Northern Ireland

[Sogy]

Just 6 years ago my brother bought a 3 bed semi for £72,000 and a friend bought a detached for house for £90,000. Both bought in new developments. How did the builder manage to build these houses and make a profit?

That was then and this is now. The wages went up, the energy went up horribly - and they need to fuel their machinery and bake the bricks! The government extortion went up (although, supposedly, that of the paramilitaries went down). The land went up like crazy. Finally, the profits went up - and that's their God-given right!

Edited June 5, 2008 by Sogy

[BelfastVI]

Yep that all makes perfect sense today. But we are now facing a recession. Read the first line of my signature please.

Just 6 years ago my brother bought a 3 bed semi for £72,000 and a friend bought a detached for house for £90,000. Both bought in new developments. How did the builder manage to build these houses and make a profit?

What will happen to house prices now has more to do with affordability than construction costs. There will be little demand until housing becomes generally affordable again. Affordability will be linked to average wages.

If you look at the figures for housing starts, they have fallen of a cliff. Developers know that there is no demand. No point in producing something you cannot sell - just like any other business. It does not matter if it is the sheep business or the houses business.

I agree with the first line of your signature.

6 years is a long time in the housing industry. House prices are made up many elements we can reduce them to 3 basic: Land, Build Costs and Profit. Land will and has come down, no doubt about that. Six years ago it was probably about £150k per acre. However, I am inclined to think a farmer, with zoned land, faced with selling it for that would sit back and let the next generation deal with it after seeing it go to 10 times that value. But who knows.

Build cost has changed dramatically. I agree with Traktion in that a lot of developers weren’t concerned with cost control during the boom, but the established builders were and they seen it grow dramatically. Yes sub-contractors pushed up their rates and they will have to pull their horns in again. However the main increases were in red tape and new building regulations. BT, street lighting and the water service, 6 years ago paid the builder to install their services. This wasn’t a profit centre but a cost neutral affair.

Developers now, not only don’t get paid for it but have to pay the service provider. Swing in cost £5,000 to£7,000 per plot.

Any junction improvements that the department can think of are now a condition of planning. This is normally £2,000 to £5,000 per plot.

Archaeology is on average £20k per acre, if they find nothing (a complete rip off).=£1,500 per plot

Finance for the wait (3 years) to get thro planning (on £50k plot cost) £10,000 per plot.

In the last 6 years the open space requirement is in place = 15% of site = Land + loss of profit = £10,000 per house

General increase in materials and labour at 3% over 6 years (it was much higher) = £10,000 per plot

Red tape (planning costs) Risen in average from £500 per plot to £5,000 = £4,500 per plot

New building control requirements (down stairs loo, insulation etc) £4,000 per plot

New building control regulations, yet to hit the ground. (Sustainability, solar heating, air tightness) £20,000 (I kid you not; the UK large firms are going mad about this and may be able to water it down)

I could go on and on

Taking the lower figures that comes to an increase in build cost of £47k, before I even add on the £20 for future building regs. In these figures I have only assumed inflation for rising labour and materials which is laughable.

The point I am making again is we can’t just wind back the clock. All the increases above were swallowed up in the boom – they didn’t hurt. They will now.

Yes in the current market demand and supply ( and supply of credit) will set the price, but when the current 'new build stock' finally runs out builders will only build at, as a min- break even, to recover the banks money and hopefully move on to some sort of profit. And this is on new land at adjusted prices. A lot will never recover the land value of the latest addition to their current land banks.

Again I am not attempting to argue for upward house prices as there is absolutely no upward pressure but you can’t assume that in the future builders will build at a loss and even if they can roll back to historical labour and material costs they have a massive 'surcharge' of red-tape and taxes, as listed above to add on.

So something has to give.

[Traktion]

BelfastVI, if there are as many extra costs as you describe, I fear this is going to hit the construction industry even heavier than I previously thought. It sounds like there might have to be a real phase shift in the way dwellings are built, as margins may be too small to continue in the current mould. Perhaps this is the ultimate intention of the new requirements? It does sound like the changes are wide reaching. Certainly, new building techniques and technologies may have to be brought into play to keep prices competitive.

