Self-Build: The Price is Right

As described in the previous posts, the new National Planning Policy Framework (NPPF) places local authorities under a duty to assess and cater for the demand for self-build land in their area. East Staffordshire seem to be the first off the blocks with the assessment part of this process, and it seems they are minded to cater for any demand they identify through policies or planning conditions on large-scale housing developments. But we shouldn’t expect the house-builders and other developers to accept this new regime with open arms.

Selling land as serviced plots means the developer loses the profit they can make on building and selling a house, so this new initiative (if it beds in) will cost them money; we can expect them to be resistant, just as they are about imposed quotas of affordable housing. How could a developer wriggle out of selling serviced plots?

Well a simple trick would be to price it out of reach of purchasers. The developer could create the sites, print a brochure, set up a web site and wait. If the advertised prices were high enough, no-one would buy, so the developer could eventually go back to the local authority claiming that the demand hadn’t materialised, and could they now please build some houses? To head off this obvious problem, some control of the pricing of the plots would be necessary.

The obvious way to do this would be on a residual-value basis. Each serviced plot could be ‘zoned’ for a certain size of house, and the end-value of each of these hypothetical houses would be set, benchmarked against the sales prices of the houses that the developer was erecting on adjacent plots. With the end value set, the price of the land – its residual value – is established by subtracting the self-builders costs (construction, legal and professional fees) from that value.

For example if a plot is zoned for a 90sqm three-bed house, which might be valued at £180,000*, the residual value of the land is £180,000 less the self-builders costs – let’s say £100,000 for the build (at £1,100/sqm) plus additional costs/fees of 20%: a total of around £120,000. The plot would therefore be valued at £60,000 (the end value of £180,000 minus costs of £120,000). If the developer were to market this plot at £120,000, it wouldn’t sell.

The devil is in the detail, of course. The whole joy of self-build is that people have different budgets and different ways of procuring their home – from genuine self-BUILD to what ought really to be called self-procure or self-commission – and their actual costs will vary accordingly. But unless some attempt is made to define what a reasonable price for any given plot might be, the developers will eventually get to build and sell more of their standard ‘product’.

I would hope the CLG and National Self-Build Association are onto this. East Staffordshire might need some guidance very soon.

Next Post: ‘Self-Building Bridges
Further reading: Self-Build Norfolk – A White Paper by Lucas Hickman Smith

*Figures are notional.

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