These factory-made homes the size of a London Underground carriage could help fix London's housing crisis

Exterior photo of Pocket's Sail Street SE11 developmentPocket LivingExterior photo of Pocket’s Sail Street SE11 development

LONDON — A once-popular trend is back in fashion: modular homes.

Once known as “prefabs,” these apartments represent a radical departure from conventional brick-and-mortar building.

Each apartment is constructed in a UK factory, shipped to site by lorry, then assembled in around twenty weeks — less than half the time it takes to build a traditional development.

Modular homes are not new in the UK. They had a heyday in the 1960s but fell out of favour, with a reputation for poor build quality and ugliness. Just 2,000 a year are built in the capital now.

But offsite manufacturing has come on a long way since then, and the Greater London Authority — which has oversight for land planning — thinks it could be a solution to London’s housing crisis, with a report in August touting modular homes as a “way to close the gap” between supply and demand in the capital.

The report’s author Nicky Gayron said modular homes had important benefits over traditional ones.

“These buildings are high quality and outstanding in terms of performance,” she said.

“Their construction is more environmentally-friendly than traditional construction methods and they are a far cry from their prefabricated predecessors.”

Innovative solutions are badly needed. The GLA estimates that London needs 50,000 homes built a year just to sustain population growth, less than half of what’s currently built. But are modular homes the answer?

Pocket Living

Housing developer Pocket Living is leading the modular charge, having recently secured a £150 million loan from the London Mayor’s office, the government, and Lloyds bank to provide 1,000 London homes by 2021.

To their cheerleaders, modular apartments Pocket’s — which currently account for about 35% of the firm’s construction output — could be an important fix for a London market marred by decades of runaway price growth. To qualify to buy a Pocket home, owners must be first-time buyers, earn less than £90,000, and already work or live in the same borough.

Low construction costs and their small size mean they are classed as “affordable,” too, capped at 80% of the average market price in a given borough.

Living room in Pocket's Sail Street SE11 developmentPocket LivingLiving room in Pocket’s Sail Street SE11 development

To their detractors, so-called “micro-homes” are the last thing London needs. Writing in the Guardian last week, sociologist Lisa Mckenzie said Pocket Homes were unaffordable for most, as a price tag of £350,000 to £400,000 means a person would need that £90,000 income just to secure a mortgage.

Pocket’s sales director Lucian Smithers says this is not the case. He says the average income of a Pocket owner is £42,000 — slightly above the London average and the average buyer age a relatively low 32.

“We didn’t get into business to sell to people who are earning £85,000 a year,” he said.

“It’s a combination of what consumers want, and can afford, along with the protections that belong to the affordable housing sector,” he told Business Insider.

And what about their size? One-bedroom apartments measure just 38 square metres, roughly the size of a London tube carriage. Do people really want to live in a space that size?

The answer appears to be a resounding yes: 35,000 Londoners are currently on the waiting list for a Pocket home.

Smithers said the debate around space is familiar. “A lot of the demand for smaller housing is looked at as historical shrinkage of household sales, and the implication is a fall in quality: a fall in quality of product and quality of life,” he said.

“But a few things are left out of that debate. The drive towards the city as a cultural and business hub has increased since the millenium. With that has come a big shift in the way 20- and 30-somethings live.

“They’re more transient, and typically live in very insecure, expensive rental accommodation. They are children of the internet. They have everything in the cloud. They read books on the Kindle and their music is stored on their laptops.

“They want to be proximate to the cultural hubs of the city, and they want to live in the city: Not have a garden, a large balcony, or a flat that drains their lifestyle in cost,” he said.

“The debate around space is a very difficult one and it’s very fraught, but I hope we can have a more nuanced debate around space and the benefits of allowing one-person households to form,” he says.

The main advantage of modular construction, Smithers says, is the speed of on-site construction.

“There aren’t many small- and medium-sized developers out there, and getting your capital out so you can recycle it as quickly as possible is critical,” he says.

“Shaving a third off construction time is incredibly useful.”

He has an interesting theory as to why the government is so interested in modular housing.

“It’s well-documented that [post-Brexit labour shortages] are a major concern,” he said.

“The government’s very interested in modular housing because it can spread the load in terms of bringing in factories outside the south-east of England to ones that are in the Midlands and the North.”

In theory, spreading labour outside the south-east — where the majority of construction workers are European — could reduce the impact of labour shortages.

But Smithers warns that may not solve the problem. “Our experience is that labour in the factories [outside the south-east] is still predominantly European,” he says.

Unlocking London’s airspace

Another developer making inroads in the modular sector is Apex Housing. Its business model is rather startling: it builds homes on top of existing ones. Ideally, the roof of the existing building is flat, but pitched roofs aren’t a problem either.

Apex simply removes the pitched roof, installs an extra layer of housing, and puts the roof back on.

Val Bagnall, Apex’s business development director, told Business Insider that the firm has identified £54 billion of development potential on London’s roofs, both on top of retail spaces and privately owned residential buildings.

Business Insider sat down with Val Bagnall, Apex’s business development director, at property conference Resi Conf last week.

“People are still unaware of the value that sits above them,” he said. “We’re trying to unlock the market.”

Apex’s pitch to the freeholder is roughly the same as a conventional development: the firm offers around 25% or 30% of the total sales value of the resulting units.

It is also in talks with Tesco to develop on the flat roofs of the supermarket’s buildings. Bagnall believes Tesco’s London roofs alone could have £400 million of development potential.

Apex has built only built two single units to date, but earlier this year signed a deal to build 28 flats above a building in Southwark, 11 of which will be “affordable.” Watch this space.

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