好色先生TV

It鈥檚 hard to disagree with James Lidgate, the man in charge of insurance giant Legal & General鈥檚 homes business, when he claims to have just about the most exciting job in UK housebuilding today. If you don鈥檛 believe him, it may be that you don鈥檛 know enough about L&G. 

Legal & General has dabbled in residential development for more than a decade, notably through its regeneration joint venture the English Cities Fund. But the firm鈥檚 February 2016 announcement that it was creating a 550,000ft² modular housing warehouse capable of turning out 3,500 homes a year was the moment many realised something pretty big and altogether new could be happening. 

In fact the modular factory is actually just one strand in a strategy encompassing homes for sale, for private and affordable rent and for older people, which L&G says will see 80,000 houses built over the next five years. That鈥檚 a run rate of more than 15,000 a year 鈥� the same as Taylor Wimpey today, equivalent to one in every 10 new UK homes. The big question is, of course, whether it can do it. 好色先生TV met with former Bellway executive Lidgate at L&G Homes鈥� first major site 鈥� Buckler鈥檚 Park outside Bracknell 鈥� to find out.

So far L&G has put 拢1.5bn into its homes business, a down payment on its stated ambition to be a top five provider of housing within five years. The 拢40bn-turnover investment giant prides itself on being a market disruptor, using the 拢228bn of assets it manages to both turn a huge profit and 鈥� it claims 鈥� change society for the better. L&G group chief executive Nigel Wilson has picked housing as one of his top priorities, he says out of a desire to fix the intergenerational unfairness in the housing market. But he has clearly also spotted a market opportunity in disrupting a sector that has been obdurately resisting reform for generations. 

The breadth of what L&G is attempting to do is pretty staggering. As well as owning upmarket 1,700-homes-a-year housebuilder Cala Homes and being a private sale housebuilder in its own right, L&G can boast a build-to-rent business, a 鈥渓ater living鈥� business called Inspired Villages, the modular homes factory and 鈥� announced just two months ago 鈥� an affordable housing business (see 鈥淟&G: a new breed of housebuilder鈥�, overleaf). While some housebuilders are dabbling in build-to-rent, none are attempting diversification to this extent. 

The closest comparison is instead with the big developing housing associations such as L&Q and Places for People, but even those organisations remain ultimately rooted in their landlord function. L&G鈥檚 planned scale of development is an order of magnitude larger.

Confidence

Lidgate, a youthful 39 years old, sounds like he鈥檚 used to receiving sceptical looks, but he鈥檚 confident L&G can make good on its commitments. Asked about delivering 10,000-15,000 homes a year in five years, he says: 鈥淲e鈥檙e not delivering 10,000 units this year. But the scale of what we鈥檙e doing 鈥� that鈥檚 our publicly stated ambition and one we鈥檙e confident we can hit. L&G is hugely ambitious and has the capital to back up the ambition. This is the future of housing.鈥� 

The firm bases this confidence on the claim that it already controls around two-thirds of the 80,000 plots needed to deliver this ambition and can turn to other tenures of housing if the private sale market weakens. 

Buckler鈥檚 Park, a 1,000-home urban extension in Berkshire, is a microcosm of what it wants to do: building homes for sale itself, and bringing in other L&G products to drive faster build-out. In the first phase L&G Homes is building traditional suburban-style homes for sale, alongside community facilities including a care home. But ultimately, Lidgate says, anything up to 50% of the site could be different tenures, such as build-to-rent, affordable housing and later living, built by other parts of the business. The first of its modular homes will provide some of the rented stock, while Cala is also likely to develop parts of the scheme. 

鈥淲e absolutely remain committed to innovating the construction industry and we are creating a product that is genuinely new and revolutionary鈥�

James Lidgate, L&G Homes

He says this will fix the inefficiencies of the traditional master developer arrangement, in which the owner of a large site sells phases to rival housebuilders to build out. 鈥淎ll of those [businesses] will be working together to deliver those projects. That鈥檚 our USP. 

鈥淸In] the traditional master developer role [鈥�] you鈥檙e bringing in other housebuilders underneath that are potentially cannibalising sales off each other. The danger is it鈥檚 a race to the bottom in terms of price, quality, and 鈥榟ow quickly can I be off site鈥�,鈥� he says.

鈥淲e think our solution to that is where you can differentiate the type of homes you鈥檙e building and the tenure of homes you鈥檙e building, and target different marketplaces and economic and demographic needs simultaneously. The great thing for Legal & General is that we control all of those different elements.鈥�

Lidgate is speaking two days after Sir Oliver Letwin MP published his draft analysis for the government on why the build-out rates for large sites are so slow. That recommended a much greater diversity of types and tenures of homes on big sites, in order to increase the rate at which local markets can absorb new supply, and it鈥檚 clear Lidgate believes his business is hitting this particular zeitgeist. 鈥淚t was music to my ears reading Sir Oliver鈥檚 report,鈥� he says. 鈥淲hen you read [in Letwin鈥檚 analysis] things like a large site of over 1,000 units takes an average of 15.5 years to build out 鈥� we think we can make a meaningful difference. We think we can close to halve that.鈥�

Scepticism

But if all this is exciting, it鈥檚 more than equally challenging. Growing to this scale of operation so quickly is not a task for the faint-hearted, and there remains industry scepticism around L&G鈥檚 real-world capacity to walk the walk 鈥� particularly in modular housing. Outside of Cala Homes, which appointed Kevin Whitaker as its new chief executive this week, it is only just beginning to gear its businesses up. Its build-to-rent business is probably furthest advanced, with 225 flats in Salford鈥檚 MediaCity already occupied, and another eight schemes in progress in other UK cities making a pipeline of 3,000 homes. 

