Why Housing Units Made in a Factory Are Inherently Unsuitable for Use by a British Speculative Builder

Legal & General, Goldman Sachs-backed TopHat, ilke Homes, House by Urban Splash — they all arrived with the same pitch: factories are faster, more precise and less exposed to skills shortages than a muddy plot in the rain.

Every single one of them has now gone the same way, writing off hundreds of millions of pounds in the process after closing its production line.

This is not a string of unrelated management failures. It is the predictable result of trying to graft regular factory production output onto a housebuilding model that was designed, deliberately, to only provide the number of houses at a rate that allowed every unit to be sold at a profit.

What is MMC?

Volumetric and panelised “modern methods of construction” (MMC) are, at heart, manufacturing businesses. Like any factory, they only make money if a continuous stream of standardised units flows down the line at high, predictable volume, spreading a large fixed cost — the building, the plant, the workforce — over as many units as possible.

The entire skill of the speculative housebuilder lies in timing: buying land cheaply, waiting, and releasing homes for sale only as fast as the market will take them at the target price — no faster.

Sir Oliver Letwin’s 2018 government review of build-out rates put a number on how slowly that release actually happens. Across 15 of the largest permissioned sites in England, the median build-out period was 15.5 years, equivalent to just 6.5% of a site being completed per year (Independent Review of Build Out, Final Report). Letwin found this was not landbanking for its own sake, but a rational response to the “market absorption rate” — homes are built at the rate the developer believes they can be sold at the target price without flooding the local second-hand market with identical stock (UK Parliament written statement). Deliberately building slower than you could is not a flaw in the British model — it is the model.

This is precisely the opposite of what a factory needs. A production line producing 3,500 or 4,800 homes a year cannot survive on the trickle of orders that a single site’s absorption rate allows; it needs a large, steady, forward-committed pipeline drawn from many sites and many customers simultaneously, running to a schedule fixed months in advance. Speculative developers, by contrast, need the ability to speed up, slow down or stop altogether at short notice, without financial penalty, in response to sale prices they cannot predict when they buy the land.

Every attempt to bring factory production to UK building has collapsed at the point where flexibility was needed most

This is not a theoretical mismatch — it has now been tested repeatedly, and it has failed every time.

• ilke Homes entered administration in June 2023 owing roughly £320m, including £68.7m to the government agency Homes England (of which only a fraction was ultimately recovered). Administrators cited “volatile macro-economic conditions and issues with the planning system” that “complicate fundraising and housing delivery” — precisely the unpredictability speculative building is designed to absorb, but which a factory cannot (Construction News; Wikipedia summary of administrators’ findings).
• Legal & General Modular Homes closed its 550,000 sq ft Sherburn-in-Elmet factory in 2023 after eight years and roughly £279m–£359m of accumulated losses, saying bluntly that it had “not been able to secure the necessary scale of pipeline to make the current model work,” and that “without this pipeline, it has not proved possible to build a business that can sustain the significant running costs of the large factory” (Housing Today; Inside Housing).
• TopHat, backed by Goldman Sachs and a £15m Homes England loan, scrapped a planned Corby factory that would have taken its capacity from 800 to 4,800 units a year, then shut its original Derby plant and ceased trading in November 2024, having never turned a profit and having seen housebuilder Persimmon write off a £25m investment in the business (Planning, Building & Construction Today; Built Offsite).
• House by Urban Splash, a joint venture with Japanese housebuilder Sekisui House and Homes England, went into administration in 2022, and smaller volumetric players including Caledonian Modular, Eco Modular Buildings and Mid Group have failed alongside them — so many that the NHBC has taken losses on its own modular warranty scheme covering the insolvent firms (Construction News).

The pattern is identical every time: a large, fixed factory cost that must be run at scale to be viable, and a housing market that — by the deliberate design of the speculative model it was built to serve — refuses to supply that scale on a predictable schedule.

