6th Floor 1 Minster Court Mincing Lane London EC3R 7AA~~-IBC NHBC

Tel 0207 648 4077 wwwnhbccouk Raising Standards Protecting Homeowners

Clive Betts MP House of Commons London SW1A OAA

21 December 2016

Re Meeting follow-up

It was good to meet you in Parliament last month As promised I am writing with supplementary information about NHBCs role in supporting the industry to raise the standards of new homes including those built using modern methods of construction (MMC) It may also be useful to read more about a recent APPG study on the quality of new homes and warranty issues

NHBCs role and experience with MMC

Approximately 30 of new homes protected by NHBCs 10-year Build mark warranty have been built with forms of construction other than conventional masonry since 2008 NHBC is keen to play a constructive role in MMC through its technical teams and expertise to develop new ways of building quality new homes to the highest standards To ensure that any new innovation is fit for purpose NHBC

bull carries out a process of rigorous technical assessment in the interests of the manufacturer the builder the mortgage lender and the homeowner

bull contributes its expertise to industry on developing new ways of building quality new homes to the highest standards

bull has sought to normalise innovation by developing new standards and guidance for industry such as guidance within NHBC Standards on curtain walling and cladding and light steel frame construction

I have attached more information about our role and experience with MMC including some useful findings carried out this year by our research arm the NHBC Foundation This research establishes current attitides to MMC amongst the larger house builders and housing associations and identifies some of the barriers to further take-up of MMC

As the UKs leading warranty provider NHBC carried out 798000 inspections in the 201516 financial year focused on specified key stages for each plot This ensures that NHBC inspectors are on site at the times when their independent risk

National House Building Council is a company limited by guarantee registered in England and Wales Registered number 3207B4 NHBC registered office NHBC House Davy Avenue Knowlhill Milton Keynes Buckinghamshire MKS 8FP

NHBC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority llWESTOH E PEOlLli

N~~BC

management function can be most effective In addition NHBC inspectors make a further risk-based initial assessment whereby those sites with a higher level of risk are targeted for extra inspections and the risk assessment is adjusted during construction depending on the standards of work being produced

NHBCs contribution through its standard setting system and consumer protection developed over 80 years is world leading and we remain committed to supporting the industry build high quality new homes NHBC has provided support to the APPG and will continue to support any further work proposed if we can add value in future

I hope this information is useful to your ongoing Select Committee inqury into the capacity in the house-building industry If you would like to discuss our role in promoting quality housing further please dont hesitate to contact me on lsidnicknhbccouk or 020 7648 4077

Yours sincerely

fvvv Lewis Sidnick Director of Corporate amp External Affairs

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Raising standards to protect homeowners

National House Building Council is a company limited by guarantee registered in England and Wales Registered number 320784 NHBC registered office NHBC House Davy Avenue Knowlhill Milton Keynes Buckinghamshire MKS 8FP

NHBC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority INVESTOR IN PEOPLE

Corporate and External Affairs

Briefing Modern methods of construction December 2016

1 Overview

11 As an independent non-profit distributing company NHBCrsquos role is to support the house-building industry to raise the standards of new homes and provide consumer protection for homeowners NHBCrsquos technical teams have decades of experience of working with the industry and NHBC has already provided warranties for a variety of innovative approaches Since 2008 approximately 30 of homes with NHBCrsquos 10-year Buildmark warranty have been built with forms of construction other than lsquoconventionalrsquo masonry

12 Modern methods of construction (MMC) embrace a number of approaches involving off-site manufacture or assembly For the purposes of this briefing MMC will be used to describe the various types of off-site built housing defined by the NHBC Foundation as

volumetric construction - three-dimensional units which are fully fitted out off-site

pods - used in conjunction with another construction method such as bathroom or kitchen pods

panelised systems - panels with timber or light steel framing structural insulated panels or cross-laminated timber

sub-assemblies and components - larger components incorporated into new homes such as roof and floor cassettes prefabricated chimneys porches and dormers and I-beams

site-based MMC - innovative methods of construction used on-site such as thin joint blockwork and insulated formwork 1

2 NHBCrsquos role and experience

21 NHBC was established in 1936 to tackle sub-standard building practices when the UK embarked on a large-scale house-building programme and when homeownership more than doubled from 10 in 1914 to 25 in 1939 Today NHBC is the leading warranty and insurance provider for new homes in the UK covering 80 of the new build housing market and providing consumer protection for over 16 million homebuyers Since 2008 approximately 30 of homes with NHBCrsquos 10-year Buildmark warranty have been built with forms of construction other than lsquoconventionalrsquo masonry

