Can MMC solve the housing crisis?

Words:
Brian Green

To answer the question we need to understand what that crisis is, and what it isn’t

Chart 1
Chart 1

Only by turning to modern methods of construction can we solve the housing crisis – discuss.

That seems a reasonable exam question to address, given the flurry of press statements and opinions pushed out in the wake of the recent parliamentary report into off-site construction.

But before addressing the question, let’s provide context.

In its latest report, the Housing, Communities and Local Government Committee warned the government that: ‘… an over-reliance on traditional building methods will see the UK fall far short of its target to build 300,000 new homes a year by mid-2020s.’

  • Chart 2
    Chart 2
  • Chart 3
    Chart 3
12

That target is for England, not the UK. And it is not just for newly built homes, but net additional homes. In 2017-18 England’s housing stock increased by 222,190, which means expanding the figure by more than a third to hit the 300,000 target.

That poses a real challenge in finding enough talent. The workforce is skewed towards those nearing retirement and the industry has relied in recent years on EU workers for fresh blood, a source which looks more limited in a post-Brexit Britain. MMC promise a future of fewer and more attractive jobs in the industry.

The prima facie case to pursue MMC with alacrity seems obvious.

But, before passing hasty judgment, let’s revisit the exam question. What do we mean by housing crisis? What are modern methods of construction? Is the implication that MMC will solve the housing crisis reasonable?

Defining ‘the housing crisis’ is tough. But it certainly is not just about a shortage of homes and building more.

Whatever it is, the cause or causes are not singular or simple no matter how many preachers stand on soap boxes offering silver-bullet solutions.

But we know we have ‘a housing crisis’. Why? Because almost everyone seems to agree that we do, and the government has set targets to hugely ramp up housebuilding to help solve it.

Given that, if we are to fix this crisis, it would serve us well to understand better what it is, what it isn’t and how it manifests in different places. The housing crisis felt by homeless families in Blackpool is not the same as the one experienced by upwardly mobile young professionals in London.

It is a complex crisis with multiple issues facing local areas in varying combinations. This is clearly spelled out in a recent report for the Local Government Association, Understanding Local Housing Markets. The report isolates 15 issues facing housing across England and it says: ‘The exact mix of housing issues will vary across every local authority with each one facing its own unique set of challenges.’

  • Chart 4
    Chart 4
  • Chart 5.
    Chart 5.
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So, what do we mean by modern methods of construction? The best way to describe the term seems to be as a spectrum. The Ministry of Housing, Communities and Local Government set up an MMC working group which earlier this year produced a framework of definitions. This points to a typology of developments ranging from enhancements to existing practices on site through new technologies to delivering fully fitted 3D modules to site.

In many ways there is little new about the concept of MMC. Today’s push might be better framed as an acceleration of the industry’s development path over the past century or so, where prefabricated components have steadily replaced elements made on site.

But terminology aside, the question is whether MMC unblock a restriction to solving the housing crisis. Greater adoption of MMC can certainly shift workers off site and cut the overall workforce, although how much and in what occupations depends on the methods used.

CITB’s recently released report, The impact of modern methods of construction on the skills requirements for housing, provides some useful estimates.

Using its labour modelling approach, CITB estimated the likely labour demand resulting from raising housing production between 2017-18 and 2025-26 to hit the Government’s 300,000 homes target for a range of adoptions of MMC. Its baseline (no change) estimate suggests 40% (195,000) extra workers would be needed over seven years to hit the target. It plotted five scenarios with varying mixes of MMC against a no change baseline figure. The highest impact scenario was estimated to cut the overall baseline numbers employed by about 5%.

But the redistribution of labour is interesting. The high-impact scenario suggests 30% less trade and manual labour needed on site, with a quarter of the total trade and manual labour working off site. There are a whole set of reasons to be impressed by that. However, importantly, the CITB estimates show no reduction in the professional and non-manual workforce.

So, MMC should reduce pressures on site trades and labour, but they don’t appear to magic away the challenge of recruiting and training site management and professionals.

It could be argued that the training needed for site management and professionals might even be higher with MMC in the short term as they familiarise themselves with new methods of operation. And there is a case for more rigorous oversight when introducing new technologies and systems into construction.

Returning to the exam question, is it reasonable to accept the notion that MMC can solve the housing crisis?

To do so, you’d have to accept three things. First, that MMC eases existing production capacity constraints. Second, that building 300,000 homes a year would solve the housing crisis. And third, that production capacity is the primary constraint on reaching the target of 300,000 extra homes a year in England.

MMC can help to ease some production and labour constraints, but not all. It seems fanciful that just building more homes we will rid us of the highly complex housing crisis, but it would help. Perhaps less appreciated, though, is that production capacity is not the biggest constraint on delivering more new homes.

The main constraint, certainly today, is demand. Without a radical shift in funding, most new homes will be built for private sale and, while numbers have risen, buyers continue to look relatively thin on the ground. Home sales overall are running at about 1.2 million a year, well below the 1.6 million transactions in 2007.

New build takes a slice of this overall market. Thanks in part to Help to Buy, housebuilders have boosted their share recently as we see expressed in Chart 1. But that lift in share is pretty much a one-off realignment, which may even fade as Help to Buy is refocused in coming years.

A few charts might help focus the mind on the dangers of expecting private sales to do the heavy lifting in boosting production.

Looking just at overall market dynamics, Chart 2 (data kindly provided by Residential Analysts) shows that after a strong bounce-back in first-time buyers, the level has stagnated. The level of buyers with an existing mortgage remains flat at about half what it was before the recession. After a boost in cash buyers the number has dropped slightly and shows little sign of growth. Meanwhile, the buy-to-let market has slumped.

House building starts in England seem to hit a plateau about two years ago. Completions are likely to follow suit (Chart 3). Mortgage applications appear trapped in a holding pattern (Chart 4). And the data from housebuilder surveys on net reservations is not encouraging (Chart 5), though the path of net reservations in the chart looks far grimmer than it is on the ground, illustrating a small but widespread dip rather than a serious decline.

Put bluntly, if the net additions target is to be met, other paths to delivery, say build to rent or council housing, would have to make up huge ground to cover for any faltering in the private sector.

Even shifting to 100% MMC doesn’t solve the real problem of building more homes, which is who will pay to have them built, though it might help. More importantly, it doesn’t solve the deep and complex housing crises we face today.

MMC may be part of a solution to part of the problem. It is not the solution. We should recognise that it may prove, if history repeats itself, to be a major part of a future crisis if we fail to maintain clear heads and recognise the risks as well as the opportunities.

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