Friday, August 12, 2011

Building cost mystery solved

Low-cost housing plan for first-time home-buyers falls flat

My first post since becoming a VI. I had always wondered how much it cost to build a house. Now we know £85000 The estate agent reckoned the rebuilding cost of my bungalow would be about £70000. So over 2/3rd of the value is in the land.

Posted by tenyearstogetmymoneyback @ 08:46 AM (2020 views)
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12 thoughts on “Building cost mystery solved

  • or to put it another way 2/3 of the cost is pure BS

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  • 2/3 is in the pocket of the developer.

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  • mark wadsworth says:

    Says Prezza: “We own the land; it’s a valuable public asset. We don’t need to sell it off. We can keep it in trust and we can lease it for essential housing. So the first-time buyer pays the cost of building a home but not the full market cost of the land, [and it’s the cost of the land] which is helping to make it impossible for our people to buy those houses.”

    Funny use of the word “helping” but if you think about what he said, that looks like Land Value Tax to me, it’s the ultimate shared ownership scheme – you pay for the bricks and mortar and pay rent on the location value, i.e. the value of those services which society in general provides for “free” to the occupier of any particular site. It’s a risk free operation to the purchaser, because if the location becomes less desirable, your tax/rent goes down and vice versa, and it puts the council or the government in the position of a conscientious land lord – if they want more money they have to make their borough or the whole of the UK are more desirable place to live or do business, and using the rental income, the government could start reducing VAT and Employer’s NIC for a very start.

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  • Cornishtinmine says:

    All this government owned land that Grant Shapps is going on about freeing up for development should be leased instead of sold – it’s the only way to ensure that the homes will remain affordable – particularly if co-operative self-build schemes are set up too. Then the new occupiers have a small mortgage and pay LVT instead of all property related taxes.

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  • cornishtinmine says:

    All this government owned land that Grant Shapps is going on about freeing up for development should be leased instead of sold – it’s the only way to ensure that the homes will remain affordable – particularly if co-operative self-build schemes are set up too. Then the new occupiers have a small mortgage and pay LVT instead of all property related taxes.

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  • ctm,

    I have long advocated that only detached homes should be sold freehold. There is a fundamental problem with housing renewal, when intricate estates or flats are sold freehold.

    Home design should have clear objectives:

    – either build a strong core structure, that can be given makeovers every generation, and a complete re-fit every century or so, and is therefore designed to last indefinitely

    – or opt for a lightweight design that can be dismantled and re-cycled after 50 years, with only foundation piers and service ducts left in situ for re-use

    The supposedly ‘green’ designs we are seeing today are neither of these things, and I dread to think what they will be like in 50 years time..

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  • If you land didn’t and wouldn’t have planning permission for a house it would be only about £20000 (or less). So using you figures (£70000 = 1/3 total, total = £210000). The land is worth £20,000, the house £70,000, the planning permission is worth £120,000. That’s why councillors always grant planning permission when the builder also delivers on the councillor’s manifesto at a great price (discounted by the value of the planning permission). It’s just a form of corruption where your councillor sells the economic value of your community’s land to make themselves look good so you keep paying them.

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  • tenyearstogetmymoneyback says:

    I thought a bit more about this on the way to work and came up with the following

    Build these houses on council owned land for £85000 each
    Rent them to top notch tennants for say £800 a month.
    At the interest rate I pay (3.75%) the houses will be paid for in less than 12 years.
    Then when they are getting a bit tired they can be used for “social housing”.

    In the same way that someone once asked if Post Office Telephones was a huge
    loss making drain on the state, was every council house loss making ?

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  • mark wadsworth says:

    Tenyears, exactly, however you calculate this, there are huge profits to be made from building and renting out houses.

    As far as I can see, it’s better for the government to do it than for these profits to be privatised, because:
    a) The government has to get money from somewhere, and collecting it in rent from people getting something in return is far less bad than collecting it in tax from people who get very little in return.
    b) All in all, building more social housing tends to depress rents and house prices, so it’s good for everybody, social tenants and taxpayers, construction industry, the lot.
    c) It annoys the Home-Owner-Ists and NIMBYs no end 🙂

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  • At the risk of playing devil’s advocate….. Surely this is an extreme example? A typical house in that area is worth £210,000. In this abnormal example they were specifically using modern low-cost construction methods to keep the price as low as possible. In a normal new-build estate they use standard more expensive techniques, so the build cost might have been £105,000. So rather than saying that land is 2/3rds of the cost, land (in this town) is closer to 1/2 the total cost for a typical building project.

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  • mark wadsworth says:

    D, it doesn’t matter how much the house costs to build, for a given build quality, the final selling price is decided by where it is, i.e. the location value. If you built a glittering ten bedroom mansion with swimming pool for £10 million somewhere in the middle of the Arctic, it would still end up being worth nothing.

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  • Land is too expensive, period, so it’s back to the drawing board.

    They are still not getting it or don’t want to.

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