Builders *cannot* Build New Houses At A Profit

[PotNoodle]

I was shocked to be told yesterday by my landlady (who owns dozens of houses

from way back - not a newcoming amateur) that on every development that Barrats,

Bovis, Persimmon etc build, for every three new-builds, they must build an

"affordable" house for local council or housing associations.

On this build they make no profit.

In effect, must make the profit on the affordables from the other builds.

Ergo, the new builds *have* to be way over-priced to get back the profit.

Is this true, or is this mad .... or is it both ?

[mbga9pgf]

I was shocked to be told yesterday by my landlady (who owns dozens of houses

from way back - not a newcoming amateur) that on every development that Barrats,

Bovis, Persimmon etc build, for every three new-builds, they must build an

"affordable" house for local council or housing associations.

On this build they make no profit.

In effect, must make the profit on the affordables from the other builds.

Ergo, the new builds *have* to be way over-priced to get back the profit.

Is this true, or is this mad .... or is it both ?

How do you think they get planning permission?

You have to remember however, that all building materials are not VATible so they have no excuse for NOT making monster profits. Same with homebuilds, you can claim back the VAT once the building has been signed off. Note, you say "not make profit from" not "build for free". There is a big difference.

[Goat]

I don't think think the developers increase the cost of the other properties to compensate, they will charge what the market will bear. If this requirement was removed they would still charge the same price and just increase their profits.

Actually I suspect the developers have several ways around this. The at cost property would probably be the smallest and cheapest; also if they are clever (they usually are) they will apportion as much cost to that property as possible thus minimising the discount.

That said I still think the idea of the council demanding a £xx,000 backhander for each 3 properties built is disgusting.

[ChumpusRex]

I was shocked to be told yesterday by my landlady (who owns dozens of houses

from way back - not a newcoming amateur) that on every development that Barrats,

Bovis, Persimmon etc build, for every three new-builds, they must build an

"affordable" house for local council or housing associations.

Is this true, or is this mad .... or is it both ?

It pretty much is true. In many areas, the developers have been forced by the local council to make up to 1/3 of any new development social housing - if they don't, then they won't get planning permission for the development. These low end houses are then sold cheap to housing associations.

The developers don't like it, because it means that they have to use expensive land to build low-end, low profit houses, and thereby force the buyers of the normal houses to pay a premium price.

Buyers don't like it either. However, the naive buyer, may not know especially if they are buying off plan, that there is a huge council sink estate going up just over the road. All they see are brochures, and a plush show house, with lots of unbuilt homes, and they imagine lots of middle class families, with their well behaved little Bendict and Jemima. For this reason, developers are very keen to build all their best homes first, then do the social homes last, so that they don't put off prospective buyers. Of course, once the development is up and finished, then the naive buyers end up with a problem when they come to sell.

Of course, sometimes housing associations can be fussy - they may have very strict requirements on disabled access (and therefore size of stairwells, size of hallways, etc.), distance to amenities, etc. There have been a couple of developments, where the developer didn't want to complete, and offered the HAs some of their 'posh' houses/flats at a discount price. The HA didn't want them - 'not up to standard'.

[ma-ku]

I was shocked to be told yesterday by my landlady (who owns dozens of houses

from way back - not a newcoming amateur) that on every development that Barrats,

Bovis, Persimmon etc build, for every three new-builds, they must build an

"affordable" house for local council or housing associations.

On this build they make no profit.

In effect, must make the profit on the affordables from the other builds.

Ergo, the new builds *have* to be way over-priced to get back the profit.

Is this true, or is this mad .... or is it both ?

True and possibly mad. Not sure if it's as high as one in four but could believe it. So called "affordable housing" is hogwash. It's actually a tacit acknowledgement that house prices are too high to allow folk doing normal but essential jobs (nurses, etc) to buy. Better to run an economy on something other than speculation on tulips, and keep the average house affordable to the average family via (managed!) market forces. One way to do this could be to tax the crap out of second home ownership thus removing a swathe of speculative activity which contributes to house price bubbles such as that we have just seen go pop.

Anecdotal alert, an aunt of mine has just been made redundant. She was working in the commercial property sector and also had a couple of BTLs. (boo hiss, I know). She has gone from being an apparently wealthy individual, to one that has got some serious financial problems to deal with. When I talked to her about the housing market a couple of years ago, her answer to my firm belief that investing in property was risky (other than as a primary residence - at the right price), was that "pensions are not worth investing in because governments cannot be trusted not to raid them" (as our lovely PM did all those years ago). Hence, she put her pension eggs in the housing basket. I am sure there are thousands of people like her.

Edited May 2, 2008 by ma-ku

[The Conveyancer]

This is sort of true.

Normally the developers try to get it allocated to "key workers". It is alot easier to sell the general public that there are teachers, policemen and nursing sharing your estate than the great unwashed.

They can also get round it by making other donations instead. For a small retirement development this can be some road improvements and a contribution to a library, for big developments that are main stream a doctors surgery or even maybe a new school.

