Legal and General Modular Homes – Written evidence (OMC0062)

Letter from Rosie Toogood, CEO

Thank you for your invitation to appear before the Committee to explain the work my team has been doing to deliver high quality, beautifully designed and affordable homes. We have so far invested more than £50m in our new manufacturing site in Sherburn, North Yorkshire. My team’s current focus is creating homes that can address the crisis in social and affordable housing. Without subsidy, we are proud to be proactively investing in the regions of the UK.

Established in 1836, Legal & General is one of the UK’s leading financial services groups and a major global investor with a number of growing businesses in the US. Around fifteen million people worldwide rely on us to help them save for the future and to protect their families and their homes. We have made a commitment to investing in UK infrastructure, including urban regeneration, housing (including the private rental sector), clean energy, care homes and hospitals and we have already made over £14 billion of these direct investments.

Legal & General is determined to disrupt the supply side of the housing market so that generation-rent can have the opportunity their parents had; so that people in need of social housing can access it and so that older people can choose the right kind of housing for them.

Legal & General’s housing strategy will deliver a supply-side boost across all types and tenures. We are creating ‘build-to-rent’, properties all over the country including sites in Walthamstow and Salford. We are also committed to building a new generation of student housing; our sites include Imperial College, University of the Arts London, Southampton University and Greenwich University, Aberystwyth University and Newcastle University.

We are, in addition, creating new urban communities. For example, Cardiff “Central Square”: is one of the largest regeneration sites of its type to be announced within the UK and will ultimately transform a tired and underutilized 12 acre site to provide over 1.4m sq ft of prime mixed use space and a total Gross Development Value of £450m.

Finally, L&G is also investing in later living. For example, we have forward funded and purchased five high quality care homes in Suffolk with Care UK for £31m and completed the acquisition of 13 care homes let to Methodist Homes, a leading care home provider, for a total of just over £70m.

Social and affordable housing is hard-wired into our housing strategy: we are working hard to increase the number of homes in this sector by providing funding and modular homes. In terms of

funding Legal & General is originating and underwriting loans for the social housing sector. For example, we have offered a £50m, 40 year loan to Chorley Community Housing Ltd (CCH) to fund a pipeline of 814 new homes over the next three years in the North West of England.

Creating modern, quality and good-value Modular Homes for social and affordable need is a key part of our overall strategy. At the heart of the business is the 550,000 sq.ft. modular factory in Leeds (the largest in Europe). The Sherburn site will industrialise volume housing supply with a focus on affordable and social housing.

We are currently moving into the production phase of our work in Sherburn. Over the few months we will see the first two, three and four-bedroom houses become available and in the medium term we hope to be able to deliver mid and high-rise homes.

We are pleased to contribute to the Committee’s important inquiry; please find below our response to the inquiry. We would be delighted to host any of the Committee members or staff at our site in Sherburn, Yorkshire.

26 April 2018

Legal and General Consultation Response:

Modular Housing offers a great opportunity to address the social housing crisis

Our vision at L&G Modular Homes is straight forward and ambitious; we are focussed on: “Making the Housing Market Fairer for All.” As a group L&G is investing billions of pounds in all types and all tenures of home. Modular homes of the highest quality and standards are a key part of achieving our vision. Our initial focus is on providing social and affordable housing of the highest quality; best modern-design and great value.

1.1 L&G Modular Homes has invested more than £50m to create a design and manufacturing eco-system capable of building affordable homes at scale and pace.  Our combination of technology, skilled staff and great materials means that quality is built in and time spent on site reduced.  Our industrialisation approach adopts standardised and lean manufacturing techniques that ensure scalability and productivity.

Advantages of offsite manufacture

2.1 UK Construction productivity has barely improved since 1997. Offsite manufacture can, at scale, deliver significant benefits to developers and the residents. Offsite manufacture and assembly is significantly faster than traditional construction techniques.  A L&G modular house can go from module delivery to ‘ready for occupancy’ in circa 10 weeks.

2.2 A further key issue in the delivery of new housing units is the time lag between planning permission being granted and homes being built. To date more than 33% of all housing permissions given since 2010 are yet to be built.  This is a major constraint that can be unlocked by adopting offsite solutions and enabling ‘new players’ to invest in capacity and innovative solutions.

2.3 Offsite techniques rely far less on the existing traditional skilled trades and artisan techniques of the building industry. Whilst the UK construction industry requires more than 46,000 additional skilled trades people per annum against a trend that is shrinking & ageing, offsite manufacture will create a new generation of multi-skilled employees who can work in an innovative ‘modern manufacturing’ environment based on a digital platform.

