How many homes could be built with £18m?

[swissrailpassion]

Moderator note: Split from https://www.railforums.co.uk/threads/soham-station-progress-updates.195845/

How many 5 bedroom houses could you build for £18m?

 

[Baxenden Bank]

How many 5 bedroom houses could you build for £18m?

Depends which fancy interior designer you prefer and how much the wallpaper costs. But you could phone a friend and get them to pay.

For the homes of honest decent folk, perhaps 90 at £200,000 each, depends whether you include the land price, agents selling fees, developer profit and other non-obvious costs. The difference between the physical costs of materials, and the labour to stick them together (ie what a council house would cost to build) and the final cost is substantial - not the market value but the all-in cost of construction. Did some work on it once, and once a housebuilder starts adding in the costs of a sales office, interest on debt etc the costs rise rapidly.

Thought I'd better find some evidence before being monstered.

Taken from MyBuilder.com

House building costs per m2​

With such an incredibly broad category, it is very difficult to place a simple price on the cost to build a house. There are thousands of factors involved in home building, from the scale of the build, to the design, the materials and the finishing touches. Coming up with a one size fits all price is very difficult. For a very general estimate, it is easiest to think about the cost to build a house per square foot, or more usually, the cost per square metre. Breaking it down like this, at the lower end of the spectrum, a new build house might cost as little as £1,400 per square metre. At the top end of this range, you may be looking at more like £2,500, or even £3,000 per square metre. A typical, average price to bear in mind is probably around £1,800 per square metre.

Average cost of building a 3 bedroom house​

The typical size of a three-bedroom home can range from around 90 square metres to 120 square metres, meaning the cost of building a three-bedroom house can range from around £126,000 to £300,000 with an average cost of around £213,000.

Average cost of building a 4 bedroom house​

The typical size of a four-bedroom house can range from around 140 square metres to 200 square metres, meaning the cost of building a four-bedroom house can range from around £196,000 to £500,000, with an average cost of around £348,000.

Average cost of building a 5 bedroom house​

The typical size of a five-bedroom house can range from around 200 square metres to 240 square metres, meaning the cost of building a five-bedroom house can range from around £280,000 to £600,000, with an average cost of around £440,000.

 

[Bald Rick]

For the homes of honest decent folk, perhaps 90 at £200,000 each

No chance!

Building costs of a 5 bedroom house will be at least 50% more than that, assuming free land and planning costs.

 

[alistairlees]

Indeed, around £400k each for a fully-fitted (but unfurnished) 5-bedroom house of 150m2, with utilities, fitted kitchen etc. So about 46 of these - probably nearer 50 because of economies of scale - for the price of Soham station.

 

[Baxenden Bank]

No chance!

Building costs of a 5 bedroom house will be at least 50% more than that, assuming free land and planning costs.

Indeed, around £400k each for a fully-fitted (but unfurnished) 5-bedroom house of 150m2, with utilities, fitted kitchen etc. So about 46 of these - probably nearer 50 because of economies of scale - for the price of Soham station.

As the examples from mybuilder,com show. Similar figures are available from checkatrade.

The figures seem to relate to an individual build, a volume house build would, as mentioned, have economies of scale.

Not sure why @swissrailpassion chose a five bedroomed home, they are at the extreme of the market. The need (not necessarily demand, also pre COVID: aargh, escape from the city NOW) is for smaller properties - one and two bed for the growing elderly population and two/three bed for families.

 

[LSWR Cavalier]

How many people need five bedrooms? Better to build compact terraces with good insulation etc.

 

[HSTEd]

No chance!

Building costs of a 5 bedroom house will be at least 50% more than that, assuming free land and planning costs.

I think you could do it for that, but it would mean using industrial steel portal frames and cladded structures rather than anything used in "conventional" construction.

 

[Bald Rick]

As the examples from mybuilder,com show. Similar figures are available from checkatrade.

Having some recent experience in the matter of building houses, I can confirm that those estimating websites are typically under by a substantial margin! At least they are in the East of England.

