Dream over

Five years AGO, the Peabody trust looked positively heroic. It was the Captain Scott of sustainable housebuilding, exploring ground where other providers feared to tread. Murray Grove, Raines Dairy, BedZED. Each scheme was a fascinating expedition into the unknown, each received huge amounts of publicity, and each was hailed as a further step towards the ideal home: cheap, sustainable and attractive.

Now it is looking as though the simile is a little too apt. Five years after Murray Grove was completed in Hackney, north-east London, and a year after BedZED was shortlisted for the Stirling Prize, the Peabody Trust appears to have lost its way. It is cutting its workforce and directing funds away from development.

At stake is not only the future of a large and ambitious provider of social housing. If Peabody changes its development policy, that will be taken as a de facto admission that off-site manufacturing and sustainable construction are uncommercial. Peabody has been the main cheerleader and driver of both; delete Peabody from the picture and it is hard to see how either will gain greater acceptance among housebuilders.

The immediate consequence is that other social housing providers are less likely to put money into groundbreaking schemes. One social housing contractor said: "When I speak to other housing associations they refer to them as a has-been. They say 'let's make sure we do not end up where Peabody went'." Peabody's reputation seems to have fallen with consultants and architects as well. "The development programme has crashed. They've been in meltdown for the past six months," one housing architect says.

Other housing associations are referring to Peabody as a has-been. They say ‘let’s make sure we do not end up where Peabody went

Social housing contractor

"One of the problems with the industry is everyone jumps on someone when things go wrong. The only thing this leads to is a standstill in innovation," one consultant says.

Others in the sector are already seeing Peabody's travails as influencing other associations. "I went to a workshop recently on social housing and there was a lot of confusion," a housing contractor says. "Housing associations are looking at innovations but at the same time are advising caution. People don't want to get outlandish. There are a lot of mixed messages out there right now."

Others are less convinced that the Peabody example will influence the rest of the sector. "They have always been completely unusual and atypical," a housing expert says. "They have always been cash-rich. I think you will find there is very very little knock-on effect."

The change in Peabody's priorities are partly caused by the need to invest in its existing stock. The government has set a deadline of 2010 for housing associations to bring their homes up to "a decent standard". Six years sounds some way off, but not when you have 7800 homes to upgrade – 40% of Peabody's 19,500 estate – and you need to invest £156m. This switch of priorities led to 51 redundancies at the end of last year, several of which were in the development division.

The trust also announced a restructuring of its maintenance operations last month; this led to the closure of five regional offices and the switching of work to a central repair division.

They rammed what they were doing down our throats. They were carrying out expensive, innovative schemes but failing to invest in refurb

Housing association insider

Against such a backdrop of structural change, a pause in development activity may seem sensible. However, it has emerged that development activity has itself contributed to Peabody's problems. The Housing Corporation, which funds and regulates housing associations, gives Peabody top marks for the way it is managed, and for its development programme, however it has changed its assessment of the trust's "viability" from green to amber.

The corporation comments that the financial implications of the decent homes requirement was larger than Peabody expected. However, it comments that "some of the existing projects that the trust is engaged in are financially marginal and there is little scope for error". This is a problem for an association with plans to build pioneering apartment blocks.

Cost overruns did hit Murray Grove, but were relatively modest. The hit on Bill Dunster Architects' BedZED, however, was more significant – reports at the start of the year put the overspend at £10.6m, which gives a total cost of about £25m. Peabody maintains that the overrun was £5m, from an initial budget of £10m to £15m, and claims that some of the cost increase was down to an extension of the scheme. Dickon Robinson, Peabody's development director, said he did not know where the £25m figure came from (see "Robinson's response" below).

Housing associations are looking at innovations but at the same time advising caution. There are a lot of mixed messages out there right now

Housing contractor

Peabody has confirmed to Building that the final account for the Raines Dairy development in north London, the UK's largest factory-assembled affordable housing project, was £8.9m – that's £1.4m above the £7.5m contract price. A Peabody spokesperson attributed most of the extra cost to the unexpected E E appearance of a disused sewer.

The other associations have regarded the praise heaped on the Peabody with certain amount of envy and irritation. Consequently, they are regarding its present difficulties with a certain amount of schadenfreude. "They rammed what they were doing down our throats," says one head of a large association. "Someone in that organisation got their priorities wrong. They were carrying out overexpensive, innovative schemes but failing to invest in refurbishment."

Whatever the reasons for additional costs, the trust has "damaged its credibility" according to a senior social housing industry source. "It has over-extended itself in terms of innovations and developments."

One housing architect sums up Peabody's plight in rather poetic terms. "They were dragged from sleeping giant status to development status in a short period of time. They are now back to what they were doing before, with an anorexic trickle of finance for repairs and improvements. It's a cyclical process." Others in the regeneration sector are a little more sympathetic. "It was a hell of a job keeping track of such a big development programme. They were too big, too successful and too popular, which is a real shame."

This sadness centres on the progress the trust made in terms of experimentation and the high quality of some of its output. David Birkbeck, director of architectural lobby group Design for Homes, is a fan of Feilden Clegg Bradley's Lillie Road scheme in west London, completed last year. "It's as generous in terms of space standards as any of its kind in London," he says. He also points to sports facilities there, including an indoor football pitch. "People will enjoy living in that development."

Some in the sector come to the defence of Peabody. They regard the cost overruns with and shrug their shoulders. "Why should there be so much shock at this?" one source asks, adding that the whole point of the schemes was to try something new. Birkbeck points out that Peabody's troubles are not unique. "There have been some models of housebuilding that have had their own additional costs created by poor practice," he says.

And despite being pilloried in the sector, Peabody itself is remaining bullish over its development plans, denying claims its activities have stopped in their tracks. The housing association attributes some market rumours that it is winding down development to misinformation; it says it will be spending at least £30m this year on new-build schemes.

There is a bit of schadenfreude out there. Some people have been … gleeful about our problems

Dickon Robinson, development director

A source at Peabody says the harsh words quoted above should be taken with a pinch of salt. "The reality is that Peabody has received a lot of positive publicity in the past," he says. "We have hit a bit of a sticky patch with a change in senior figures and have since become a bit of a punchbag in the sector." But the source adds that the association is trying to put such setbacks "in the past".

In a sense, however, that may be neither here nor there. If Peabody emerges from its sticky patch with a renewed appetite for eyecatching carbon-neutral prefab schemes, it may be too late – any chance it had of changing the culture of British housebuilding at large may have gone.

The reason is that the next few years will be unusually significant for the future of housebuilding in Britain. Under the rubric of the sustainable communities plan, John Prescott is planning to increase house production by hundreds of thousands of units between now and 2016. Ironically, this will be partly overseen by former Peabody chief Richard McCarthy, who heads up the Office for the Deputy Prime Minister's sustainable communities unit.

But the modular market is insufficiently mature to deal with such a task at present. Only last month, defects including sunken floors and gaps between walls appeared on Caspar II, a Joseph Rowntree Foundation modular housing scheme in Leeds that was completed in 1999. "It's a massive issue," a leading regeneration figure admits. "There is no certainty on cost for modern methods of construction and no proper accreditation for them yet."

And these are precisely the problems that Peabody's developments were starting to solve.