Financing of new housing supply

Written submission from the National Self Build Association

NaSBA is the main body that represents the interests of the £3.6billion a year self/custom build sector. The organisation has a wide range of members – individual self builders, professional consultants active in the sector and a range of building products companies, builders merchants and specialist self built contractor/developer/enablers. We have been working with a team from the DCLG for the last year as part of a plan to significantly grow the number of self/custom built homes completed in the UK.

Financing for Self Build projects

1. There is a huge demand among the British public to have a home built for themselves. A survey conducted by the Building Societies Association in the autumn of 2011 suggested that 53% of the population would, at some stage in their lives, like to have a self/custom built home. Another survey, by one of the biggest lenders active in the self build sector (the Norwich and Peterborough Building Society) indicated that 30 % of the population would like to undertake a self/custom build project in the next five years, and that 12% would (ideally) like to tackle a project over the coming 12 months. Based on the number of households there are in the UK that’s about three million families who want to get a project off the ground in 2012.

2. This latent demand is borne out by other indicators too – typically four million people watch each episode of Grand Designs, more than 400,000 people searched for a building plot on Rightmove in September 2011, and over 100,000 people subscribe to the three main plot finding websites. The self build magazines are read by more than 100,000 people each month and there are eight exhibitions on self build every year, attended by around 200,000 people in total.

3. All this suggests there is a real desire among the British public to undertake a self/custom build project.

4. There are, however, two main problems to overcome, which is why only about 14,000 people currently manage to get a project off the ground each year.

5. The biggest hurdle is finding a suitable building plot. In parts of the UK there is reasonable availability (eg Northern Ireland, parts of Scotland and Wales), but in the more southerly parts of the UK, and in any of the urban areas, sites are very hard to find, and they are extremely expensive (compared to most other countries). The Government has recognised this and has taken action to help. For example the NPPF will require all local authorities to now assess the demand there is for self/custom build in their area, and then take suitable positive actions. And the Homes and Communities Agency is about to release five large sites for group self build opportunities that should deliver around 70 new homes.

6. The next biggest challenge is getting finance. There are two issues here – getting finance for an individual self build home; and getting finance for a group or community self build scheme. Mortgages are still available for individuals hoping to build their own homes, though typically the self builder will still need a sizeable deposit for the land and the construction cost (around 25% of the total is typical). While the Government and the major housebuilders have set up a scheme to make 95% mortgages available to new homes buyers, it seems unlikely that any such incentive will ever be practical to help one-off self builders.

7. For groups of people trying to get a community self build project off the ground for – say 10-15 families – getting finance to buy a site so they can split it up into individual plots is very difficult. Inevitably the people will all have different financial circumstances, and few of them will have lots of ready cash available. When groups of people have done this in the past they have either been blessed with access to a wealthy benefactor, or the land cost has been very low in the first place. The new £30m Revolving Fund that was announced by the Housing Minister in the autumn will help groups like this, as they should be able to qualify for a set amount of money that would then enable them to bid for sites (against the more nimble land buyers from the major housebuilders).

8. For small builders, who are expected to be very important providers of serviced self build plots in the future, getting finance from the conventional banks is currently very difficult. We know of many builder/developers who can’t get loans; and those that have been offered finance, can only access it at very high interest rates and with exorbitant arrangement fees. For example, a builder seeking £200,000 to buy a site that could be split into four plots for self builders, was offered the cash from a bank, but we have been told the total cost was almost another £100,000. This made the whole scheme non viable.

9. We know your Committee has visited Almere and you were impressed by the self build project you saw there. We would welcome similar projects to this being set up in and around the UK. This will require a mind-shift from some people in the planning world, but we think the idea of a very ‘light touch’ planning regime has much to commend it.

10. The biggest challenge with a project like Almere is finding a local authority with the vision and enterprise it give it a go.

11. The other key to the success is the initial land cost; it has to be acquired at something like agricultural values initially. The council then has to invest in the infrastructure – roads, utilities etc – and this usually adds at least £10,000 per plot provided.

12. At Almere land is sold by the square metre to would-be self builders; so those on tight budgets wanting only a modest home might buy just 100 sq m, and build a two or three storey house on it to give them a 80-100 sq m (two/three bed) home. The land at Almere is sold to self builders at about £290 per sq m, so a 100 sq m plot costs them £29,000. With typical build costs of about £1,000 per sq metre, you can therefore buy a site and build a three bedroom home for about £130-150,000.

13. In the UK similar building plots would be at least two to three times as expensive as they are in Almere – if not more.

14. If projects like this are to be set up in the UK we are confident there would be huge demand, as they save the average home buyer about £50,000 per home. And they get the home they really want, rather than an off-the-shelf solution that’s been built as cost effectively/cheaply as possible by a volume housebuilder.

15. In Germany and France nearly every council provides a steady stream of affordable building plots for its residents. Typically the land is acquired by the council at modest cost, the infrastructure is put in, and the plots are then made available to people at reasonable prices. Sometimes some of the plots are reserved for people in key occupations or locals that have lived in the area for many years, and are offered at a reduced rate (with larger plots sold at a premium to help cover this).

16. That’s why self/custom build is such a mainstream way of providing housing in continental Europe. We’d like to see the same happen here.

17. We don’t believe there’s any need for a subsidy – councils should recover all their costs in land acquisition and putting in the infrastructure. Indeed they might even be able to make a modest profit.

18. And if the plots are readily available at reasonable prices – typically they are available at about £50,000 each in most of Germany and France – hundreds of thousands of people in the UK would be able to get their dream self/custom build home underway.

February 2012