 

[DynamicSpirit]

Presumably you can get an upper estimate by looking at the sale price of new-build houses. Obviously the sale price will have been determined by what the builder thinks the market value is, not what the actual cost to build was. However, builders are not going to build houses at all unless they believe they can sell them for more than the total cost of building them - otherwise they'd quickly go bust. Therefore the total cost of building a house - including everything (buying land, planning application, legal fees, as well as actual building) must normally less than typical selling prices.

 

[Baxenden Bank]

Having some recent experience in the matter of building houses, I can confirm that those estimating websites are typically under by a substantial margin! At least they are in the East of England.

You did mention 'x thousand light fittings' in another thread. I assumed you had a side job with Blackpool Council.

Presumably you can get an upper estimate by looking at the sale price of new-build houses. Obviously the sale price will have been determined by what the builder thinks the market value is, not what the actual cost to build was. However, builders are not going to build houses at all unless they believe they can sell them for more than the total cost of building them - otherwise they'd quickly go bust. Therefore the total cost of building a house - including everything (buying land, planning application, legal fees, as well as actual building) must normally less than typical selling prices.

Yes, deducting profit and incentives. Typically volume house builders expect a 20% profit margin (yes 20, not 2 with an accidental 0 added on). Also the time between construction and selling. It pays the builder well to get an early sale (off-plan) because they then don't incur the costs of the sales office or pay as much interest on money borrowed to fund the scheme. Similarly the last few may attract a discount to get the site finished rather than lingering on. Selling your whole development off-plan is a housebuilders heaven.

 

[Bald Rick]

Presumably you can get an upper estimate by looking at the sale price of new-build houses. Obviously the sale price will have been determined by what the builder thinks the market value is, not what the actual cost to build was. However, builders are not going to build houses at all unless they believe they can sell them for more than the total cost of building them - otherwise they'd quickly go bust. Therefore the total cost of building a house - including everything (buying land, planning application, legal fees, as well as actual building) must normally less than typical selling prices.

Residential Land, with planning, is worth a LOT. Especially in the South East / East of England - easily £1m an acre.

Developer margin is typically 20% on top of costs.

You did mention 'x thousand light fittings' in another thread. I assumed you had a side job with Blackpool Council.

Did I? My memory troubles me sometimes!

 

[Baxenden Bank]

Did I? My memory troubles me sometimes!

I don't normally go back to the scene of my crimes / wibble / wise thoughts (delete as appropriate).

Post #44 and #46 in the Soham thread, from whence this thread escaped.

When I rebuilt my house, the wiring, sockets, light fittings and consumer unit cost about £2k. The electrician’s bill was well over £10k.

Well we have about 100 sockets or double sockets / comms points, and rather a lot of spotlights. And a lot of cable!

 

[py_megapixel]

Are 5-bedroom houses actually what is needed? I'd have thought smaller terraces/flats would be more in demand.

 

[Baxenden Bank]

Are 5-bedroom houses actually what is needed? I'd have thought smaller terraces/flats would be more in demand.

Generally no, obviously they are needed but it is not the biggest need.
Smaller homes for the elderly whose children have left, and those same young people setting out in life (first rung of the housing ladder). Also fewer people having children (as single or couples) so no need for larger house types.

 

[Bald Rick]

I don't normally go back to the scene of my crimes / wibble / wise thoughts (delete as appropriate).

Post #44 and #46 in the Soham thread, from whence this thread escaped.

Well there you go!

 

[Bevan Price]

Are 5-bedroom houses actually what is needed? I'd have thought smaller terraces/flats would be more in demand.

A common "planning permission" fiddle. The developer applies for, and gets permission to build, including "x" % of affordable homes. Then, applies to change the consent so that they can builld a lot more expensive houses, because that gives them more profits.

 

[DarloRich]

Q: How many homes could be built with £18m?

A: not as many as you might think, especially when you factor in land acquisition costs.

 

[Meerkat]

A common "planning permission" fiddle. The developer applies for, and gets permission to build, including "x" % of affordable homes. Then, applies to change the consent so that they can builld a lot more expensive houses, because that gives them more profits.

Don't get me started on that - its tantamount to fraud!!
Get permission then come back later with "the development isnt viable without reducing the affordable percentage"
And they keep getting away with it, rather than being told "tough, you screwed your budgeting, go bust and let someone else have a go"

What it actually means is they overpaid for the land, and they did that gambling on the (unfortunately high) likelihood they could later get the rules changed.
If the councils stuck to their guns the land would be cheaper and more affordable housing provided.