The Builders Traditional Cash Flow model does not work with MMC

Traditional speculative building finance works by matching money to visible, staged progress: a lender advances funds against the value of land plus the physical work completed on it, drawn down in tranches as the site rises out of the ground. That structure lets both developer and lender stop, slow or restructure a scheme at almost any stage without an irrecoverable loss.

Factory production breaks that link. In a volumetric project, often 40–60% of the total build cost is incurred inside the factory before a single module reaches the site — value that is not secured by the lender’s charge over the land, because the modules physically sit somewhere else entirely. If the manufacturer becomes insolvent while units are mid-build, the developer can lose the deposit-paid value with nothing to show for it on site (Construction Capital, Modular Construction Finance Guide). Lenders have responded exactly as you would expect: many decline to fund modular schemes at all, or impose lower leverage, higher rates and larger equity requirements, precisely because “offsite housing provides inadequate security to charge against” (Trowers & Hamlins, Funding Barriers to Offsite Housing). A speculative developer’s central skill — turning land into cash through staged, securable finance — simply does not translate to a factory order book.

Building Valuation

The entire point of speculative building is that the finished home is a completely standard, fully fungible asset that can be sold to any buyer, financed by any high-street mortgage lender, both on day one and every time it changes hands over the following sixty-plus years. That universal, unquestioned liquidity is what allows the model to work at scale.

Factory-built homes still don’t fully have it. Building societies themselves acknowledge that “properties built with modern methods of construction are somewhat of an unknown quantity and raise issues of durability, adaptability… [and] saleability,” and that some lenders default to lending only on traditional builds or apply extra due diligence to MMC (Building Societies Association, written evidence to Parliament). Non-standard construction mortgages routinely carry lower maximum loan-to-value ratios (75–85% versus up to 95% for a traditional brick-and-block home) and require larger deposits (Mortgage One Finance, Non-Standard Construction Mortgages Guide). The whole reason the Buildoffsite Property Assurance Scheme (BOPAS) exists — developed with the Council of Mortgage Lenders specifically to reassure funders that a factory-built home will still be “readily saleable” after sixty years or two mortgage terms — is that this assurance does not come as standard the way it does with masonry construction (BOPAS; Buildoffsite BOPAS brochure). And when a manufacturer goes bust, that accreditation is only as good as who is left to honour the warranty — which is exactly what has been straining the NHBC’s Buildmark scheme as one volumetric firm after another has failed.

None of this makes a factory-built home unsellable. It makes it a narrower, more conditional product than the completely generic, universally mortgageable asset that speculative housebuilding depends on selling in bulk, to strangers, indefinitely

When Factories can be Beneficial

Volumetric and panelised systems make excellent sense wherever the client can genuinely offer a factory what it needs to survive: a single, contracted, forward-committed order for hundreds of identical units delivered to a fixed programme — student accommodation, hotels, military housing, or a housing association drawing down a grant-funded, multi-year programme are all closer to that description.

What none of those clients need to do is time their output to an unknowable future resale price in the open market while simultaneously deliberately restricting supply to protect it — which is exactly what a British speculative housebuilder must do, on every site, as a matter of routine business practice.

I can hear some of you thinking – “if the manufacturer has enough capital he can build up his stocks – just like brickmakers do” The problem with this is that he is storing hundreds of cubic metres of air in every unit and they deteriorate if they are not under cover. Furthermore every Speculative Builder will speed up and slow down at the same time because they are in the same market place.

That is the underlying incompatibility. It isn’t that factories build worse houses, or that speculative developers are too conservative to adopt them. It is that the two models optimise for opposite things: the factory needs certainty, scale and continuous throughput to make its fixed costs pay; the speculative housebuilder’s entire commercial logic is built around retaining the freedom to withhold, delay and drip-feed supply. Every attempt to force the two together in Britain has ended the same way — with a very large factory, a very large loss, and a housing market that carried on being built, as it always has been, out of bricklayers, subcontractors and wet trades who can be stood down on a Friday without anybody writing off a manufacturing plant!!!!