A couple of weeks ago, I read the news that modular construction startup, Modulous, had started the process to go into administration. Back in November last year, it appears investors pulled funds at the eleventh hour, causing the company’s round to fall apart and runway to fall off a cliff.
This was unfortunately not unusual in 2023, when venture capitalists were nursing their 0% interest rate hangover and the thought of investing in more high risk startups made them feel a bit queasy. For modular startups, the whole year was a punch in the face.
First, we said goodbye to the modular homes business division of L&G, which halted production in May 2023 after racking up over £100m in losses and failing to build up the requisite sales pipeline. Just one month later in June 2023, Ilke Homes was the next to crumble after raising a sizeable £190m over 5 years - £100m of which was raised just 7 months before its collapse. And joining Modulous (coincidence?) in November 2023 was Veev, whose founders only got to ride on their unicorn for around a year before abruptly imploding. Veev raised $600m in capital in total and raised $400m of that just a year and a half before shutting down.
That sort of run rate would give you whiplash, but then you consider that modular construction startups are capex heavy and arguably need to spend that kind of money to get off the ground. And then you remember Fast, the payments software, that blew through £102m in less than a year on sports sponsorships and Chainsmokers concerts and think actually these modular people deserve some slack.
I say this, because modular construction has the potential to transform the efficiency and environmental impact of buildings.
For a quick 101, modular construction involves constructing building sections in a factory setting, and then transporting them to site and slotting everything together. Sort of like Lego. If you have 10 minutes to spare, I recommend watching this and imagining a future where modular construction allows us to literally move cities around inline with the ebb and flow of communities.
From a sustainability point of view, because modular is far more predictable, standardised and controlled, every screw can be accounted for which means that waste is minimised. You can also design modular for disassembly and relocation, resulting in circular usage (Legos, remember?).
More importantly, it’s cheaper and faster than traditional construction, largely due to reduced labour costs and Bear-Grylls-like ability to adapt to onsite work challenges, and it’s scalable: any structure with walls and a roof can be built modular.
So, the big question is ‘why’? Why hasn’t modular construction caught on? Despite all of its proven benefits and the promise of living in a literal Lego land, where are all the modular buildings?
I’m not going to say it’s because of a lack of funding, as much as the startups mentioned above would have you believe. One, because, duh, everything could be solved if we had unlimited money. And, two, because there are more challenging blockers to contend with.
Firstly, modular construction has had an image problem that it’s struggled to shake off since the 1960’s. Modular buildings, or prefabricated buildings as they were known back then, were enthusiastically adopted post-war in a shortage of materials and labour. Unfortunately, safety was sacrificed for speed, and prefabs were quickly abandoned, particularly in the UK after an apartment building partially collapsed two months post-construction.
Then there are the two ‘P’s of despair: planning and procurement. In the first instance, UK planning laws are notoriously byzantine, resulting in incredibly long stretches of time to get anything built, and they illogically don’t prioritise sustainable or affordable builds. Procurement compounds the issue. Typically, every stage of construction is open to tender and the cheapest bid tends to win. Because the efficiency gains of modular only start to be realised when the whole building process is modularised, then it appears superficially to be more expensive than traditional construction. Plus, there’s the procurement catch 22 when it comes to new technologies. New equals risk and risk can be expensive, which is like trying to shove the proverbial square peg into the round hole of procurement. It doesn’t fit.
I feel like solving the first issue is easier than the first. In countries like Germany and across Scandinavia, modular homes have a luxury, high-quality brand associated with them and can even go for a premium ("pre-fabulous” needs to catch on here). AirBnB’s Joe Gebbia has already got his mitts over luxury modular with Samara, while Zomes is a Californian-based startup which produces high-end modular pods from low-carbon cement to boot. The pods can live in your back garden as a flexible spare room, or even be attached together to create a full-on Luke Skywalker-esque home.
The two ‘P’s, on the other hand, are whole other beasts. I’ll start with procurement. Given that the procurement process is essentially a decision making process to maximise ROI, it’s actually a really exciting time to be working on solutions for better procurement. Nascent technologies like everyone’s favourite generative AI, along with everyone’s forgotten favourite, blockchain, are finally converging together to make procurement both way more intelligent and way more simple. It’s only a matter of time here before we start seeing some massive companies emerge from this space.
The same unfortunately can’t be said for the second ‘P’. With regards to the UK planning system, clearly less rules and regulation are needed, but nobody seems to know how to make it happen, and professionals in the construction industry are slowly losing their minds.
The only case study I could find on countries that had managed to reform their planning laws for the better was the Netherlands. Admittedly, I didn’t spend too long researching, because, I’m sorry, I just couldn’t muster the energy to read through planning reform research, but if anyone has heard of any compelling stories of governments overcoming this, I’d be keen to know.
Thanks for reading!
🗞 News Roundup
⛈️ PwC has said that home insurance could increase by up to 20% next year as a result of more extreme weather events. Storm Henk in early January cost insurers £150m and damaged ~2000 homes.
🏠 The Future Homes Standard, the incoming net zero regulation for all new UK homes, has been proven to be feasible at scale.
🏴 It’s been a record year for installing solar panels and heat pumps in Scotland. Gaun Yersel!
💸 In keeping with the Scots, there’s been two big rounds for solar and heat pumps respectively: €30m for Soly in the Netherlands and €145m for Aira in Sweden