UK Modular: The future of housing is in the hands of SMEs

graphical element graphical element
Written by
Lucas Shone
July 2024
July 2024
Share this post

The future of modular housing is in the hands of resilient SMEs

As the modular construction industry in the UK continues to navigate a period of significant upheaval, a new era is beginning to dawn – being referred to quietly at Boutique Modern as “UK Modular 3.0.”

With all the symptoms of the wider construction industry which lead to Mark Farmer’s 2016 report “Modernise or Die” continuing to compound and following the fall of large players like Ilke Homes and Legal & General, this next phase may be characterised by the resurgence of small to medium-sized enterprises (SMEs) as the driving force behind the continued growth in residential modular construction.

Learning From History

The UK modular construction sector’s track record to date is reminiscent of past industrial evolutions. Take the .com boom of the late 1990s, for instance. The internet’s early days saw the rise of numerous ambitious startups, many of which grew rapidly and, as was eventually proved, unsustainably. The inevitable bust in the early 2000s culled these large early entrants, but it also allowed for the emergence of resilient, innovative companies like Amazon and Google. These survivors not only weathered the storm but went on to dominate the industry by leveraging lessons learned during the tumultuous early years.

The solar energy sector offers another instructive parallel. In the early 2000s, the industry saw a surge of large companies entering the market, buoyed by government incentives and growing environmental awareness. However, many of these large players struggled with high costs, overexpansion, and market volatility, leading to a wave of bankruptcies and market exits. In contrast, smaller, more flexible companies like SolarCity (now part of Tesla) and SunPower were able to respond, innovate, reduce costs, and adapt to changing market conditions. These SMEs not only survived but thrived, becoming leaders in the solar energy market and driving significant advancements in technology and affordability.

The current landscape: a parallel in modular construction

Over the past 18 months, the modular construction industry has experienced a comparable shake-up. High-profile exits from the market, such as those I have mentioned, may signal the end of an era dominated by large-scale operations. Reports have shown these companies struggled with high setup costs, market volatility, delays, market uptake, product development and difficulty to respond quickly to new challenges – Despite every one of these organisations being conceptually sound as a viable solution to the problems in UK housing.

However, their departure creates a unique opportunity for SMEs. Smaller firms like Boutique Modern are poised to lead the industry into its next phase — We call it ‘UK Modular 3.0’ — by leveraging their inherent advantages: agility, innovation, local knowledge, track record, and a customer-centric approach.

The advantages of SMEs in modular construction

At Boutique Modern, alongside other industry SMEs, we pride ourselves on utilising cutting-edge modular construction techniques to deliver high-quality, sustainable housing solutions efficiently, whilst maintaining a detailed understanding of our clients’ needs and the needs of our region.

This customer-centric approach fosters stronger relationships and higher satisfaction rates. Furthermore, SMEs are uniquely positioned to understand and adapt to the specific needs of their localities. They can tailor their materials, architectural styles, and employment practices to suit regional characteristics and demands. This regional focus enables SMEs to offer solutions that are not only practical but also culturally and environmentally appropriate, enhancing community acceptance and integration.

SMEs: The luxury to fail faster and fail more often

Matthew Syed’s book “Black Box Thinking”, a favourite at Boutique Modern, emphasises the importance of learning from mistakes and failures to drive progress and innovation. This principle is highly relevant to the evolution of the modular construction industry if it is to realise its potential and be the solution to the industry’s continued problems.

By the nature of our smaller scale, SMEs who have developed a track record of multiple small projects over the past decade have benefited from a shorter feedback loop. This enables smaller companies to learn lessons, refine processes, make changes and reach 1% improvements more quickly compared to larger companies with fewer, larger projects who are forced to learn lessons more slowly, in bigger bites!

This failure-driven approach is scary, and in some cases, lessons learned are painful and expensive! However, this positive attitude to failure is essential and puts the SMEs who have failed the most, and learned the most, over the past decade lessons in the best possible position to take up the mantle for the next phase of development in the industry.

The UK’s housing crisis and the General Election

This general election adds a layer of complexity and urgency to the housing crisis. Political parties are likely to prioritise housing policies, presenting both challenges and opportunities for the construction industry. SMEs in the modular construction sector are well-placed to capitalise on favourable policy changes and increased government support aimed at alleviating the housing shortage.

The opportunity in SME Modular Construction companies

From an investment point of view, some may see the current moment as a prime opportunity to invest in the remaining modular building SMEs. The potential for significant returns on investment is clear:

Little has changed: All the systemic issues highlighted by the 2016 report Modernise or Die are still prevalent, and modular construction as a concept still holds a sustainable long-term solution to many of these problems.

Market demand: The UK still faces a chronic housing shortage, driving demand for innovative and efficient construction solutions. Modular construction still offers another scalable solution to rapidly increase housing supply.

Regulatory support: Government initiatives and policies increasingly favour sustainable and efficient building practices which are essential to the industry’s essential Net Zero targets. SMEs that prioritise sustainability, like Boutique Modern, are well-positioned to benefit from regulatory support.

Proven resilience: SMEs have demonstrated resilience and adaptability in a volatile market, making them attractive investment targets. The success stories of surviving .com companies and the solar energy sector underscore the potential of investing in robust SMEs.

Conclusion: embrace UK Modular 3.0

The dawning of “UK Modular 3.0” represents a pivotal moment in the UK’s modular construction industry. As the market shifts from the dominance of large firms to the rise of innovative SMEs, there is a unique opportunity to support and capitalise on this next wave of growth. Companies like Boutique Modern, @Home, ZedPods, Vision Modular, TopHat, and Project Etopia exemplify the resilience, innovation and customer-centric approach that will define the future of modular construction. By supporting these dynamic firms, stakeholders can continue to drive the industry forward, increase productivity and output, and address the UK’s housing needs with the potential for substantial returns on investment.

Now is the time to embrace the potential of UK Modular 3.0 and invest in the future of construction!