That said, it will certainly cause the developers to bargain hard for any land. With these costs known up front, it would take a brave developer to over pay for land. The dead lock could ultimately cause supply to constrict, but I fear for the construction industry that this won't be until after current stock has been sold at crash trough prices.

This does sound like a good time for developers to pressure the NI assembly to look thoroughly through the regulations again though. With alertest global climate change theories already on the ropes, some of the proposals to "force" efficiency too quickly on the construction industry, seems rather heavy handed. With a backlash building (excuse the pun!) over high (and retrospective) "green" motoring taxes, perhaps now is also the time to look over heavy handed environmental building regulations, too? At the very least, it sounds like an overhaul of the planning system is needed and (usually pointless imo) red tape needs to be cut. It sounds like the service provider agreement needs to be looked at again too, to make it more even (why shouldn't they pay their share?).

Perhaps developers could make a concerted effort to lobby the government for change? The government seems to be rather blinkered; They seem obsessed with "quick fixes" like shared ownership deals hand outs, rather than taking a longer term view.

Materials are likely to remain high; I can't see a way around this until fuel/energy costs come down and this may take many years. Wages will likely deflate (relative to average wage inflation) though as, as building slows, there will be an oversupply of builders, as I think we agree on. If land prices take the expected pounding, open space costings may become less of an issue though. Talking of land costings, if may be a decade or more before land can start to demand high prices again, and longer still before peak prices... will they be prepared to wait that long? Some may, while others may decide they want the money now - the offers for the land may not come around again for a while.

Ultimately, if the developers don't act to help reduce these expenses (and pressure the government to ease regulation) and fail to react to the new market economics, they will struggle to remain solvent. Pressure on prices will come from existing housing stock, as well as new. Looking on property news, the majority of properties are not new builds. As prices get more irrationally cheap, the pressure on developers will only increase.

EDIT: One other thought - renewable energy supplies integrated into houses could/should be considered a selling point too. As long as evidence can be provided of potential savings, people are aware that energy costs are spiralling and it would likely be a good USP. Shared geothermal for a whole estate could be cost effective and is technically easily possible now. Whether it is cost affective, that would need to be looked into, but lower fuel bills would be persuasive. Solar progress in the coming years will make for some feasible solutions too, but I don't think we're there yet. Once solar roof tiles can be slotted together and can generate energy without too much cost and fuss, this would be a good selling point too. The products aren't quite there yet though, AFAIK. Using heat pumps instead of oil fired central heating (combined with geothermal preferably) could also be an attractive. My point is, the building of the estate may need to be looked at from these fresh angles, rather than thinking how much it will cost to tick all the boxes using the current, traditional methods.

Edited June 5, 2008 by Traktion

[subby]

good post Trak

[Ballyk]

House in Kilkeel for £10,000,000!

This one sounds a bargain though - 25,000 square feet, 17 bedrooms, 2 gatelodges, 6 garages and 140 acres of park.

http://www.knightfrank.co.uk/WS1049635

http://www.ireland.com/newspaper/property/...2602141971.html

[reg79]

With respect to the debate on the increasing costs of building as alluded to by BelfastVI some posters may find this interesting

http://www.thisismoney.co.uk/mortgages/art...mp;in_page_id=8

Edited June 6, 2008 by reg79

[subby]

House in Kilkeel for £10,000,000!

This one sounds a bargain though - 25,000 square feet, 17 bedrooms, 2 gatelodges, 6 garages and 140 acres of park.

http://www.knightfrank.co.uk/WS1049635

http://www.ireland.com/newspaper/property/...2602141971.html

nightmare on oil heating bills though

[Ballyk]

nightmare on oil heating bills though

And clobbered by rates too! Though whoever buys it probably won't even notice...

[Traktion]

With respect to the debate on the increasing costs of building as alluded to by BelfastVI some posters may find this interesting

http://www.thisismoney.co.uk/mortgages/art...mp;in_page_id=8

Interesting link reg79. The observations I would make are:

1) If this is more evidence of more eastern Europeans heading home, then the demand from rental properties will soften. This should help rental costs stay low.