 

[Baxenden Bank]

A common "planning permission" fiddle. The developer applies for, and gets permission to build, including "x" % of affordable homes. Then, applies to change the consent so that they can builld a lot more expensive houses, because that gives them more profits.

Don't get me started on that - its tantamount to fraud!!
Get permission then come back later with "the development isnt viable without reducing the affordable percentage"
And they keep getting away with it, rather than being told "tough, you screwed your budgeting, go bust and let someone else have a go"

What it actually means is they overpaid for the land, and they did that gambling on the (unfortunately high) likelihood they could later get the rules changed.
If the councils stuck to their guns the land would be cheaper and more affordable housing provided.

Neither a fiddle nor a fraud. Sorry to burst your conspiracy theory bubbles.

When the planning application is considered, the Planning Authority with receive / conduct / ask for a viability assessment to see whether the scheme can support the required level of affordable housing. The level required should already be set out following a needs assessment. If a particular scheme cannot meet the level set out, the developer will need to prove that. The affordable housing may be in the form of on site provision: completed homes handed over to the council / a social landlord, shared ownership, sale below market price; or it may be a cash contribution to provide the affordable housing elsewhere.

At any time any planning applicant can come back with an amended application. That revision is then considered on it's merit's - be that the colour of the bricks, the overall number / size / type / design of the homes or the amount of affordable housing provision. It is then up to the Planning Authority and the applicant to discuss that proposed change. At the end of the process an applicant can appeal the decision on the original or amended planning application to the Planning Inspectorate.

If your council has previously chosen to allow such 'fiddles' or 'frauds' to take place, I recommend that you download the relevent officers report, where the matter of affordable housing provision - or lack of - or reduction in previously agreed amounts will be discussed.

Whether the Planning Committee then follows the officer's recommendations is another matter.

 

[Meerkat]

Neither a fiddle nor a fraud. Sorry to burst your conspiracy theory bubbles.

When the planning application is considered, the Planning Authority with receive / conduct / ask for a viability assessment to see whether the scheme can support the required level of affordable housing. The level required should already be set out following a needs assessment. If a particular scheme cannot meet the level set out, the developer will need to prove that. The affordable housing may be in the form of on site provision: completed homes handed over to the council / a social landlord, shared ownership, sale below market price; or it may be a cash contribution to provide the affordable housing elsewhere.

At any time any planning applicant can come back with an amended application. That revision is then considered on it's merit's - be that the colour of the bricks, the overall number / size / type / design of the homes or the amount of affordable housing provision. It is then up to the Planning Authority and the applicant to discuss that proposed change. At the end of the process an applicant can appeal the decision on the original or amended planning application to the Planning Inspectorate.

If your council has previously chosen to allow such 'fiddles' or 'frauds' to take place, I recommend that you download the relevent officers report, where the matter of affordable housing provision - or lack of - or reduction in previously agreed amounts will be discussed.

Whether the Planning Committee then follows the officer's recommendations is another matter.

Nothing you say there negates my point - its only unviable if you have overpaid for the land. Unless you are telling me that you cant physically make a profit from building and selling an 'affordable' house even if you exclude land costs?

 

[Baxenden Bank]

Nothing you say there negates my point - its only unviable if you have overpaid for the land. Unless you are telling me that you cant physically make a profit from building and selling an 'affordable' house even if you exclude land costs?

The viability assessment will determine whether too much has been paid for the land, along with probing other ways of 'cooking the books' such as using inflated building costs to make the development appear less profitable and thus a lower amount available to be gifted across for affordable housing. Using the Residual Land Value methodology, it works back to tell you how much you can / should have paid for the land. A discussion between the developer and the Planning Authority ought to include 'the developer having paid too much for the land', or 'having the value of the land on his books at greater than it is worth or greater than he originally paid for it'.

Unfortunately, in the real world, sometimes people will only sell for a high price, and homes (affordable or not) need to be built. Way back when, the uplift in land value between agricultural and (say) housing was heavily taxed to provide the money to pay for associated roads, schools, social housing or whatever.

