Not all value is created equal
BY DR ELLEN GRIST, RESEARCH AND EVALUATION LEAD, HOUSING FESTIVAL
Modular construction is currently more expensive than traditional construction in terms of initial capital outlay. The MMC industry is still young and manufacturing new housing products demands very significant up-front investment. This investment funds new production facilities, product development and testing, and the recruitment and upskilling of a permanently employed workforce.
With the price of modular housing necessarily reflecting this industry wide investment, the simplistic return on capital (ROC) model that has traditionally guided investment in housebuilding, is hampering the growth of the MMC sector. We must begin to challenge the return on capital model, which underpins the current development appraisal methodology, as it is too simplistic and is ill equipped to consider the wisdom of real ‘value’ as opposed to cost.
Shouldn’t we just wait for costs to come down?
As with all new manufactured technologies, an increase in demand will create economies of scale and help to reduce costs. But housing commissioners can’t afford to wait! So much of the ‘added value’ is being created and embedded now.
As new housing products are being conceived on the drawing board, developed through R&D and prototyping activities, the long-term ‘whole-life’ performance of our future homes are currently being decided and embedded into new product lines. It is now that design decisions are being made, supply chain established, and precision processes developed that will determine the quality of the next generation of our buildings. Similarly, it is now that the industry is shaping the future of construction professions, including new technical and digital skill required and the makeup and culture of the workforce.
There is currently a window of opportunity to engage with the emergent MMC sector. A rare and strategic opportunity for the construction industry as a whole to embed both ‘value’ (in terms of whole life performance and maintenance costs), and ‘values’ (in terms of environmental and social attitudes, practices and standards), into the future built environment.
Understanding value?
Ways in which MMC provides scope to increase whole-life value include:
Improvement in the thermal performance, leading to reduced energy usage and running costs.
Installing highly energy efficient services, improves the energy performance and reduces future retrofitting costs. Note: In cases where a high-specification ‘comes as standard’ in a modular product it becomes difficult to make a comparison with a traditional solution, where an increased performance specification might be itemised as an ‘extra-over’ cost, or ‘value-engineered’ out of the final built solution.
Other additional value/potential cost savings related to the nature and pace of MMC delivery:
The necessary early design freeze, meaning the design process has to be front loaded. Fewer unforeseen issues down the line against a backdrop of wage inflation.
Fixed cost purchasing de-risks clients from escalating costs driven by market fluctuations, and commodity and labour inflation. This also improves access to finance at better rates of interest.
Turnkey solutions reducing the number of contractual relationships to manage.
Condensed project delivery timescales and earlier realisation of desired project outcomes, including direct and indirect economic, environmental and social outcomes.
Reduced time on site – less disruption to neighbours and neighbouring businesses. Reduced need for temporary site infrastructure including fencing, security and welfare facilities. Fewer vehicle movements.
Reduced risk of delays due to adverse weather on site.
Reduced need for working at height, leading to improved site safety and lower scaffolding costs.
Reduced waste disposal/recycling costs on site, as waste is recycled within the factory environment. Reduced environmental pollution and ecosystem costs.
Earlier project completion – enabling earlier sales or rental income, reduced temporary emergency accommodation costs, and reduced borrowing or other financial costs.
Higher levels of quality control in the factory leading to less snagging works.
The challenge of value
The challenge this poses in re-thinking the development appraisal and/or optioneering processes is at least threefold:
a) How to put a monetary value (£) on savings or benefits, which are not directly financial.
b) Defining the ‘return’ or ‘whole-life’ time period.
c) Accounting for the value experienced by range of distributed, if interconnected, benefactors in the system.
Not all value is created equal. We must be alive to opportunities to maximise the benefits (social, economic and environmental) from every pound spent on new housing.
