Offsite Manufactured Homes: the opportunities for social landlords

December 19, 2017

Ilke Homes

Offsite manufactured (OSM) housing only constitutes some 5% of new build supply.  OSM has effectively penetrated other markets – education, commercial and infrastructure – but remains a minority sport in much of the housing market.  So why is this?

In the social housing context, the first step is understanding OSM as a value proposition.  Except in some specific areas of England, most clients will get a brick and block response to their tender requirements.  This is largely because the default specification is Building Regulations at lowest cost.  OSM struggles to compete with this.  So unless you are clear that you want better performance, without a performance gap, with a risk-managed response, then you are unlikely to get an OSM response.

This in turn creates a Catch 22; manufacturers need volume to achieve critical mass and offer substantial savings (many are saying up to 15-20%) – but until the market is confident enough to give them volume, they are competing with traditional build cost and are understandably reluctant to make a very considerable investment in capacity and production.

But as social landlords, we need to take a more realistic approach to capital cost.  We tend to work on the basis of lowest cost tendering and generally this delivers a low initial capital cost.  I can understand why this happens in an environment driven by cost and units, but we are creating a pool of properties with higher long term revenue costs that will require retrofitting before 2050.  This isn’t sustainable or value for money.

So if we accept that we need to consider a realistic capital outlay, we then need to examine our own client behaviour.  There is not a linear connection between build quality and cost uplift, but there are undoubtedly ways that clients push up cost.  With OSM scale is king; you need to engage a productive and good quality supply chain, give them a forward view of your programme and be consistent about your ambition.  And you need to aggregate, and you need to be very clear about DfMA (Design for Manufacture and Assembly) principles.

I know of one manufacturer that has reached a long-term deal with a large (private sector) client.  The manufacturer gains a guarantee of volume in return for specific commitments on quality, cost and performance.  Based on this volume over the term of the contract, cost will come down and quality and performance will improve.  Social landlords are a volume client – we have commissioned over 30,000 new homes a year for the past three years, in the region of 20% of all net additional dwellings in England annually – but we don’t behave like a volume client.  We are missing an enormous opportunity for operational cost effectiveness and good quality homes.  And this isn’t about more money; its about extracting more value with the money we already spend.

This is especially important now, at a time when our supply into shared ownership and market sale increases.  We have a choice of behaving like volume housebuilders, or changing our narrative.  We can be much bolder about our expectations as a client group, and take the opportunity to differentiate ourselves.

Better performing homes translate our social values into action.  Every home that we commission to Building Regulations at lowest cost undermines our message and effectiveness, and reinforces behaviour within our supply chain that mitigates against what we are trying to achieve.  Manufacturers who are passionate about quality and collaborative working to deliver innovation and value exist; I am privileged to be part of the Construction Leadership Council Innovation in Buildings workstream and meet them.In reality OSM is an operational decision rather than a strategic one.  The strategic decision is deciding the level of performance you want, how you are going to upskill teams, how you are going to understand whole life costing, value and risk and how you are going to get the right organisations in your supply chain to deliver this.

This is a considerable cultural challenge, and one of the reasons why I welcome Sustainable Homes’ initiative with the go-offsite portal. This recognises that many social housing developers don’t understand the fundamental differences between offsite and traditional procurement, design and delivery with a guide that provides step-by-step advice. This is supplemented by directories that will allow developers to explore, search and engage with consultants, contractors and manufacturers who can help them to de-risk and venture into offsite housing that will meet their specific needs.

There is no doubt that OSM can offer significant advantages, especially for RPs who need to think long-term about the quality and performance of retained stock; but whether you’re looking for an infill site to test OSM, or a volume strategic relationship, the first step is understanding how to achieve your objectives successfully.

Tom Jarman

Environmental Sustainability Coordinator

Your Homes Newcastle

Guest Author