With UK housing demand outstripping supply and trends such as sustainability, affordability, and availability increasingly shaping the market, revolutionary new approaches are needed to turn challenges into opportunities and transform the industry.
Modular house builder ilke Homes’ approach is shaking up the UK’s traditional house-building sector and addressing many of these issues. Founded in 2017 with a mission to industrialise an industry often mired in tradition and to create better quality homes, ilke Homes is chaired by industry heavyweight Dave Sheridan. With years of experience, he’s well-placed to understand the challenges the sector faces and how traditional constraints are limiting progress. And, with seasoned private equity know-how, he’s also in a strong position to support ilke Homes’ scale-up agenda.
That journey starts from a deep understanding of the issues facing UK housing and where ilke Homes can afford solutions. “We build too few homes in this country to service demand,” he begins by saying. “In recent months, we’ve seen house prices growing phenomenally as a result. And that’s also fuelling an affordability gap for those looking to buy a home, particularly for younger generations.”
Economies of scale
ilke’s business model, and the modular house-building trend overall, provide a solution to the issues of both availability and affordability, creating additional capacity in a sector that’s struggled to deal with that in the past. “We can produce a home in five days as opposed to 12 weeks on a building site,” says Dave. That lower timeframe and the industrial process behind it offers economies of scale that can result in both productivity gains and lower-end costs.
Dave’s experience means that he’s no stranger to the vagaries of housing market volatility. Under his leadership, ilke Homes has built resilience deep into its business model, creating options that will allow the business to ride out shifting patterns of demand and pricing. “We can service the demand for ownership through production efficiencies, but we’re also mindful that housing is a cyclical market. In a factory setting, you’ve got to keep producing homes, so you have to neutralise that cycle,” he points out. “To do that, we’re already putting defence mechanisms in place – if there’s a move in the market or availability challenges increase, for example, we can turn on the tap for rental properties.”
Demand is just one of the issues the sector faces, with supply constraints exacerbated by an ageing workforce and a growing skills challenge. “Construction isn’t an obvious career choice, and we’re not seeing enough young people entering the industry,” explains Dave. “Alongside that, factors such as Brexit have seen a significant outflow, and that’s leading to shortages of both skilled and unskilled workers.”
Lower production times, increased automation, and the precision-engineering techniques used at ilke’s factory, he hopes, will solve many of these issues. “We’ve got to make the industry attractive to bring engineering talent in. Instead of wanting to go and build Aston Martins, they should want to come and create the homes of the future,” says Dave. He likens the changes as similar to the revolutionary industrialisation of car production, offering similar levels of enhanced productivity and efficiency and helping the UK compete globally.
Re-energising the industry
For investors, it’s an enticing proposition. “This could be a rock star business,” says Dave. “Building cost indices will increase, labour cost indices are rising. We’re fairly competitive on the build process now but once we get the super-smart technology coming through around the manufacturing techniques to the areas that we haven't touched yet, then we will be able to produce a home that is not only better and more efficient but cheaper than traditional builds. And it's scalable so we can produce 2000 homes a year from one factory. Building sites can only produce homes in the tens or hundreds per year. Essentially, by re-energising and reinventing a traditional industry, you can provide decent margins and high cash flow.”
Nor is the opportunity geographically bounded. “The technology of the platform works even if some of the spatial or product standards differ, so franchising the model makes sense and international expansion is very much on our radar,” he says.
With ESG a growing focus for investors, ilke Homes’ products also meet exacting standards for sustainability and are expected to meet enhanced standards as the UK strives towards its ambitious net zero targets. Consumers too are increasingly looking to energy efficiency and carbon neutrality, which fits with ilke’s better quality homes vision and their ZERO strategy.
“We surveyed one of our homes in Newark and their energy bills came to 80 pence per day,” says Dave. “That’s significantly less than traditional bills. These are real-life examples of reduced energy expenditure and improved thermal performance, but we’re also creating homes that are light, spacious, and attractive.”
Meeting the demands of a changing customer base is crucial Dave points out, if ilke is to achieve its goals to provide quality, meet net zero ambitions and address the housing shortage. “How people use their homes is changing. We’re now a 24/7 society, we’re increasingly working from home and using electric vehicles, so we’re challenging ourselves to make the home a conductor rather than a user of energy. This means integrating utilities, media, and entertainment. We’re building the homes people need and want.”
Adam Mahmood
Partner, Cities, Infra & Sustainability
adam.mahmood@draxexecutive.com
