Could custom-building offer a way out of a housing crisis, deliver better returns on public subsidy and improved designs? Katie Puckett reports. Illustration by Toby Morison.
When the gates of Windmill Hill Primary School closed for the last time, the land buyers of the major housebuilders were not exactly circling. The site in west Swindon is not an obvious choice for a new housing project, even though it’s in the middle of a residential area and suitable for little else. “It’s a relatively small site, and a lot of it is protected from development under the Education Act,” explains Jonathan Coats, principal valuer at Swindon Borough Council. “There’s a lot of old services in the ground too, from an old main road, so it’s not one of those sites where a national housebuilder could go in quickly and throw up some houses.”
But after more than four years of hard graft by the council and Swindon-based self-build specialist BuildStore, which will act as project manager, the Windmill Green development is reaching the final planning and legal hurdles. If these are overcome, it will provide 15 serviced plots for local people to build their own homes, with 13 to follow in a second phase.
It’s a flagship for the self-build movement nationwide, which foresees a future where alternative models of housebuilding could play a much bigger part in addressing the national housing shortage, while also delivering a better quality product at a more affordable price. At Windmill Hill, plots will cost around £55,000, and the build around £100,000, compared with the £279,000 asking price for a new-build four-bed home in Swindon.
“We want to make it affordable for local people, rather than an elitist thing,” says Jaclyn Thorburn, communications manager for BuildStore. “This is a trial to see how much demand there is and whether the model works,” says Coats. “If it does, we will look at rolling it out to other sites. But why is the council getting involved? It’s bringing diversity to the housing supply, rather than relying on national housebuilders.”
Finding new ways to deliver housing — somewhere between the Barratt-and-Bellway proposition and social housing — is certainly a priority. Conventional self-build already accounts for 12,000-14,000 units a year, but the government is hoping that a larger scale “custom-build” approach can help reverse the slump in housing starts (see graph overleaf).
Custom-building aims to take the most difficult and least rewarding parts of the process out of the hands of self-builders, involving an “enabling developer”, such as a housebuilder or local authority (see case study overleaf), to help them.
It could also provide an antidote to the expensive, small and poorly built housing delivered by some national housebuilders — according to an RIBA survey only an estimated quarter of people would buy a house built in the past 10 years.
Council backing
To work on a national level, custom-build would need councils to get behind the idea, writing it into their housing strategies, or acting as broker or project manager. It would also require a new breed of custom-build enabling companies: contractors that can benefit from de-risked schemes with identified buyers, or traditional small housebuilders taking advantage of the improved cash-flow proposition of custom-build to scale up their activities.
But it would also need new financing and mortgage options. David Birkbeck, chief executive of housing design champion Design for Homes, believes that the key to unlocking the “huge” potential of custom-building is to copy the Dutch model, which allows people to build on government land and defer the cost until their house is complete and they can borrow against it. “Nothing will help as much as deferring the land cost — that’s the deal breaker,” he says.
Resolving this problem is the secret of the much-admired Almere township in the Netherlands, Europe’s largest self-build scheme with 3,000 homes, where people were allowed three years to build their house, and could defer payment for a further three years if they ran into trouble. Birkbeck refers to the UK government’s Build Now, Pay Later scheme, through which developers can defer the land cost of building homes on public land, saying: “We need a version of that for the self-build market.”
The Netherlands is also a source of inspiration in terms of servicing sites. Stephen Hill, director of land consultancy C2O Futureplanners, argues that the roots of the undersupply issue goes back much further than the funding crisis of 2008. He says it originated in the 1970s, when the government ruled that infrastructure would be paid for by developers, rather than from general taxation.
“We desperately need a new way of paying for infrastructure without making every development pay for its own,” says Hill. “It’s becoming progressively more difficult as the infrastructure deficit grows. To expect communities or self-builders to overcome these problems is expecting too much.” Again, the solution could lie in the Dutch model, where the local authority and local banks pay for infrastructure to support development, and get their returns from the increase in land value and future land tax revenues.
But even if the ideal legal and legislative conditions aren’t yet in place, custom-build is already making headway. Ted Stevens, chair of the National Self Build Association (NaSBA), says he knows of around 50 councils considering custom-build schemes, which could deliver between 1,000 and 2,000 homes in the next 12 months. “There are typically between 10 and 20 homes in a group scheme, but there are also potentially one or two very large schemes which would include up to 2,000 homes,” says Stevens.
