Why is the property industry dragging its feet over prefabs?

Modular housing seems like the answer to all our problems. It is cheaper than traditional construction, of a higher quality, has a lower carbon footprint, is quicker to build, and can produce striking and innovative design.

So why is the housing industry avoiding it? It is not for want of encouragement: many experts say it is ideal for providing more homes at a lower cost. Last week, the Royal Institution of Chartered Surveyors (Rics) and housing academics came out in favour of modular housing – that is, building homes in factories and then transporting them in sections to their sites – as a way of solving Britain's acute housing crisis.

Current house-building levels are expected to drop under 110,000 in 2011, some 80,000 below the annual total required to meet predicted growth in the number of households. One reason for the deficit is the alleged slow speed of traditional construction methods.

"British house-building has long been associated with expensive, time-consuming methods," says Chris Goodier of Loughborough University, one of the Rics report's authors. "More innovative, modern off-site and modular designs are not only extremely cost-effective but can be constructed with ease in a short period of time. First-time buyers could find them a highly practical way of getting on to the property ladder."

The report is perhaps the most ringing endorsement yet by part of the property establishment of a construction method long advocated by niche green-house builders.

"Energy reduction in modular building is huge. They take just days to create in a factory – the more built, the faster per unit the process becomes. They take two days to a week to put up on site. Then they take very little energy to run," explains Dick Shone, whose firm Boutique Caravans is pioneering the modular technique with homes in Sussex and Cornwall, and a scheme about to begin in Kent.

Shone has created two prototype houses – the Indy and the Edge – with green credentials including carbon-neutral urethane foam insulation, re-circulated air ventilation, a heat-exchange coil and solar water-heating, plus that perennial eco-comfort, underfloor heating.

"It's also easy to build in new technology. When a new feature appears, it can be integrated at the factory build stage and mass-produced, quite unlike traditional building methods where new technology can take years to become integrated," Shone insists.

The erection of his prefabricated homes is almost childlike in its simplicity. Once built at his factory just north of Brighton, the home is craned on to a low-loader and driven to the site. Then six to 12 long cardboard tubes are inserted into the ground and filled with concrete to form the foundations. "That's it. The house stands on the tubes," he says.

Each home itself costs £60,000 to £100,000 but most of the price a buyer pays on top is for the land on which the property sits, which varies enormously from location to location.

Shone is currently selling his two versions at £240,000 and £270,000 at Rock, a well-heeled area of north Cornwall. He expects most buyers to use them as second homes, but even so he says they are 20 to 25 per cent cheaper than comparable-sized houses in the area.

The joy of modular housing, of course, is that while they are fundamentally different in the construction phase, for the owners living inside they appear exactly like any other home.

"Mine is a complete joy. It'sstunning to look at, there's a real 'wow' factor that you wouldn't get if it was a traditional design," says Debbie Harding, a garden designer from Sussex, who has bought one of Shone's properties for her daughter Katie, who could not afford to buy or rent after leaving college in London.

"It cost £60,000 and took just two days to put up. It's on my land next to my house and the local planning officers visited and said it didn't even require consent," she says.

There are a handful of other niche modular pioneers like Shone but so far, volume builders – the ones constructing tens of thousands of homes each – have shunned it. Why?

The answer lies in the essentially conservative nature of almost every element of the British housing industry. "Firstly, mortgage lenders are quite conservative and getting more so. There's a wariness to lend on anything that appears out of the ordinary, and not bricks-and-mortar. Volume builders won't risk creating a product that cannot be bought," says John Neale, a partner in the research department at King Sturge, a property consultancy that works closely with developers finding sites and marketing new homes.

"Secondly, in many other countries there's a tradition of modular building becoming commonplace through self-build. It's a much larger sector of the market in those countries than in Britain, where self-build is still relatively unusual and [the market] often prefers traditional construction," says Jon Neale, head of research at King Sturge.

A third reason is that modular construction requires a developer to get a new factory built or an old one kitted out to manufacture homes – an expensive capital outlay.

Finally, there is pure and simple snobbery. Many developers want premium-priced private flats and houses to look distinctly different to social and council housing – hence the love of traditional mock-Georgian designs in "executive homes". Modular properties, because they use lighter materials, often look classless and modernist.

Barratt Homes, which has a history of innovation, tried manufacturing some of its homes in factories as long ago as 2004, but ended the experiment in 2007. So far, no other volume developer has decided to build entire homes this way.

Even so, some developers are beginning to allow more complicated parts of a home – especially bathrooms and kitchens – to be constructed in factories and then bolted into place on a building site. The other rooms are built around them in the old-fashioned way.

"By using bathroom pods, contractors and developers can reduce costs. It also means there's less need for skilled labour on site and co-ordinating of site services, which can add significantly to build time. Manufacturing the pods in a factory environment also ensures much more consistent quality standards," explains Adrian Day of Terrapin, a company that makes many prefabricated offices, shops and portable buildings.

In the current climate, when most house sales are largely confined to existing older owners trading up and down depending on their age, the chance of volume builders moving away from traditional methods and long-established designs appears minimal.

Supporters of new methods, however, are adamant the current housing shortage is exactly the right time to try something new – not an excuse for putting it off.

We've been here before...

* Modular housing is the 21st-century term for prefabricated homes, or prefabs – the term made famous by 160,000 tiny houses put up in the 1940s and 1950s to solve Britain's post-war housing problem.

* Many used corrugated iron and softwood, and were situated on bomb sites that had been rolled flat. The first prefabs were made by German and Italian prisoners of war and even Aneurin Bevan, Housing Minister in the early years of the 1945-50 Labour government, dismissed the homes as "rabbit hutches".

* But more than 1,000 prefabs saw in the millennium and some remain today, although the largest group – more than 160 on the Excalibur estate in Catford, south-east London – are scheduled for demolition, with just six to be saved after they were listed by the last government.

Useful contacts

* Boutique Caravans (0845 017 7890; www.boutiquecaravans.co.uk)

* Cloud Nine (0870 8034640; www.cloudnine-living.com)

* Brightbuild (01728 687657; www.brightbuild.co.uk)

* Cub (020 3239 5222; www.cubhousingsocultions.com)

* Eco Modular Living (0845 345 6414; www.ecomodularliving.co.uk)