2.52 L&G Modular Homes also offer considerable benefits to their occupants. Our manufacturing system adopts a ‘fabric first’ approach that optimises building fabric efficiency and has the potential to significantly reduce running costs to heat and cool homes. 

Barriers to early adoption of off-site

3.1 The offsite industry has largely been fragmented; populated by small and medium sized businesses.  Many of these businesses may not have the financial strength that clients and developers would require within their supply chain to make a significant shift towards off-site methods of construction.

3.2 Until recently the sector has simply not had the scale to deliver the kind of volume needed to address the housing crisis. We are addressing this at our Sherburn site which will be capable of producing 3,500 homes per year.

Government & Sector Actions

Modular housing provides a great opportunity to add modern, affordable and high-quality supply into the housing market. At L&G we are determined that the modular homes market supplies its customers with the best in design; quality; value and finish.

We are proud that our manufacturing site, and the brand-new technologies and skills within it, have been delivered without a subsidy. Disrupting the existing market to this extent is a real responsibility and our investment, more than £50m so far, testifies to the strength of our commitment.

Our initial focus is on delivering great affordable housing; achieving this naturally means working alongside public housing providers. We have suggested below a set of recommendations we believe will help to establish the modular housing market:

7.1: Pipeline. To achieve efficiency and yield it is important to have a smooth and aggregated demand. Public & private sector clients that wish to adopt off-site solutions should work towards creating validated long-term demand pipeline visibility.  Then off-site manufacturers can invest in capacity with confidence and make their manufacturing assets viable.

7.2: Smart Contracts. We need industry forms of contract that establish a new set of rules and disciplines commensurate with the requirements for off-site project solutions that will allow mass production to serve well the design, procurement, construction and operation of our future housing supply.

7.3: Design Codes of Practice. All key stakeholders involved in delivering our future housing stock should support the development of a manufacturing housing design code of practice; re-working traditional design practice in a way that will animate alternative solutions from the off-site supply chain.  Developing a code that recognises the key considerations of a DfMA (Design for Manufacture & Assembly) approach would allow the market to respond in new and innovative ways.

7.4: Digital connections. Public & private sector client leadership in establishing a collaborative digital platform for delivery will also support the accelerated adoption of off-site solutions.  If client, designer, constructor and manufacturer can be SMART connected, then collaboration will thrive and the adoption of a production manufacturing led approach will be enhanced.  Building on the DfMA overlay to RIBA Plan of Works should be considered. 

7.5: Skills. The need for new skills and a multi-skilled workforce must be recognised throughout our industry and suitably accommodated.  The CITB should consider new courses and apprentice programmes that focus on manufacture, assembly and logistics.  We believe that this will help to attract talent and diversity to the industry.

As well as the work the sector itself can do we also believe that there is a crucial role for local and central government to play in delivering a bigger and better modular housing market.

8.1: Public Sector Procurement. The Government should introduce funding streams and procurement policies that will further stimulate earlier adoption of off-site technology.  Funding streams that ‘stick to the asset’ and can be accessed through the supply chain should be promoted and embedded in public sector procurement.

8.2: Long-term Strategic Relationships. In terms of the construction sector deal, we would encourage further development of the key principles set out the ‘Construction Leadership Council- Innovation in Buildings Workstream’ paper (Kings College London -September 2017), a model form for building long term strategic relationships using FAC-1.

8.3: Innovation Hub. We would support the CLC’s recommendation to establish a more innovative industry through the creation of an Innovation Hub. Such an organisation can be focussed on the residential sector (similar in principle to the Manufacturing Technology Centre in Anstey and the AMRC (Advanced Manufacturing Research Centre) in Sheffield). With this focus an Innovation Hub would have the potential to accelerate our capability to establish a digitally-enabled modular construction environment that embraces high volume production platforms (standard designs and components manufactured off-site/near-site and assembled on-site). Such a hub could also support the development of evidence-based cost/benefit analysis, as well as support future skills & training development. R&D in our sector is traditionally diversified and dislocated.  The Innovation Hub would make R&D Innovation shared and collaborative with a strong leadership focus (similar to what the aerospace and automotive industries have already achieved), a centre of excellence & collaboration.

8.4: Collaboration first. Currently, business models within the sector seek to minimise risk, are adversarial and based around projects. We need more than longer term and more co-operative collaborations.

26 April 2018