22 NHBCrsquos Buildmark warranty has primarily been designed to protect the owners of new homes from major defects that result from inadequate design or construction However the first line of consumer protection is provided by NHBCrsquos technical rigour in the assessment of design and construction and the warranty provides a means of recourse should problems occur

1 NHBC Foundation publication NF70 - Modern methods of construction views from the industry 2nd

June 2016

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Corporate and External Affairs

23 In order to ensure that any new innovation is fit for purpose NHBC

carries out a process of rigorous technical assessment in the interests of all concerned including the manufacturer the builder the mortgage lender and the homeowner

contributes its expertise to industry on developing new ways of building quality new homes to the highest standards

over the years has sought to lsquonormalisersquo innovation by developing new standards and guidance for the use of the industry For example there is now guidance within NHBC Standards2 on curtain walling and cladding and light steel frame construction

24 NHBCrsquos technical rigour is equally applicable to lsquoconventionalrsquo or lsquomodernrsquo methods of construction both on and off-site and there is no differential in pricing between the two The general premise being that technical lsquorisksrsquo are managed to an acceptable level in order to ensure the construction of homes that are fit for purpose ndash the Buildmark warranty providing additional protection

25 Experience would suggest that insufficient investment in thorough product development and testing of MMC systems may cause issues with bringing such products to market Factors contributing to this include a lack of certainty in demand a lack of economies of scale and a drive to be competitive on price

26 Whilst it is true to say that non-conventional homes have played an important part in the response to the nationrsquos housing challenges over the past 70 years such responses have not always proved to be successful in providing high quality homes that are fit for purpose and endure the test of time NHBC continues to work with all relevant parties to embrace innovation and ensure that new emerging systems are introduced for the long term benefit of the UK housing stock

There should be investment in thorough product development testing and production facilities to ensure homes built using modern methods of construction (MMC) are fit for the intended purpose

This will help ensure that new emerging systems are introduced for the long-term benefit of the UK housing stock and are readily accepted by home builders insurance providers mortgage providers and the public

3 NHBC Foundation research on MMC

31 MMC has a long history in the UK during the post-war period much use was made of a variety of innovative house-building systems and from time-to-time

2 NHBC Standards 2017

httpwwwnhbccoukBuildersProductsandServicesTechZonenhbcstandardsstandards2017

2 | P a g e 0 2 0 7 6 4 8 4 0 7 7

Corporate and External Affairs

since then there have been surges in interest In June 2016 the NHBC Foundation3 reported industry survey findings to establish current attitudes to MMC amongst the larger house builders and housing associations

32 The NHBC Foundationrsquos report Modern methods of construction views from the industry key findings include

a) The majority of the organisations surveyed have made use of MMC 98 of large and medium-sized house builders and housing associations have used or considered at least one form of MMC in the last 3 years

b) The most widely-adopted form of MMC is sub-assemblies and components with two-thirds having used them for at least one home during 2015 This category includes items such as door sets timber I-beams prefabricated chimneys and prefabricated dormers

c) The second most popular form of MMC is panelised systems (eg timber and steel frame) which was used by 42 of respondents during 2015 for at least one home In the lead was timber frame which according to NHBC registration statistics for 2015 accounts for 15 of UK housing output In Scotland where timber frame is used for three-quarters of new homes it is not regarded as a modern method

d) Only limited use is being made of volumetric construction (large modules fully fitted out on-site) and pods (room-sized modules normally bathrooms or kitchens) with 6 and 7 of organisations having used these methods respectively one or more times in 2015 Use tends to be concentrated in apartment buildings in London and the South East

e) The majority of organisations surveyed consider themselves to be lsquolate adoptersrsquo or lsquofollowersrsquo of volumetric construction pod and panelised forms of MMC watching the success of others before making the decision to move away from conventional cavity masonry construction Only 10 of house builders considered themselves to be lsquomarket leadersrsquo leading innovation

f) One of the key attractions driving the use of MMC is the perceived ability to build more quickly While house builders reported that faster construction is being realised in practice housing associations were less convinced they did however believe that a weathertight envelope was achieved quicker with the use of MMC

g) It was also felt widely that MMC would have a role to play in improving the quality of construction and overcoming current shortages in the availability of skilled labour For those already using MMC these perceived advantages were being realised in practice