Whether a home can be built 'profitably' even at nil land value is a good point. It depends where you are in the country and construction costs / house prices in that locality. Certainly in 'the north and midlands' many brownfield regeneration sites are undevelopable without subsidy and the residual land value is negative. No-one wants to sell their land at negative value, that is, here's 10 hectares and have £100,000 cash to go with it. There are areas where homes for social or affordable rent cannot be built 'commercially' even at cost even with land gifted to them. The social landlord needs to be able to borrow the money to fund the scheme and if the costs are greater than the future rental, subsidy of some kind is required. That may be free land from the council or government, a grant towards the capital cost or an easy loan (deferred and or low interest rates).

 

[Meerkat]

The viability assessment will determine whether too much has been paid for the land, along with probing other ways of 'cooking the books' such as using inflated building costs to make the development appear less profitable and thus a lower amount available to be gifted across for affordable housing. Using the Residual Land Value methodology, it works back to tell you how much you can / should have paid for the land. A discussion between the developer and the Planning Authority ought to include 'the developer having paid too much for the land', or 'having the value of the land on his books at greater than it is worth or greater than he originally paid for it'.

Unfortunately, in the real world, sometimes people will only sell for a high price, and homes (affordable or not) need to be built. Way back when, the uplift in land value between agricultural and (say) housing was heavily taxed to provide the money to pay for associated roads, schools, social housing or whatever.

Whether a home can be built 'profitably' even at nil land value is a good point. It depends where you are in the country and construction costs / house prices in that locality. Certainly in 'the north and midlands' many brownfield regeneration sites are undevelopable without subsidy and the residual land value is negative. No-one wants to sell their land at negative value, that is, here's 10 hectares and have £100,000 cash to go with it. There are areas where homes for social or affordable rent cannot be built 'commercially' even at cost even with land gifted to them. The social landlord needs to be able to borrow the money to fund the scheme and if the costs are greater than the future rental, subsidy of some kind is required. That may be free land from the council or government, a grant towards the capital cost or an easy loan (deferred and or low interest rates).

Thanks, interesting. I'm still not convinced that in the south east they havent paid too much for the land (as in the 'market value' is based on getting away with later reducing the affordable percentage, when it shouldnt). Its very suspicious that they do their sums for the initial planning application then come back later pleading that its unviable.
I think there needs to be some way of taxing land once it is allocated for housing by the council such that land banking is less viable, and to encourage landowners to develop it or sell it to someone who will.....though I can't quite shed the feeling their would be some unfairness involved in some cases.

 

[Baxenden Bank]

Thanks, interesting. I'm still not convinced that in the south east they havent paid too much for the land (as in the 'market value' is based on getting away with later reducing the affordable percentage, when it shouldnt). Its very suspicious that they do their sums for the initial planning application then come back later pleading that its unviable.
I think there needs to be some way of taxing land once it is allocated for housing by the council such that land banking is less viable, and to encourage landowners to develop it or sell it to someone who will.....though I can't quite shed the feeling their would be some unfairness involved in some cases.

You mean like:
The Town and Country Planning Act, 1947

The basic provisions of the Act which are relevant here were as follows:
a. The right to develop land became a state monopoly, and permission to develop, or change the use of, land had to be bought from the newly-created Central Land Board. The definition of "development" was therefore not confined to construction on vacant sites and the re-development of existing buildings. It also included the change of use of buildings from one business to another.
b. When "development", within the special meaning of the Act, required planning permission, it attracted a Development Charge. The Act, however, laid down twenty-two classes of undertakings or occupations which were to be considered as of a similar nature.
A change of use within a class was not deemed to involve "development", and was therefore exempt from Development Charge. But a change of use from one class to another required planning permission and, if granted, attracted a Development Charge. As an example, shops as such were not a single class of use. The class into which a shop was placed depended on what it sold. A person could not change from selling sweets to selling meat, or vice versa, without planning permission - which, if granted, made him liable to a Development Charge.
c. The method of calculating the amount of Development Charge payable was to take the assumed selling value of a property if it was confined to its present use – "existing use value", as this was called - and deduct this from the value of the property with permission for its development potential to be realised. The difference between the two values was taxed at 100 per cent.
d. A sum of £300 millions was made available as compensation to land owners who could claim hardship because their land was ripe for development, but the Central Land Board had refused them the right to develop.
The Act was passed in August 1947, and the planning sections took effect shortly afterwards. The rest of the Act, which included the Development Charge (s.61) came into effect in July 1948.

