Is the writing on the prefabricated wall for modular?

Has modular’s moment finally come? That was the question that used to be asked when seemingly breakthrough events occurred such as Legal & General’s opening of its 550,000 sq ft modular factory in Selby, North Yorkshire, in 2016.

Now, following the news L&G Modular Homes (LGMH) is to stop production at the plant after reportedly racking up pre-tax losses of £174m over the years, the better question might be: Has modular’s moment come and gone? Or perhaps more apt still is the question asked repeatedly in the very early days of modular: Will its moment ever come?

I’m not convinced it will – not at scale, anyway. L&G admitted this week that it had “not been able to secure the necessary scale of pipeline” to hit its target of 3,500 homes a year, blaming planning delays and macro-economic factors such as Covid.

It also cited “significant running costs” and those costs have obviously escalated in recent years, but even before they started soaring, the plant was dogged with problems. Indeed, rumours of difficulties have circulated pretty much ever since it opened.

Few would dispute that L&G has made some serious strategic missteps. One, arguably, is that it located the factory in Yorkshire, miles from major areas of housing demand let alone the urban locations more suited to modular schemes. Another is that it focused solely on family homes rather than apartments, meaning there was no potential for build-to-rent or student accommodation.

Maybe its biggest mistake, though, is that it thought it could keep making significant losses, year after year, without L&G shareholders minding. The business only started to generate revenue in 2021 – and not at a rate that was going to make the business profitable any time soon.

For most, news of the closure comes as no surprise. As one industry observer put it: “Basically, it was really badly thought through and a shambles from the get-go. It was doomed from the start.”

Back in 2016, L&G lent credibility to what was still a nascent sector. Its withdrawal just seven years later, with the potential loss of more than 450 jobs, is a major blow for modular construction and will reignite debate over the viability of modular housing at scale, especially after the collapse last May of Urban Splash’s modular joint venture with Japanese company Sekisui and Homes England, with administrators blaming “operational issues” at its Alfreton factory.

You have to wonder how the news of the Selby plant’s closure went down with the shareholders of another would-be scale player, TopHat, just weeks after it was announced that they had pumped a further £70m into a business reportedly at least two years away from making any money (and that has had more than £300m invested in it in the past 18 months, 25 times its turnover).

While chair of the LGMH board Bill Hughes said it would “retain a select workforce to ensure high quality delivery and aftercare services for our existing customers”, the factory’s closure raises questions over the future of LGMH’s five-year joint venture with VIVID to deliver more than 1,000 sustainable and affordable modular homes, announced in December.

It also casts doubt over the future of modular. For now, the likes of TopHat and ilke Homes continue to plough ahead. The sector also has the government’s backing. The question is: how long will it continue to have shareholders’?

If it is true that modular is only viable at scale – and many argue it is – the writing could be on the prefabricated wall for the whole sector.