2) I would also think this cost wise, this could be short term. As work starts drying up over the next year or so, as building continues to wind down, I wouldn't be surprised if competition between builders starts to increase again. This would likely force down the labour costs.

3) In the short term, this could hit developers again, already struggling with a slow market and falling selling prices.

I would say we're seeing the down side of a mobile workforce - they're fair weather workers; they'll help you in the good times, but leave you to it in the bad. And who would blame them? I'm sure it will take a year or so for the decks to shuffle again before things stabilise.

[pod]

Listening to Ulster radio news at 5.40pm I nearly choked on my tea. There was a story about a piece of land sold by the NI govt to developers for 290 million. Now they can't get planning permission for what they want to build on it and the land is only worth 6million as a result and they want the government to compensate them. ie give them the money back. Unfortunately the money has been spent.

Forward to 48 mins

http://www.bbc.co.uk/radio/aod/networks/ul...eningextra_fri#

[wayoutwest]

And clobbered by rates too! Though whoever buys it probably won't even notice...

Not quite. The valuation cap was set at 500k, so a £10M house is effectively valued at 1/20 for its rates bill. And that is fair according to our new First Minister, and former Finance Minister and estate agent.

http://www.lpsni.gov.uk/index/rating/billi...d_.htm#domestic

[yadayada]

Not quite. The valuation cap was set at 500k, so a £10M house is effectively valued at 1/20 for its rates bill. And that is fair according to our new First Minister, and former Finance Minister and estate agent.

http://www.lpsni.gov.uk/index/rating/billi...d_.htm#domestic

... and you're paying a bit extra on your wee house to make up the shortfall. But, come on, fair's fair (or fare?) - those rich folks need that tax break to look after that big house. Damn those heating bills.

[yadayada]

Listening to Ulster radio news at 5.40pm I nearly choked on my tea. There was a story about a piece of land sold by the NI govt to developers for 290 million. Now they can't get planning permission for what they want to build on it and the land is only worth 6million as a result and they want the government to compensate them. ie give them the money back. Unfortunately the money has been spent.

edit correction it is 200 million and I cant quite make out what the other 90 million is for.

Could this be the first time the government ever made a cute move? These deals usually involve an act of stunning stupidity on the part of government - remember Mr Brown and the gold sales? But what poor duffer got his land vested for half nothing in the first place?

[talksalot81]

Not quite. The valuation cap was set at 500k, so a £10M house is effectively valued at 1/20 for its rates bill. And that is fair according to our new First Minister, and former Finance Minister and estate agent.

http://www.lpsni.gov.uk/index/rating/billi...d_.htm#domestic

Oh belt up. There are endless examples of things which were done some time ago which turn out to benefit some people greatly. The whole rates system is a great example, ever last home owner is paying accoding to an outdated rateable value (often by a factor of 2, 3 or more)

[BelfastVI]

Listening to Ulster radio news at 5.40pm I nearly choked on my tea. There was a story about a piece of land sold by the NI govt to developers for 290 million. Now they can't get planning permission for what they want to build on it and the land is only worth 6million as a result and they want the government to compensate them. ie give them the money back. Unfortunately the money has been spent.

edit correction it is 200 million and I cant quite make out what the other 90 million is for.

I am afraid this is not correct. The MoA had its land valued at £200m, which if they sold the funds would go to the DFP. The DFP on the 'strength' of that forwarded £90m for some nitrate scheme and this money was to be deducted from the income of the sale. The £90m is spent and the land will not get zoned for development and is only worth £6m. Ooops!

[wayoutwest]

Oh belt up. There are endless examples of things which were done some time ago which turn out to benefit some people greatly. The whole rates system is a great example, ever last home owner is paying accoding to an outdated rateable value (often by a factor of 2, 3 or more)

Belt up yourself. This was not done more than a few years ago. Robinson indicated he was in favour of dropping the upper cap to 400k only last November.