Link to labourland.org research paper

or

The Development Land Tax Act 1976:

An act to impose a new tax on the realisation of the development value of land.

link to act at legislation.go.uk

Been there, done that, some people don't like that king of thing. They are now in government. It's a Labour type of thing, but we haven't had an actual Labour Government, interested in wading into the free market to achieve social ends, for quite some time.

 

[Meerkat]

You mean like:
The Town and Country Planning Act, 1947



Link to labourland.org research paper

or

The Development Land Tax Act 1976:

link to act at legislation.go.uk

Been there, done that, some people don't like that king of thing. They are now in government. It's a Labour type of thing, but we haven't had an actual Labour Government, interested in wading into the free market to achieve social ends, for quite some time.

Yeah, I don't like that kind of thing, too much whiff of communism for me, and 100% tax! Must be something inbetween.
But once a percentage affordable has been decided it should be stuck with unless it is one of those examples you gave of negative land value.
I don't know how you fix it but part of the problem is the legal strength of the developers. Councils sway to the developers side because the cost of losing an appeal in the courts is so big.

 

[Baxenden Bank]

Yeah, I don't like that kind of thing, too much whiff of communism for me, and 100% tax! Must be something inbetween.
But once a percentage affordable has been decided it should be stuck with unless it is one of those examples you gave of negative land value.
I don't know how you fix it but part of the problem is the legal strength of the developers. Councils sway to the developers side because the cost of losing an appeal in the courts is so big.

The fix, for a non interventionist, is the current situation. A contribution to infrastructure is expected by most developers (the odd hardcase won't give anything up), they don't really care what for (roads, schools, playgrounds, affordable housing) as long as it gets them their planning permission. A competent developer factors it in as a cost, just as they do architects fees etc. If the council asks for too much, a discussion is required. Who or what gives will depend on the skills / experience of the two sides and the instructions from management / politicians. If education has a strong hold, the contribution will go there first, if housing have a strong hold, the contribution will go there. The Community Infrastucture Levy, and its associated calculations of future infrastructure needs, was meant to deal with many of the 'oh, by the way, we need you to fund a new primary school' surprises.

One problem is land speculators who really do want to max out the value. Agree a 'purchase option' with the farmer (or a % success fee), gain planning permission, sell the option on to a proper developer. The landowners only sees the maximum £ promised by the speculator, the speculator wants the maximum fee/uplift, the ultimate developer either buys the land at that value or walks away - in which case you get zero houses with zero affordable rather than 100 houses with 10% reduced to 5% affordable contribution.

The issue is significantly more complicated than the simple 'the councils never give planning permision for anything' or 'the housebuilders sit on massive landbanks' portrayed in the media. There are councils, democratically elected remember, who do not want much new housing in their area. Equally there are developers who sit on sites waiting for the right conditions to get the best return on their investment.

Some examples:
A landowner sat on a site because it was his sons inheritance. When he died it would be sold and then be available for housing.
A landowner ran his business from a site and his elderly mother lived in the house in the middle. When she died he would relocate the business anyway, but not until.
A manufacturing company had a loan secured against some land. Accepting a lower value for that land would put that loan into default and become repayable.
Similar applies to land valued in company accounts as an asset, revaluing it at a lower amount (or selling it) comes straight off the balance sheet.
A manufacturing company wanted to have their land identified as a future housing site but wouldn't let it be named publicly because they didn't want their staff to know that far in advance that they had already decided to close the business down.

Then there are problems where sites have already been bought and the council comes along and imposes a new cost. Is it the developers fault for not having a crystal ball?
Similarly buying land for a fair amount when the market is strong, then trying to build it out when the market is weak. Accepting a lower contribution for affordable housing may ensure the site goes ahead now rather than being landbanked until the market recovers.

Yes the system can be, and is, gamed. By both sides.