Modular housing manufacturer’s exec says planning is a major hurdle but remains upbeat on the business.
‘With the housing crisis we are experiencing, it is clear that what we have been doing for the past 20 years is not the solution,’ says Andrew Shepherd, managing director at modular housing pioneer TopHat. ‘We think modular housing construction is.’
Shepherd is taking the interview only a couple of weeks after Tophat announced it had secured £70 mln (€80 mln) from new shareholders, FTSE-100 house builder Persimmon and institutional investor Aviva, through its Aviva Capital Partners unit, as well as from existing shareholder Goldman Sachs Asset Management.
The new funding round will help finance the opening of Europe’s largest modular housing factory next year. The new 650,000 ft2 TopHat facility in Corby, Northampton, is expected to support the manufacturing of up to 4,000 ultra low-carbon homes a year and is planned to begin production in 2024. The company already has a factory in Derby capable of turning out 800 homes per annum. ‘The new factory will represent an improvement in the production process and an increase in automation. It will help address the country’s chronic housing shortage which is exacerbated by a diminishing construction workforce and increasing population,’ comments Shepherd. ‘We need to be more productive. We also need to make more sustainable homes, which is something that requires a different mentality.’
Shepherd claims modular housing development is more sustainable than traditional construction. This so-called modern method of construction reduces waste drastically compared to the average construction site, it results in less travel time and it is said to involve far less embodied carbon than traditional construction, he notes. ‘The buildings created in our controlled factory environment use different materials and are far lighter than a traditional building. Therefore they also require less concrete in the ground.’
TopHat’s houses are made with a so-called smart 3D printed brick which, the producer argues, is far lighter than a normal brick, has a much lower carbon intensity and can be installed very quickly in the factory. ‘This is a brilliant product and is one of the innovative elements that were compelling for our new investors,’ Shepherd explains. ‘We are also looking at robotics for our new factory. This means that while we are still going to need 1,000 people in our new manufacturing site, the productivity and output will be much higher because of process automation.’
A continuous order flow is however required for the business to be cost-effective, which is something hampered by long planning delays. ‘Our number one hurdle is planning at the moment,’ says Shepherd. ‘One of the key challenges is keeping continuity in the factory, where it is important that you get to scale very quickly.’
The firm has a varied customer base, ranging from housing associations and local authorities; institutional investors and social impact funds; as well as property developers. Shepherd: ‘You need certainty about planning permission and that is something that is not happening at the moment.’
Long planning delays are the main reason cited by Legal & General for the decision to quit modular housing production. The firm said in early May that it is shutting its house building factory in Sherburn, Yorkshire, and quitting the prefab market. L&G said the business had a ‘significant fixed cost base’, and it needed a strong and predictable site pipeline to make sense.
Profitability so far has proved difficult also for TopHat. TopHat’s main shareholder Goldman Sachs has pumped £140 mln into the business since taking a stake in 2019, but the firm has yet to make a profit. It recorded a £5 mln loss in 2021 and a further £19.4 mln loss last year. TopHat expects to be profit-making by 2025.
‘It is disappointing to see what happened to L&G from an industry perspective,’ TopHat’s Shepherd says, commenting on the L&G move. ‘We want the industry to be thriving, but there are different business models and approaches to it. We are very focused on our three different customer areas - housing associations, institutional investors and property developers. We are committed to our new factory and we are reinvesting in the business - we just need to push through.’