3 NHBC Foundation publication NF70 - Modern methods of construction views from the industry 2nd

June 2016

3 | P a g e 0 2 0 7 6 4 8 4 0 7 7

Corporate and External Affairs

h) There is some evidence of MMC potentially leading to a reduction in costs and improved profitability with 44 of house builders and 27 of housing associations pointing to benefits such as reduced preliminary costs improved cash flow and faster sales revenues

i) Most participants expect the role of MMC to grow or remain static over the next 3 years only 3 expected it to decline Over half expected the use of panelised systems in particular to increase during that period Drivers for increased use include overcoming skills shortages faster build increasing output and improving build quality

j) If there is to be greater use of pods and full volumetric construction risks within the supply chain need to be addressed There are concerns about the size quality and capacity of suppliers and their ability to sustain high volume output Other issues include a need to build-in the ability to provide bespoke designs and interiors and overcome the constraints of standardisation the need for an early design freeze and transport logistics

33 To progress the move towards greater use of pods and whole home volumetric construction the perceived barriers need to be overcome and the benefits delivered such that they outweigh the drawbacks reinforcing the case for greater use This issue was debated amongst the NHBC Foundationrsquos focus group participants who identified the following list of key issues preventing or restricting greater use of full volumetric construction (see Figure 1)

Figure 1 Key issues identified for preventing or restricting greater use of full volumetric construction

Risk including The risk factor was raised unprompted at both stages of the lack of suppliers research use of an unknown or unfamiliar approach and the

effect on costs site issues labour requirements and importantly customer attitudes Also the risk of using what are often small suppliers who were described as not understanding the house-building industry

Analogies were draw with countries like Japan where there are several large and experienced companies successfully supplying high volumes of modular homes ndash a more developed supply chain delivering more confidence

Increased cost Described as a main barrier to use some companies find that savings on-site for example resulting from shorter construction duration and health and safety benefits are not taken into account in financial models Others had been unable to achieve significant site savings to counter the higher capital cost in preliminaries for example

Buyer reactions and restriction on bespoke customer options

There is concern about buyer reactions to volumetric construction ndash it may be seen as a lsquocheaprsquo approach with association with lsquoprefabsrsquo although some house builders are describing off-site as providing better quality of construction

4 | P a g e 0 2 0 7 6 4 8 4 0 7 7

Corporate and External Affairs

The opportunity to offer bespoke options to customers is more limited and decisions need to be made earlier on ndash restricting buyer options if an off-plan buyer withdraws from purchase or the home is sold post construction

Requirement for The view was expressed that house types need to be varied to standardisation suit local requirements for planning and marketing purposes

but an expectation that volumetric construction is suited to standardised or repetitive designs There is thought to be a lack of suitable modular options which meet plannersrsquo and customersrsquo expectations

Need for early Designs may need to be changed slightly for a number of design freeze reasons the industry is accustomed to working with some

flexibility in design ndash that volumetric designs must be fixed at an earlier stage is considered by some to be an unwelcome and impractical way of working

Transport logistics

Transporting large units to sites which may be restricted in size and difficult to access and requiring hoisting is seen as adding cost and limiting use

Lack of subcontractor skills

A lack of skills to install volumetric units and a lack of understanding about working with them

34 To be adopted by the industry on a widespread basis the NHBC Foundation found that volumetric construction needs to be seen to be providing benefits for house builders At present other MMC approaches such as panelised systems and sub-assemblies are seen to be enhancing the build process by increasing the speed of construction and improving quality Given the concerns about full volumetric construction (Figure 1) these alternatives are providing solutions sufficient for many house buildersrsquo and housing associationsrsquo needs at present

35 Respondents to the Foundation survey outlined the following suggestions to encourage the use of volumetric construction

dissemination by MMC manufacturers of costbenefit models and best practice case studies

encouraging suppliers to enter the market (some have in fact left it in the last 3 years) and improving their understanding of the house-building sector

finding ways of working with suppliers to overcome industry concerns

grant or subsidy-funded development

improving awareness and understanding of what volumetric construction is amongst potential homebuyers

Whilst many housing providers are involved in the use of lsquoincremental innovationrsquo and MMC there is currently less appetite for the adoption of volumetric or modular forms of construction