[alexw]

I was shocked to be told yesterday by my landlady (who owns dozens of houses

from way back - not a newcoming amateur) that on every development that Barrats,

Bovis, Persimmon etc build, for every three new-builds, they must build an

"affordable" house for local council or housing associations.

On this build they make no profit.

In effect, must make the profit on the affordables from the other builds.

Ergo, the new builds *have* to be way over-priced to get back the profit.

Is this true, or is this mad .... or is it both ?

This is very misleading. If they the developers hadn't bid up land prices to extremes then new build housing would not have to be way overpriced to make a profit. But then, they wouldn't have overbid if overall house prices had not increased to such ridiculous extremes.

[Flopsy]

The compulsory "affordable housing" only applied to developments over a certain number of houses/flats - doesn't it?

[Now or never]

I provide heating designs for these new builds and what people dont realise is that the affordable housing schemes have better heating systems with lower running costs than those sold privately, so not only do you pay to live next to the 'pro-claimers' you also pay more than them to live in it! Its all because the government realise that they may not be able to afford the high energy bills, poor benefit claiming scummers!

[Guest DissipatedYouthIsValuable]

I provide heating designs for these new builds and what people dont realise is that the affordable housing schemes have better heating systems with lower running costs than those sold privately, so not only do you pay to live next to the 'pro-claimers' you also pay more than them to live in it! Its all because the government realise that they may not be able to afford the high energy bills, poor benefit claiming scummers!

Wish I was a poor benefit claiming scummer

[Guest Mr Parry]

How do you think they get planning permission?

You have to remember however, that all building materials are not VATible so they have no excuse for NOT making monster profits. Same with homebuilds, you can claim back the VAT once the building has been signed off. Note, you say "not make profit from" not "build for free". There is a big difference.

Add to this recent land bank purchases, if you want a shock look at the VOA website. Add to this materials and wage inflation. Add to this Section 106 agreement costs, now cash to councils rather than just additional infrastructure.

Building costs are high.

[chichi]

In effect, must make the profit on the affordables from the other builds.

Ergo, the new builds *have* to be way over-priced to get back the profit.

Is this true, or is this mad .... or is it both ?

It's 10% on most project I think.

And affordable meant 85k rather than 135k for a 2 bed flat.

And they can only sell for the same % of market value - to keep them lower priced.

I think calling it affordable or social is wrong. It is neither.

[bkkandrew]

A hitherto ignored part of this subject is that for the last 10 years, Local Authorites have been almost entirly reliant on developments using 'Section 106 Agreements' to fund most, if not all, discretionery spending.

With developments now drying up, I wonder what will happen to the Local Authority budgets dependant on Section 106...?

[George Abdgwengo]

I've just STR'd a 2 year old Barratt house on a massive new brownfield estate which has around 600 new houses, the oldest of which was built about 5 years ago. Barratt, Persimmon and a couple of other phases are finished and they are laughing. David McLean are 90% finished, and unfortunately for RedRow they were just starting the last phase when NR happened lol. I've heard rumours of HA housing going in right at the end, and a large section of the development was fenced off a couple of months ago, so I assume that's where they are going. However Barratt, Persimmon et al have built no HA to date, so it's a bit harsh that RedRow would be lumbered with the entire HA quota for the whole estate. I've pestered the RedRow sales office and they deny it, and their scale model shows private housing filling the rest of the site. Perhaps they didn't have to build HA as it was brownfield, and if you don't have a car your fooked.

[chas]

I've just STR'd a 2 year old Barratt house on a massive new brownfield estate which has around 600 new houses, the oldest of which was built about 5 years ago. Barratt, Persimmon and a couple of other phases are finished and they are laughing. David McLean are 90% finished, and unfortunately for RedRow they were just starting the last phase when NR happened lol. I've heard rumours of HA housing going in right at the end, and a large section of the development was fenced off a couple of months ago, so I assume that's where they are going. However Barratt, Persimmon et al have built no HA to date, so it's a bit harsh that RedRow would be lumbered with the entire HA quota for the whole estate. I've pestered the RedRow sales office and they deny it, and their scale model shows private housing filling the rest of the site. Perhaps they didn't have to build HA as it was brownfield, and if you don't have a car your fooked.

If you go to the council planning office you should be able to look at the planning consent and see how much Social housing is going into the scheme.

35% is the current % asked by many local authorities as a sec 106 contribution. this will be split between social rented and Shared equity. The cost of this is carried by the landowner, whether or not it is the developer or not.

[winkie]

Bring back real houses, on real streets, in real towns with local shops, businesses and transport.

[cartimandua51]

One problem with the present system is that it conflates two desires of the councils / Gov't.

The first is to have "affordable" housing and the second is to try to force "mixed" communities. Builders would be a lot happier if it were just the first - build "exclusive executive developments" and then a social housing development a safe distance away. When they are forced to build a mixed development, such as the old MI6 block near Waterloo, they are bedevilled by the problem that people who are buying just don't want to be living check by jowl with whoever the local Housing Association chooses to send there. One result of this, of course, is that the only people who will buy are those who WON'T be living there i.e. BTLs. So short-term tenancies are living with the most needy and the result is that no-one has any real stake or pride in the area.