Short-term finance
The Homes and Communities Agency (HCA) has a £30m fund to provide short-term finance for group custom-build schemes, and has put forward seven of its own sites as pilot projects. Meanwhile, London mayor Boris Johnson has an £8m fund, which Newham Council is accessing to support a custom-build design competition. The Prince of Wales has even been won over, with his Foundation leading a project of 12-16 self-build homes at the Queen’s Balmoral estate.
The concept also offers opportunities for smaller contractors which would usually be excluded from mainstream housing delivery, without the balance sheets to bid against the big players for land. It’s an opportunity that Ron Gibbons and Simon Pugh, the founders of Urban Self Build, are keen to take. An architect and developer, respectively, they are marketing their first project, an 11-plot site in Peterborough, with two more in the pipeline for this year.
“What attracted us to self-build is that despite the fact that this is a relatively unsupported and unrecognised sector of housebuilding, people still managed to build 12,000 homes every year,” says Gibbons. “There is significant demand there, and we want to liberate that by de-risking the prospect of self-build for everyone involved, from landowners, planners, mortgage providers, building contractors right through to the owners.”
Their model could be termed “enabled self-build”, where a developer such as themselves brings the professional skills to enable people to access funding, land and planning approval and offer them as much, or as little, support as they want. “There are lots of different types of self-builders,” says Pugh. “We can instruct a contractor to build a house up to watertight stage and they can finish it themselves, or offer a bespoke turnkey approach, where the house is built to their specification and at the end they’re handed the keys.”
East Midlands-based housebuilder Fairgrove Homes is also dipping a toe into enabled self-build, with three plots currently available and an application made to the HCA fund to buy another site. But managing director Steve Midgley says his biggest challenge is raising consumer awareness. “For most people it’s something completely new,” he says. He is using social media to spread the word and is also talking to a developer with a similar offer in another part of the country about pooling resources at consumer events.
Midgley’s message is more choice for less money. Self-build mortgages allow homeowners to pay upfront for the land and then to draw down stage payments for the construction, so there is less risk for the housebuilder, which means they can settle for a lower margin. The saving passed on to the buyer will vary, depending on land costs in different parts of the country. But in the East Midlands he estimates it offers about a 10% saving on a new home bought in the traditional way.
Increasing numbers of lenders are taking the custom-build market seriously. However, for the options described above, significant upfront investment would still be required, restricting custom-building to wealthier first-time buyers or those already on the housing ladder who have built up equity in their properties. However, an alternative way to make custom-build or self-build more widely affordable is to remove the cost of land through Community Land Trusts (CLTs).
American model
In the US, there are more than 240 CLTs, accounting for more than 5,000 homes, which are built on public-sector land and intended specifically for local people who cannot afford to buy on the open market. They take out a mortgage on the house itself but the land freehold is retained in the trust, giving them a fixed proportion of the equity, typically around 30%.
According to the National CLT Network, there are now around 130-140 nascent or developing CLTs in England and Wales, of all shapes and sizes, following rapid growth over the past couple of years. Many are small sites in rural areas where locals have been priced out by second-home owners, such as the well-known development in Rock, Cornwall.
There is already a major urban scheme, on a former hospital site in Bow, east London, where 25-30 units out of 2,000 homes will be made available at prices carefully pegged to local incomes. “What CLTs do better than anything else is retain public subsidy, so you only need to subsidise it once,” says Dave Smith, project director for the East London CLT. He suggests CLTs could be used for every development that has a component of intermediate ownership.
Other ideas that could bring down construction costs for custom-built schemes are Rational House (see case study) and the London Popular Home Initiative, developed by consultant Urban Initiatives with backing from United House and Bouygues, as well as six London councils. It proposes a new set of standard housing types for the capital, helping to speed up the planning process and encouraging standardisation in the supply chain. Urban Initiatives’ consultant director Kelvin Campbell says that structuring choice in this way would open up the market to a much wider range of players, “from self-builder to mass contractor and everything in-between”.
True self-build will always account for a limited number of new homes, says Campbell, but he would like to bring the principle into every development. “That’s how we can bring interest and diversity into a place.” He also points out that the solution to Britain’s housing crisis could lie in a project-by-project approach: “We shouldn’t think in terms of needing to build 40,000 homes, we need to think of building six homes here, 10 homes here, and then one day we’ll turn around and we’ll have built 40,000.”
At Windmill Green in Swindon, they have the same philosophy. “You could say 25 plots is not that much, but it’s 25 homes that would otherwise not be there. The council had no use for the land and they couldn’t dispose of it, so it was just going to waste,” says BuildStore’s Thorburn. If every local authority took the same attitude, the housing start graph could soon look slightly healthier.
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