5 | P a g e 0 2 0 7 6 4 8 4 0 7 7

Corporate and External Affairs

If there is to be greater use of pods and full volumetric construction risks within the supply chain need to be addressed There are current concerns about the size quality and capacity of suppliers and their ability to sustain high volume output

4 Conclusion

41 In conclusion while it is clear that MMC has an increasing role to play in boosting growth in UK house building the majority of house builders have embraced incremental innovative techniques with few incorporating full volumetric construction

42 To promote MMC off-site construction further risks within the supply chain should be addressed Through its technical teams and expertise NHBC is keen to continue to contribute its expertise to developing new ways of building quality new homes to the highest standards

6 | P a g e 0 2 0 7 6 4 8 4 0 7 7

• Letter to Clive Betts from NHBC_Dec 2016
• Clive Betts MP_NHBC evidence_Dec 16

Corporate and External Affairs

The opportunity to offer bespoke options to customers is more limited and decisions need to be made earlier on ndash restricting buyer options if an off-plan buyer withdraws from purchase or the home is sold post construction

Requirement for The view was expressed that house types need to be varied to standardisation suit local requirements for planning and marketing purposes

but an expectation that volumetric construction is suited to standardised or repetitive designs There is thought to be a lack of suitable modular options which meet plannersrsquo and customersrsquo expectations

Need for early Designs may need to be changed slightly for a number of design freeze reasons the industry is accustomed to working with some

flexibility in design ndash that volumetric designs must be fixed at an earlier stage is considered by some to be an unwelcome and impractical way of working

Transport logistics

Transporting large units to sites which may be restricted in size and difficult to access and requiring hoisting is seen as adding cost and limiting use

Lack of subcontractor skills

A lack of skills to install volumetric units and a lack of understanding about working with them

34 To be adopted by the industry on a widespread basis the NHBC Foundation found that volumetric construction needs to be seen to be providing benefits for house builders At present other MMC approaches such as panelised systems and sub-assemblies are seen to be enhancing the build process by increasing the speed of construction and improving quality Given the concerns about full volumetric construction (Figure 1) these alternatives are providing solutions sufficient for many house buildersrsquo and housing associationsrsquo needs at present

35 Respondents to the Foundation survey outlined the following suggestions to encourage the use of volumetric construction

dissemination by MMC manufacturers of costbenefit models and best practice case studies

encouraging suppliers to enter the market (some have in fact left it in the last 3 years) and improving their understanding of the house-building sector

finding ways of working with suppliers to overcome industry concerns

grant or subsidy-funded development

improving awareness and understanding of what volumetric construction is amongst potential homebuyers

Whilst many housing providers are involved in the use of lsquoincremental innovationrsquo and MMC there is currently less appetite for the adoption of volumetric or modular forms of construction

5 | P a g e 0 2 0 7 6 4 8 4 0 7 7

Corporate and External Affairs

If there is to be greater use of pods and full volumetric construction risks within the supply chain need to be addressed There are current concerns about the size quality and capacity of suppliers and their ability to sustain high volume output

4 Conclusion

41 In conclusion while it is clear that MMC has an increasing role to play in boosting growth in UK house building the majority of house builders have embraced incremental innovative techniques with few incorporating full volumetric construction

42 To promote MMC off-site construction further risks within the supply chain should be addressed Through its technical teams and expertise NHBC is keen to continue to contribute its expertise to developing new ways of building quality new homes to the highest standards

6 | P a g e 0 2 0 7 6 4 8 4 0 7 7

• Letter to Clive Betts from NHBC_Dec 2016
• Clive Betts MP_NHBC evidence_Dec 16

Corporate and External Affairs

If there is to be greater use of pods and full volumetric construction risks within the supply chain need to be addressed There are current concerns about the size quality and capacity of suppliers and their ability to sustain high volume output

4 Conclusion

41 In conclusion while it is clear that MMC has an increasing role to play in boosting growth in UK house building the majority of house builders have embraced incremental innovative techniques with few incorporating full volumetric construction

42 To promote MMC off-site construction further risks within the supply chain should be addressed Through its technical teams and expertise NHBC is keen to continue to contribute its expertise to developing new ways of building quality new homes to the highest standards

6 | P a g e 0 2 0 7 6 4 8 4 0 7 7

• Letter to Clive Betts from NHBC_Dec 2016
• Clive Betts MP_NHBC evidence_Dec 16