Also, of course, don't forget the very real resentment people feel when both husband & wife are are working all hours and seeing people on benefits doing nothing and living in IDENTICAL accommodation paid for out of their taxes!

[winkie]

One problem with the present system is that it conflates two desires of the councils / Gov't.

The first is to have "affordable" housing and the second is to try to force "mixed" communities. Builders would be a lot happier if it were just the first - build "exclusive executive developments" and then a social housing development a safe distance away. When they are forced to build a mixed development, such as the old MI6 block near Waterloo, they are bedevilled by the problem that people who are buying just don't want to be living check by jowl with whoever the local Housing Association chooses to send there. One result of this, of course, is that the only people who will buy are those who WON'T be living there i.e. BTLs. So short-term tenancies are living with the most needy and the result is that no-one has any real stake or pride in the area.

Also, of course, don't forget the very real resentment people feel when both husband & wife are are working all hours and seeing people on benefits doing nothing and living in IDENTICAL accommodation paid for out of their taxes!

I understand what you are saying, but I can't agree. Not everyone who lives in housing association property is on benefits, many I know work very hard, they are very happy with their home, take pride in it and if you offered them an affordable home to buy would not take up the offer.

[Executive Sadman]

I used to work for a major housebuilder a few years back, and the amount of materials that went 'missing' from building sites was quite extraordinary.

[winkie]

I used to work for a major housebuilder a few years back, and the amount of materials that went 'missing' from building sites was quite extraordinary.

Yeh, knew a guy who built his BTL in his back garden.

[cartimandua51]

I understand what you are saying, but I can't agree. Not everyone who lives in housing association property is on benefits, many I know work very hard, they are very happy with their home, take pride in it and if you offered them an affordable home to buy would not take up the offer.

Sure. I grew up in a council house myself & know the pride my parents took in keeping the place "nice". But when people are thinking about the biggest investment they'll ever make, one can't blame them for remembering all the stories of "tenants from hell" that are bandied about.

I'm quite prepared to stand corrected on procedures, but I've always felt that since the 80's, one of the problems is that social housing is almost totally "needs-driven" and "merit-blind" so looking after a property doesn't entitle you to a better one, it just proves you are a competent individual who can safely be ignored in favour of the incompetent / alcoholic/ drug addicted/ unemployables (insert prejudice of choice!).

[sortofsilver]

Its only developments of a certain size or a certain number of houses. Three very large houses with around acre of land each were purchased by one developer. Each house that was knocked down was replaced with 6 to 8 'executive' houses and there own named close with no social housing. All they do is treat them as separate sites and then they do not have to build social housing.

If you paid a load of money for a brand new house, Would you want to share the area with social housing and all the problems that are associated with it.

I live in social housing its a nice price, in a nice area.

[winkie]

Sure. I grew up in a council house myself & know the pride my parents took in keeping the place "nice". But when people are thinking about the biggest investment they'll ever make, one can't blame them for remembering all the stories of "tenants from hell" that are bandied about.

I'm quite prepared to stand corrected on procedures, but I've always felt that since the 80's, one of the problems is that social housing is almost totally "needs-driven" and "merit-blind" so looking after a property doesn't entitle you to a better one, it just proves you are a competent individual who can safely be ignored in favour of the incompetent / alcoholic/ drug addicted/ unemployables (insert prejudice of choice!).

The council houses in my local area in my youth were semi, large and had good gardens in the N20 area. The families that lived in them worked, felt settled and were valued in the community...yes social housing is 'needs-driven' there is a need for long term secured affordable rented housing for priced out working families that choose to live without the uncertaincy of debt around their necks.

[Guest Mr Parry]

A hitherto ignored part of this subject is that for the last 10 years, Local Authorites have been almost entirly reliant on developments using 'Section 106 Agreements' to fund most, if not all, discretionery spending.

With developments now drying up, I wonder what will happen to the Local Authority budgets dependant on Section 106...?

Bang on the money Bangkok!

Section 106 used to be about providing a little additional infrastructure for the proposed development. During the recent boom, LA's have used it a a means of extracting vast sums of cash from developers, in effect a shylock.

Local Authorities in the UK are now wholly out of control. This lot think places like the Far East are corrupt . . . ever wonder why your council tax is so high in the UK?

Council officers, councillors, contractors - as cunning as a cart load of monkey's.

Anyway, to happier items - how are things in LOS?

[phead]

S106 has always been a scam, I used to see the money flowing in where I lived from the luxary flats, 200K here 400K there, and where did it all go?

Well the only amounts you could see being spent were on street changes for stupid costs, 40K to lay 50 metres of cycle lane, 80K to realign a corner. Council spending is a funny business, simple things seem to cost a fortune. You have to assume there a kickbacks galore from top to bottom in every one of these contracts.