The King’s Speech 2024: A prefabricated solution to the housing shortage?

One of the new government’s key objectives is to tackle the housing shortage in the UK, with a housebuilding target of 1.5 million new homes within the next five years (or 300,000 new homes per year) and mandatory housebuilding targets – a pledge not seen since the post second world war Labour government’s pledge to build 4 million homes “in quick time”.

The King’s Speech on 17 July 2024 was light on detail regarding the government’s plan to meet these targets, but did promise to “get Britain building, including through planning reform”.

If the plan is successful, it would be the most houses delivered by any UK government in nearly 60 years; the last time that over 300,000 homes were built in the UK was in the 1960s. Besides the historical shortfalls and the political challenges of imposing housing targets on local authorities, the government also faces the hurdles of high interest rates, a shrinking and aging workforce, and an increase in the cost of goods and materials.

The potential solution, similar to the solution proposed to housing shortages after the Second World War, is prefabricated modular houses. According to Matthew Pennycook, the Minister for Housing, Communities and Local Government, these will be key in the government’s plan to meet their new housing target.

What are prefabricated modular houses?

Modular houses are a type of prefabricated house. They are built as prefabricated components off-site and tested in a factory before being assembled at the construction site. Each module is entirely fabricated in the factory including staircases, kitchens, bathrooms, plumbing and wiring, and fixtures and fittings.

This manufacturing model reduces construction time (sometimes by months), allows for better quality with factory rather than site testing, lowers the cost of building (as less labour is required and there is the potential to mass produce), reduces risks to health and safety on site during construction, and generally produces more energy efficient homes than traditional ‘stick-built’ houses. This makes modular houses an attractive and potentially cost-effective option for building a high volume of houses quickly.  Modular houses are, in most cases, also built from more sustainable materials, which may go towards the government’s aim of reducing 2030 emission targets - another key priority.

While the current demand for modular housing in the UK is low in comparison with other countries such as Sweden and Japan, it is growing and will likely need to increase significantly if the government’s housing targets are to be met. Sweden, for example, builds at least 45% of its new homes using offsite manufacture. Whilst the overall number of properties built per year in Sweden is lower than the government’s target for the UK, this indicates that modular housing could make up a significant proportion of new UK homes.

Fabrication methods have improved dramatically over the years, as modular houses must meet strict building code regulations. They are now generally high-quality, modern, and extremely well-insulated homes. However, the use of modular homes in the UK is in its infancy, and we are aware of issues with the production and assembly process that have delayed the completion of projects. If there is a rapid increase in the rate at which modular homes are produced, the possibility of defects being present and construction issues arising is likely to increase.

Potential risks

As there is a separation in the manufacturing and construction of modular homes, any defects may present unique risks to all of those involved in the construction and development of modular projects.  We expand below:

• Given the integral nature of the modular units, if defects originate at the factory stage resulting in the recall of affected batches, the construction project could be subject to severe delays, potentially resulting in liquidated damages. Manufacturers and contractors should consider how the effect of a product recall might be mitigated.
• Manufacturers and importers of the prefabricated elements may be exposed to product liability claims (under the Consumer Protection Act 1987, in contract or otherwise) if defects with the modular units cause injury and/or damage to property.
• Design and build contractors and consultants may wish to consider limiting their contractual liability for design to reasonable skill and care, to align with their professional indemnity insurance cover. This should afford design and build contractors with more protection, rather than having full contractual liability for satisfactory quality and fitness for purpose where they are involved with supplying a product as well as the design.
• Would all defects be accessible and individually replaceable, or would they be encased within the pre-fabricated unit (e.g. piping)? As normal repairs carried out by contractors might invalidate product warranties, are amendments therefore required to defects rectification provisions in construction and development contracts to allow for differing timescales and processes for onsite and offsite defects?
• How will liability be apportioned in relation to the interfaces between the prefabricated elements of the construction and those specifically related to the site where all of the construction occurs on site (e.g. drainage, services, connectivity and infrastructure and how the prefabrication is linked to those site-based elements)?
• There may be some concerns as to how insurable the completed property might be for residents. There have been historical concerns in this respect, particularly in relation to predominantly timber framed modular construction techniques and potential fire safety risks.
• Contractors, consultants and their insurers may also be reluctant to engage in modular construction if they perceive that it is novel and may present long term risks under the Building Safety Act, (for example in relation to some of the materials used such as timber frames and adequate compartmentation).   
• There have, historically, been difficulties in funding developments of modular construction housing due to the mortgageability of such developments. Lenders have been reluctant to accept modular constructed housing as security for both traditional home buyers mortgage products (so housebuilders can sell them to individual owners) and, to a certain extent, where housing associations have wanted to use the products as security to raise finance.

Comment

These questions surrounding modular homes illustrate the possible exposures that those involved in their development, design, manufacture and construction may face. Stakeholders in the construction industry will, of course, want to embrace this potential opportunity but should be aware of the potential risks and pitfalls.