The Legal & General board has run out of patience waiting for the modular construction hype to turn into a viable business.
The insurance giant has pumped millions into its house-building factory in Sherburn in Elmet – and lost millions.
Legal & General said that it was halting all new modular production at its modular housing factory “whilst reviewing and assessing potential strategic options for the business”.
All 475 jobs are at risk.
"As a start-up business with a significant fixed cost base, a strong and predictable site pipeline is required to make L&G Modular Homes a successful sustainable business," the company said.
"As part of its ambitions to tackling the housing crisis, Legal & General Modular Homes built a large factory to deliver impactful housing volumes. However, with this comes significant running costs making it essential to have a reliable pipeline.
"These factors, coupled with long planning delays in the UK and recent major macro events such as covid, have meant the business has not been able to secure the necessary scale of pipeline to make the current model work."
L&G Modular Housing has made total pre-tax losses of £174m since it began in 2016, including £37m in 2021 on revenue of just £12m. The parent company has pumped in £182m over that same period, including £35m in 2021.
The factory, midway between Leeds and Selby, has capacity to produce 3,000 houses a year.
Bill Hughes, chair of Legal & General Modular Homes’ board, said: “Legal & General is proud of what we have achieved in bringing forward a new approach to construction through our factory. However, without the necessary scale of pipeline it is not sustainable to continue producing more modules. We are therefore reluctantly proposing to reduce business activity and cease production of new modules at the factory.
“Regrettably, this includes commencing consultation with all employees around the proposal to make the majority of Modular Homes roles redundant. We recognise this will be a challenging and uncertain period for our staff and we will be actively exploring redeployment opportunities and supporting them during this difficult time.
“Legal & General remains deeply committed to the UK housing sector, where we have delivered 15,000 homes over the last three years, and to our valued industry partners and customers. As such, we are continuing to actively explore all options available to us and will retain a select workforce to ensure high quality delivery and aftercare services for our existing customers, whilst engaging with each of our partners regarding ongoing modular projects.”
Pumping millions into new factories in the hope of eventual payback as scale is achieved has been the theme of the modular housing market in recent years. Ilke Homes, owned by TDR Capital, Sun Capital and Fortress Investment Group, lost £34m before tax in the year to 31st March 2021 on turnover of £12.7m. Over its first three years of operations Ilke Homes has generated less than £24m in turnover and lost, in aggregate, £88.7m before tax.
Last week Goldman Sachs diluted its stake in TopHat, bringing in Aviva and Persimmon as investors. TopHat shareholders have sunk £300m into the business over the past the past 18 months. In the year to 31st October 2021 TopHat turned over £12m and lost £18m before tax.
Meanwhile the traditional house-builders, including Legal & General's own Cala, continue to generate countless millions of pounds in profit.
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