Making a housebuilding splash

Originally posted on insidehousing.co.uk on May 14.

The entry into the UK market of an overseas company that last year built almost as many homes as Barratt, Taylor Wimpey and Persimmon combined is by any standards a big deal.

That’s even before you add what looks like a major step forward for modular building in the UK and one of the most eye-catching individual investments yet by the self-styled disruptors at Homes England.

The £90m deal involves Sekisui House, the biggest housebuilder in Japan, taking a 35% equity stake in Urban Splash’s modular House business. The Manchester-based developer will retain 60% with Noel McKee, one of its existing investors and founder of We Buy Any Car, taking what’s described as an incremental 5% stake

Homes England will take a 5% stake worth just over £3m in the company and will also be providing a £27m loan from its £4.5bn Home Building Fund.

Sekisui House built almost 44,000 new homes last year, almost 5% of all those built in Japan, where new build numbers and demolitions alike are much higher than in the UK.

Its business has been based on prefabrication since it was founded in 1960 and it has a housebuilding research and development institute focussed on innovation at its headquarters in Osaka.

More recently it has expanded into in Australia, the US, Singapore and China and it also claims to be the world’s leading builder of net zero energy homes.

On the face of it, the deal satisfies a range of aspirations for the different partners. Urban Splash gets a partner it says has ‘unrivalled global experience in modular construction’ and shares its values; Sekisui House get a way in to the UK market for its technology; Homes England gets a boost for modern methods of construction and an expansion of choice in the housebuilding market; and housing minister Kit Malthouse gets another chance to trumpet his #MoreBetterFaster message.

This morning’s press release promised ‘thousands of new homes across England’ and the plans involve expanding production from 200 to 2,000 homes a year from its factory in Alfreton in Derbyshire financed by the new investment. Sekisui will be an active partner and has already opened an office in London.

Urban Splash made its name in design-led regeneration of industrial buildings but has moved into property development and housebuilding. It has a joint venture partnership with Places for People and also owns a significant portfolio of rental property,

The company’s significant move into modular came with the launch of House, first at New Islington in Manchester, followed by further schemes in Salford, Birmingham and North Shields and the acquisition of the Alfreton factory last year.

The original sales were relatively upmarket but a new FAB range designed by architect George Clarke are more aimed at first-time buyers.

A feature of both House and much of Sekisui’s output in Japan is that they allow buyers the chance to customise their home as they want it.

That in itself is a major departure from the traditional model for housebuilding in this country – add the modern methods of construction that UK housebuilders are seen as slow in adopting and you have the potential for the disruption that Homes England is so enthusiastic about.

However, if the attractions of the deal for Urban Splash (finance for expansion) and Sekisui (a way in to a new market) are obvious, those for the government and its ‘housing accelerator’ are more nebulous.

It certainly offers the prospect of more homes of a better quality that can be built faster but that begs a few questions about that 300,000 new homes target and the results that can be expected from it.

Most of all, perhaps, it shows the evolving nature of state involvement in the housebuilding industry.

Homes England was created last year out of the Homes and Communities Agency (HCA), itself created by Labour in 2007 by merging the Housing Corporation and English Partnerships

The former had its roots in 1960s Labour corporatism and the latter in Michael Heseltine’s 1980s brand of Conservative interventionism.

The HCA went on to play a significant role in rescuing the housebuilding industry from the post-2008 crash but its core functions were administering investment in and regulating social housing.

Homes England is the creation of a Conservative-led government that wanted to marketise social housing, it is no longer the regulator and it is much more focussed on the private sector.

Yet ironically it is now intervening far more directly in private sector housebuilding than its predecessor agencies via Help to Buy, loans, guarantees and (as in this deal) equity stakes in companies.

Today’s deal is perhaps the most tangible result of all that focus on innovation so far and in combination with Urban Splash’s focus on design and Sekisui’s on technology it may produce impressive results – even if established housebuilders will tell you that planning and land count too.

And what about price? The word ‘affordable’ does not appear in today’s press release. If it is to be more than just a trendy buzzword, disruption has to be about changing a market in which homes cost too much to buy or rent for far too many people.

Supply alone, even when accompanied by new methods of construction, will not do that.