The working and middle class subsidise the super rich and the non-working class in this instance.

http://www.dfpni.gov.uk/index/news/news-ar...rs_on_rates.htm

[spring]

Saw this on the nationwide mortgage repayment calculator:

nationwide repayment calculator

Quote and applyGet a quote to compare all of your mortgage options. Apply online and we will give you an instant decision in principle.

The maximum borrowing limit on New Build Flats is 75% of the value of your home.

The maximum borrowing limit on New Build Houses is 90% of the value of your home.

Does this mean that they see new build flats as riskier (ie likely to fall by a higher amt) than houses?

[talksalot81]

Belt up yourself. This was not done more than a few years ago. Robinson indicated he was in favour of dropping the upper cap to 400k only last November.

The working and middle class subsidise the super rich and the non-working class in this instance.

http://www.dfpni.gov.uk/index/news/news-ar...rs_on_rates.htm

This whole arguement is simply ridiculous. I am so poor that I cannot afford a house yet somehow I pay more tax than many of these unfortunate working and middle class types.

If you have a problem with the cap, why not take advantage of it rather than complaining about it?

[Belfast Boy]

Was reading some of the comments on the main forum, on the Guardian and Times saying there was a possibility that house prices would fall by 50%. (real)

If house prices fall by 50% (nominal) in Northern Ireland, would an average house at £125,000 be affordable to the average person? Or is that still expensive?

What should the average house price be, to be affordable?

[yadayada]

This whole arguement is simply ridiculous. I am so poor that I cannot afford a house yet somehow I pay more tax than many of these unfortunate working and middle class types.

If you have a problem with the cap, why not take advantage of it rather than complaining about it?

No, you don't. Unless you voluntarily boost your tax bill by consuming vast quantities of petrol, alcohol and tobacco. Maybe you should fire your useless accountant.

If you are poor, your income tax is lower (until they got rid of the 20% bracket, anyway), while if you're very rich, you can always skip to Jersey.

Now you've declared you don't own a £400+ house, I really can't understand your concern for those more fortunate than you who do.

Edited June 9, 2008 by yadayada

[pod]

If you look to the right hand side of this site it tells you the number of persons on the site. It's usually between 1 and maybe 30.

http://www.strabanemortgagecentre.com/

At the moment it's 1248

ROI vestors back in town...!

[talksalot81]

No, you don't. Unless you voluntarily boost your tax bill by consuming vast quantities of petrol, alcohol and tobacco. Maybe you should fire your useless accountant.

Since it seems to have bypassed you, the point I was making was that I am a high earner (in NI terms) but am unable to afford reasonable property. We then have a lower end home owner complaining that those with expensive houses 'get it easy' when they themselves 'got it easy' buying a house when property was less expensive.

[talksalot81]

Was reading some of the comments on the main forum, on the Guardian and Times saying there was a possibility that house prices would fall by 50%. (real)

If house prices fall by 50% (nominal) in Northern Ireland, would an average house at £125,000 be affordable to the average person? Or is that still expensive?

What should the average house price be, to be affordable?

I think it would be OK. Asssuming a 100% IO mortgage (for ease), it would be about £700 pm. Average income at £20k for 2 people, about £2500 pm after deductions therefore the fraction of out to in is about 0.3 which is reasonable. When repayment mortgage and deposits are considered, it would likely be similar.

We have to also remember that this is average.... were that to be the case, we would have a large selection of lesser property in the £90-110k range.

[talksalot81]

Well, congratulations, but bypass or not, that was then and this is now - if that's your point then everyone, rich or poor "got it easy" then. It's today's taxation and cash flow that matters, and people see the inherent unfairness and cronyism in a tax break for the rich.

But this is not just a question of homeowners. Homeowners are complaining that someone better off than them is taxed but I bet they would not support that priced out individuals get tax breaks to which they are ineligible.

[talksalot81]

I know you used a IO mortgage just for example. But that will make it look alot more affordable than the true reality.

Besides are 100% IO mortgages not considered subprime?

Yes but.... in reality, the repayment aspect will raise the cost whereas the necessary deposit will decrease it....

It was an approximate calculation to give a feeling for the numbers and I would have concluded that it seemed OK. You may be right with respect to the average household income... in which case not so OK.