, so it's significant that their interest in offsite construction is shared by the Department for Business, Energy and Industrial Strategy (BEIS), which has responsibility for developing new technologies - including those involved in offsite construction. The BEIS's Transforming Construction Programme has committed a substantial investment in research and development which he BEIS has stated 'must be collaborative and involve a micro, small or medium-sized enterprise (SME)', which shows a recognition that small firms must be involved in getting new technologies from the research centre to the building site.

In his submission to the House of Lords Select Committee on Science and Technology [PDF] in 2018, the BEIS minister at the time, Richard Harrington, pointed out that the government is involved in funding between a quarter and a third of all building in the UK. Making government funding dependent on the use of MMCs in general, and offsite construction in particular, would be a strong incentive to the construction industry to embrace those techniques.

The Select Committee's report to the BEIS made a number of recommendations for expanding offsite construction in Britain, prompting the BEIS to recommend in their response 'that the Government, through Homes England, put pressure on housing associations and local authorities to stipulate the use of off-site manufacture, where appropriate, when procuring new housing developments', and that the 2015-2018 Affordable Homes Programme is funded several partnerships between Homes England and construction companies. Homes England recently reported the completion of one such project: a pilot of four semi-detached homes built using modular offsite techniques in Bedworth, Warwickshire.

What central government is not doing

It’s going to take more than stating an aspiration in a white paper or a pilot project in Bedworth to resolve the housing crisis, or to bring the offsite techniques that might resolve it into the mainstream of British construction. There are some significant gaps in the government policy documents, with some solutions are mentioned as aspirations without a plan for implementation and some of the problems identified by Farmer are not addressed at all.

Our view is that the government will need to take more of a lead in the following areas if it is to expand offsite construction in the UK, which is a goal stated by both the DCLG and BEIS:

Ensure that offsite construction is embraced by local planning authorities

One place where mention of offsite construction, or indeed MMCs in general, are conspicuous by their absence is the DCLG's 2018 National Planning Policy Framework. Arguably, the framework does encourage offsite construction by putting a strong emphasis on environmental sustainability which, as we've described elsewhere, is a goal that is usually met better by offsite than onsite techniques. However, the new framework was repeatedly referred to in Fixing Our Broken Homes as one of the key drivers of the solutions proposed in that document, so it is surprising that MMCs, as another much-repeated solution, were not mentioned.

It appears that the aspiration to involve the local authorities that plan residential developments in the adoption of MMCs has yet to make the leap from aspiration to policy.

Facilitate reskilling of construction workers

A further issue that no one appears to be addressing was described by Mark Farmer, author of Modernise or Die, in an interview with UK Construction Online:

Workers may have concerns that their skills are no longer relevant leaving them redundant in some shape or form. Even though that is an understandable reaction the reality is we need to educate everyone.

Someone with two or three decades of experience in a particular skillset is never going to take kindly to being told they have to go back to school and learn a whole new way of doing things, especially if they'll have to pay the school fees themselves. That's as true of the designers of British homes as it is of the people who lay the bricks to build them.

The research and development initiatives that involve small firms go some way toward addressing the issue as the people who work for those small firms will be learning the techniques they are developing. However, the approach will inevitably involve the minority of firms that are focused on developing new technologies rather than the majority of firms whose business is simply building houses.

In Modernise or Die, Farmer described a number of training programmes, such as Crossrail's various educational schemes and Class of Your Own's Design Engineer Construct! secondary school syllabus that prepares people to enter the industry. What these initiatives have in common is that they are aimed at young people at the beginning of their working life.

There is very little opportunity for a 45-year-old bricklayer to update his skills, so he's unlikely to respond well to the idea of modernising the industry. That bricklayer's employment is probably through short-term contracts from one or more small firms. If his employers decide to switch to modern techniques such as offsite construction, then making him redundant and employing someone with the relevant skills is likely to be gentler on their bottom line than investing in retraining him. For this bricklayer, adopting offsite construction means moving his job into a factory where he won't be welcome to follow it.

If the industry is to follow Farmer's advice to embrace offsite construction and modernise rather than die, some thought needs to be given to that bricklayer. As his employer is not in a position to help them to modernise their skills, it falls to central government to provide an opportunity for reskilling that is not currently available.

Help small firms to invest in factories

Currently, offsite construction in Britain is dominated by large developers like Laing O'Rourke and Legal and General, who can afford to build and maintain large facilities. To a small firm that doesn't have the capital to build a factory, it would be a huge risk to take out a loan to build one and hoping that it generates enough work not only to repay the loan but to pay for its overheads.

Farmer suggested that small firms could split the risk by sharing a single factory between several companies, but such initiatives are unlikely to arise organically. Both the DCLG and BEIS have suggested that government contracts could be made dependent on at least some of the work being done offsite, giving small firms a strong incentive to pool resources to bid for such contracts.

In isolation, such an approach would be as likely to exclude small firms from public contracts as to help them modernise, so it would have to be combined with access to finance. The BEIS have a wide range of schemes to help finance small businesses, to which offering grants or underwriting loans for offsite construction facilities could be added.

In conclusion

We conclude that if the British housing shortage is to be resolved on any meaningful timescale with its dwindling labour force, offsite techniques will need to be part of the solution:

• Offsite construction offers the opportunity to speed up housing construction in the UK in spite of a dwindling workforce in the construction industry. It brings the further advantages of higher quality homes, lower environmental costs and better working conditions.
• In order to make full use of the advantages offered by offsite construction, Britain will need a planning system that is more amenable to offsite construction.
• The construction industry does not have the skills necessary to significantly expand offsite construction at present, and will need resources to retrain its workforce.
• Central government will need to enable and incentivise both construction firms and local authorities if Britain is to fully exploit the opportunities offered by offsite construction.

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