Homebuilding: Measuring Construction Performance REPORT BY THE NATIONAL AUDIT OFFICE | JUNE 2007 Homebuilding: Measuring Construction Performance REPORT BY THE NATIONAL AUDIT OFFICE | JUNE 2007 The National Audit Offi ce study team consisted of: Raymond Fawcett and Howard Revill, under the direction of David Corner. This report can be found on the National Audit Offi ce web site at www.nao.org.uk For further information about the National Audit Offi ce please contact: National Audit Offi ce Press Offi ce 157-197 Buckingham Palace Road Victoria London SW1W 9SP Tel: 020 7798 7400 Email: [email protected] © National Audit Offi ce 2007 CONTENTS SUMMARY 4 APPENDICES FINDINGS 5 1 Performance Indicators 13 Homebuilding is a signifi cant part of the 5 2 Methodology 19 national economy The Government wants homes to be built 6 more quickly and effi ciently Modern Methods of Construction are currently 6 defi ned in terms of particular products and methods The scope for a new defi nition of 7 Modern Methods of Construction The role of the National Audit Offi ce 8 How we examined the scope for a new defi nition 8 We have identifi ed a set of performance 9 indicators which could form a new defi nition The performance indicators are based on 10 existing measures The performance indicators refl ect key 12 stakeholders’ priorities Photograph courtesy of South Somerset Homes SUMMARY 1 This report is about defining Modern Methods of Construction in homebuilding. In particular, it addresses how the Government might move from defining such methods in terms of particular building products and techniques towards a definition in terms of performance and outputs, with the potential to encourage innovation across the whole homebuilding sector, social and private, regardless of construction technique chosen. 2 Our research has drawn on expert knowledge contributed by over 70 key stakeholder organisations active in home building. Wherever possible, we have drawn on existing performance indicators to identify the vital few ones which drive behaviour and so affect the construction of housing. 3 We have identified a set of performance indicators to form a possible new definition of Modern Methods of Construction which reflect key stakeholder priorities (Figure 1). The indicators cover not only the construction stage but also the performance of the completed property. The detailed definitions underlying these are at Appendix 1. 1 Performance indicators for assessing construction techniques Construction stage Completed property Time I Duration of Construction I Defect resolution – Predictability and Actual I Life span – Predicted I I Cost Construction Cost Whole life costs – Predicted – Predictability and Actual Quality I Number of defects I Quality of workmanship I Health and Safety I Customer satisfaction I Environmental efficiency I Environmental impact Source: National Audit Office 4 HOMEBUILDING: MEASURING CONSTRUCTION PERFORMANCE FINDINGS Homebuilding is a significant part of 3 There were many homebuilders among the 15 the national economy most profi table construction companies in 2005 1 Privately owned homes in England were worth over £3 trillion in 2005 and significant amounts of money are Company Sales Pre-tax profit Pre-tax profit as a spent each year on housing, with large numbers of people percentage employed in the homebuilding sector (Figure 2). The of sales private homebuilding firms are among some of the most (£ million) (£ million) (Per cent) profitable companies in the construction sector (Figure 3). Henry Boot 101 30 30 ESH Holdings 86 20 23 2 Homebuilding key data Persimmon 2,286 495 22 Jelson Holdings 75 15 20 I As at April 2005, there were 21.8 million dwellings in England, of which 15.4 million were owner occupied. Strata Homes 67 13 20 I Privately owned homes in England had a total market value Morris Homes 148 28 19 of over £3 trillion in 2005, with an average price of over Redrow 780 141 18 £200,000. Wilson Bowden 1,231 216 18 I In 2005, over £17 billion was spent on the construction of new housing in England, with the majority of this, Barratt 2,513 407 16 £15 billion, spent on new private sector housing and Developments £2.6 billion on public sector housing. Bouygues (UK) 100 16 16 I In 2005-06 just over 163,000 new homes were completed George Wimpey 3,003 367 12 in England, of which almost 145,000 were privately built. Taylor Woodrow 3,477 411 12 I The average cost of construction of a new home in 2005 was just over £100,000. Heyrod 68 8 11 Construction I In 2005, a further £20 billion was spent on maintenance and repair. Keepmoat 335 33 10 I In 2005 roughly 150,000 people were employed in the JW Muir 94 9 9 homebuilding sector. Source: Building Magazine article October 2006, based on an analysis by Plimsoll Source: Department for Communities and Local Government Housing Statistics; Department of Trade and Industry Construction Statistics Annual 2006 NOTE Homebuilding firms are highlighted in bold. HOMEBUILDING: MEASURING CONSTRUCTION