Forest Village #9: Show Me The Money

So far Forest Village is hypothetical, a thought-experiment; but after thinking about it for so long it was hard to stop. Could a Forest Village really be built? Technically speaking, yes it could – Center Parcs had demonstrated that – but it would certainly be more expensive to build than a normal housing estate. Center Parcs covers the capital and revenue costs of creating such a special environment with the income generated from a finely tuned holiday and leisure operation. Forest Village would have to pay for itself off residential values.

Estimating those values would be difficult for such an unusual product (see previous post), but even the assumption that the values would have to be heavily discounted was not an immediate show-stopper. Although Forest Village would be more expensive to build than a normal housing estate, the land it is built on is really cheap. Commercially managed forest might be worth £3,000–4,000 per hectare compared to arable land-values of perhaps £20,000–30,000 per hectare, and up maybe £1.0–1.5m for prime development land.

Furthermore, Forest Village would necessarily have a very different investment model from a conventional housing estate. Normal housing development is based on free-hold sales: the developer buys the land, builds the houses and then sells them off. All that counts is the sales-price minus development costs on the day of sale. At Forest Village the woodland would have to remain in communal ownership and management, so a completely different ownership model would be needed. I actually can’t remember now how we got talking to Savills about Forest Village, but it was the certainly this linked question of ownership and economics that Director of Residential Research Yolande Barnes found most interesting, and she had some clear ideas about how it might work

It could be a combination of traditional freehold and leasehold models, for those of a paternalistic disposition, though issues of leasehold enfranchisement would have to be worked around. Or perhaps Forest Village could be based on a rather more continental, mutual or co-operative model, for those of a more fraternal nature. Either way, long-term ownership and management of the site would create the opportunity for a different form of funding. Long-term, ‘patient equity’ investment would be needed alongside more conventional finance. Many now believe this is the way ahead, even for more conventional housing development. Put more simply, the economics of Forest Village are far from obvious, but not obviously a non-starter.

It was clear that some meaningful demand-testing would be necessary to establish some likely values for the new homes in a Forest Village, and financial modelling of the development could then follow. But without a specific site in mind carrying out this work, a substantial task in its own right, would be not just be pointless but impossible. Before we figured out how to build Forest Village we would have to know where…

Next post: Forest Village #10 – A Crowded Island?

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