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Real Estate Finance Insights

Real Estate Finance Insights

Construction site with crane

There is increasing pressure on the housebuilding sector to deliver the Government's target of 300,000 new homes per year.

But with a current shortfall of 100,000 and the industry beset with challenges - including materials and labour shortages - there are calls for housebuilders to adopt new modern methods of construction to help solve the housing crisis.

Modern methods of construction (MMC) is an umbrella term to describe different ways of building homes, from offsite fabrication and fit-out of modular housing to more contemporary innovations, such as digital 3D printing.

Whilst already popular in countries like Japan, Germany and Sweden, its use in the UK is still relatively low, with the proportion of homes built using MMC less than ten per cent. Experts predict this could grow to 20 per cent in the next ten years.[1]

Adopting new techniques and utilising technology within the construction process provides numerous benefits, including better quality control and more efficient use of materials and labour, which in turn enables faster delivery to site.

Then there's the environmental benefits: offsite construction can achieve delivery in approximately 50 per cent less time than traditional delivery, with zero waste to landfill as components are manufactured in factories and less travel to and from site for workers, as well as fewer materials deliveries, therefore reducing carbon emissions.[2]

Recognising that it has the potential to speed up delivery, improve productivity and modernise the sector, the Government is also championing MMC.

But despite the backing from Whitehall, MMC still has several hurdles to overcome before it is widely adopted by the housebuilding sector.

Given its relative infancy, from a cost, value and performance perspective, modern offsite construction is still in an evolutionary phase. Due to the low number of homes built using MMC, there isn't enough data to accurately assess the cost of construction, value and performance, and as technology evolves and techniques change, so does the data, making it difficult to estimate costs and plan accordingly, which is a challenge for surveyors in particular.

It's also an issue for investors, lenders, valuers and insurance/warranty providers naturally concerned about product durability, value and ongoing maintenance costs.[3]

But despite the challenges, there are signs the tide is beginning to turn.

In Milton Keynes, Bellway is building 160 homes at Tattenhoe Park using modern methods of construction. Forty homes will be built off site in a factory as modular units, whilst the remaining 120 homes will be constructed using timber panels and frames in place of breezeblocks.[4]

The development is part of a Homes England pilot scheme that will deliver 1,800 homes across the country to study the benefits of MMC, including improved quality and energy efficiency, and a reduction in construction waste.

At the smaller end of the housebuilding scale, Secure Trust Bank Real Estate Finance recently funded the construction of six new homes, built using modern methods of construction, at Lodge Farm, Chalfont St Giles, by MEG Developments.

The bank also provided a £2.95 million refinance loan to a client in West Yorkshire, secured against 22 houses and 11 apartments in Normanton. The recently completed homes were built using MMC, including structural insulated panels (SIPs).

Secure Trust Bank's forward-thinking approach to innovation and lending means we will finance housing developments built using MMC and we were pleased to be able to support this new customer.

However, if we want to encourage more SME developers to build homes using MMC, the availability of finance on a wider scale is something that needs to be looked at. The UK is facing unprecedented housing challenges and whilst MMC may not be the answer to all the issues, used alongside traditional methods it will help meet the increasing need. If you're a housebuilder looking to secure finance for a development using modern methods of construction, Secure Trust Bank Real Estate Finance can help.

References:

[1] Spotlight: Modern Methods of Construction (savills.co.uk)

[2] Solve housing crisis without risking further climate damage, warns Sir David King - (infrastructure-intelligence.com

[3] Modern Methods of Construction (rics.org) [PDF]

[4] Developers chosen for pilot scheme to build 160 homes faster in new Milton Keynes estate (mkfm.com)

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