PERFORMANCE 5 FINDINGS The Government wants homes to be Modern Methods of Construction are built more quickly and efficiently currently defined in terms of particular 2 High demand for housing, coupled with a lack products and methods of supply of new homes, has resulted in problems of 3 Modern Methods of Construction have been affordability in many parts of the country. To address defined in terms of particular building products and this problem, the Government and its main agencies for methods which involve various forms of supply chain delivering new housing, the Housing Corporation and specifications, prefabrication and off-site assembly, English Partnerships, want to encourage alternative ways intended to produce better quality homes in less time of building new homes more efficiently and quickly (Figure 5). (Figure 4). 4 The Government has encouraged new ways of building homes I The Housing Corporation’s Kick-Start Programme (October 2001) March 2004 she confirmed the need for an additional 70,000 –120,000 new private sector homes and 17,000 The Housing Corporation allocated £80 million of grant to extra social rent homes each year. She highlighted the need Registered Social Landlords over 2002-03 and 2003-04 to for the homebuilding industry to come up with more innovative promote the greater use of Off-Site Manufacture techniques ways of building more homes. Recommendation 33 called on in the new affordable housing they were building. The the homebuilding industry to develop a strategy to address programme focussed primarily on pre-assembly and Off-Site barriers to Modern Methods of Construction. Manufacture using timber and steel frame and successfully raised the profile of Off-Site Manufacture as an approach with I National Audit Office Report “Using Modern Methods of great potential to improve the way that homes are procured. Construction to build homes more quickly and efficiently” (November 2005) I The Housing Corporation’s Challenge Fund Programme (2003) The Office of the Deputy Prime Minister asked the National Registered Social Landlords were awarded grant to build 2,600 Audit Office to investigate the scope for building homes more key worker homes using Modern Methods of Construction. quickly and efficiently using Modern Methods of Construction. I The Housing Corporation’s National Affordable Housing We reported in November 2005 that Modern Methods of Programme 2004-2006 Construction can make it possible to build up to four times as many homes with the same amount of on-site labour The Housing Corporation sought to meet the Government target and reduce on-site construction time by up to half. Building that 25 per cent of the affordable housing that it funded should performance can also be at least as good as for homes built be built using Modern Methods of Construction. Indications are using traditional building methods, although the average costs that over 40 per cent will be delivered in this way. of Modern Methods were higher. I English Partnerships I Design for Manufacture initiative English Partnerships has a target of 25 per cent of homes To encourage industry to look at how best to construct high across all its programmes (both affordable and private quality, well-designed homes more cost-efficiently and to housing) being constructed using Modern Methods of stimulate fresh thinking, English Partnerships, on behalf of the Construction, over the two years from April 2005. Where then Office of the Deputy Prime Minister, invited developers in Modern Methods are seen to be most appropriate, a higher 2005 to submit proposals for the construction of high quality target of 50 per cent of homes can apply. Where English homes for a construction cost of £60,000. Developers were Partnerships requires Modern Methods of Construction, free to use improved ways of employing traditional materials it states in its site development brief the specific levels of and construction skills, or innovative new methods. The Modern Methods of Construction to be included, but does not chosen developers would then be given the opportunity to dictate or endorse specific systems or approved suppliers. develop homes on 10 sites, 30 per cent of which would be I Barker Review of Housing Supply (March 2004) the £60,000 homes and the remainder would be constructed using equivalent processes and cost efficiencies. Between The Government commissioned Kate Barker to review the November 2005 and February 2006 developers were issues underlying the lack of supply and responsiveness selected for all ten sites. The first homes were started on site in of housing in the United Kingdom. In her final report in Autumn 2006 and will be completed in Spring 2007. Source: National Audit Office 6 HOMEBUILDING: MEASURING CONSTRUCTION PERFORMANCE FINDINGS new homes should be zero carbon from 2016. 5 Modern Methods of Construction are currently This represents an increase of over 100 per cent defi ned in terms of particular building products over the 2006 standards.