The umbrella also includes the longstanding regeneration joint venture with Homes England and Muse, the English Cities Fund, as well as the Inspired Villages business bought last year for 拢40m. But L&G Homes as a housebuilder itself has yet to complete its first home, and has just 3,500 plots under its direct control 鈥� a significant number but not equal to the stated ambition. Lidgate says 鈥渞elatively aggressive鈥� land-buying will double this number in the next 12 months, but admits the business as a whole is still 鈥渋n the foothills鈥� of what it wants to achieve. 鈥淲e鈥檝e made that commitment, we鈥檝e made that investment 鈥� we鈥檙e doing it,鈥� he says, with a qualification: 鈥渁lbeit I can鈥檛 today point you to 鈥榟ere鈥檚 a dozen examples of where we鈥檝e delivered all of these different facets alongside each other鈥欌��.

But if L&G鈥檚 broader strategy housebuilding strategy can be described as thus far unproven, the biggest questions have encircled its groundbreaking 拢50m investment in its modular factory, in Sherburn-in-Elmet, Yorkshire. It had originally said the factory would be producing 鈥減recision-engineered鈥� homes using cross-laminated timber (CLT) technology by June 2016, riding the crest of a wave of interest in modern methods. In fact, it took until last summer for the first prototypes to emerge, and the date for production in earnest continued to slip. Now, two-and-a-half years after that first announcement, L&G still can鈥檛 point to a single occupied modular home. 

L&G鈥檚 press release assertion that its factory would 鈥渕odernise the home building industry鈥� 鈥� as if it were as simple as just deciding to do so 鈥� is not understood to have made it popular with rivals, many of whom bear scars from their own previous attempts to bring in modern construction methods. One industry observer told 好色先生TV the factory had been a 鈥渄isaster,鈥� and that other housebuilders were viewing L&G鈥檚 travails with no small degree of schadenfreude. 

However, Lidgate says the first real homes for occupation are in factory production now, and L&G is expecting to install them on site around September. He flatly denies the modular investment has been a mistake 鈥� but admits it has been 鈥渁 learning process鈥�, firstly in terms of which part of the housing market to target, and then with the manufacturing technology. 

So, what went wrong? 鈥淲e have been through an evolution of the design and the manufacturing methodology. There are a number of constraints to the way that you organise a manufacturing process like that,鈥� he says, somewhat elliptically. 鈥淎nd early on [we] thought that some of those constraints were easier to overcome than they perhaps were.鈥� An example, he says, was around the much publicised 鈥減recision-engineered鈥� nature of the homes. While the factory鈥檚 machines can cut materials and build to tolerances of 0.1mm, he says L&G could not initially get CLT boards supplied to the same tolerances. In general, he says, the inevitable interface where the high-tech manufacturing process ends and traditional trades such as kitchen fitting begin has been a challenge.

Some are worried there may be even more fundamental problems with L&G鈥檚 technology choice, given that last month some experts expressed concern that the government鈥檚 proposed ban on combustible materials in cladding systems on high-rises could encompass CLT and that such a ban could shake confidence in the material more generally. 

When asked if this is a worry, Lidgate鈥檚 response is that at present L&G鈥檚 鈥減roduct range鈥� does not include the mid-rise and high-rise building types that could potentially be affected, adding carefully: 鈥淲e assess both customer and regulatory requirements and choose the appropriate material systems to meet these.鈥�

Lidgate insists that there are no fundamental problems. Moreover, the skills crunch that provided the rationale for investment in the first place is only worsening. He says: 鈥淭here鈥檚 a constant refinement process but we鈥檙e more than happy with the quality and the price of what we can produce. Modular has not been a mistake nor has it taken away money from other parts of the business. We absolutely remain committed to innovating the construction industry and we are creating a product that is genuinely new and revolutionary.鈥�

There is an enormous amount to admire in what L&G is attempting to do in creating a genuinely diversified housing business. Moreover, its timing looks good, coming in the wake of publication of the Farmer review which recommended modern methods of construction, and alongside the Letwin review which is calling for diversification, and while a stagnating private sale market makes the traditional housebuilding model look less well adapted to current conditions. But there is a whole world of difference between having a good theory and delivering in practice 鈥� and in this sense, the jury on L&G鈥檚 housebuilding business is still out.