Once trumpeted as a way of raising housing output by as many as 50,000 homes a year, custom build was responsible for barely a fifth of that figure last year. So what’s the hold-up and can anything be done to reinvigorate the market?
Shortly after assuming office in 2010, then housing minister Grant Shapps met with Ted Stevens, chairman of the National Self Build Association, to hear about the potential to increase hugely the number of homes built by individuals. So convinced was he by what he heard that he charged Stevens with producing an action plan to revitalise the self-build sector, which was launched with fanfare in July 2011.
Recommending reform in the way consumers can access housing plots, the way they can access finance, and the regulation of the sector, the plan became a core plank of the coalition’s overall housing strategy, launched later that year. The idea was that with the UK having one of the smallest self-build sectors in Europe - only around 10% of homes are built this way - tapping into the demand for this sector could provide a huge and much-needed boost to housing output, producing as many as 50,000 homes per year.
Since then we have seen a tumult of activity, with the government and industry developing a new idea supposed to support this growth - custom build. Essentially a hybrid of traditional development and self-build, it sees the consumer able to take far more control of the construction and design of their home - but with the direct project management and construction handled by a professional. This, according to the government and industry, is how the sector can grow, with the move supported across the political spectrum. To this end, the Homes and Communities Agency has launched a £30m fund to assist self-build “developers” and identified 12 sites on which it is piloting the sale of self-build plots (see box, below).
But the hard truth is that the data suggests the volume of self- and custom build has fallen every year since 2008, and in 2013 had fallen by 45% from its peak of output in 2004-05, to an estimated 9, 800 homes. Meanwhile for all the HCA’s efforts in allocating grant and selecting developers for its custom build sites, not a single home has yet been built with public assistance. David Birkbeck, chief executive of Design for Homes, says: “The big promise was that self-build would take up the slack left by the credit crunched housebuilders. But these government initiatives are three years old. So where are the sites, where is the promised doubling in size? The low volumes show it was madly oversold.”
So what has happened to the vision, and does custom build still have the potential to make a serious contribution to improving housing output in the UK?
For Ted Stevens the answer is undoubtedly yes. Since the publication of the government’s strategy, he says, about 20 companies have either set up or announced they are diversifying to deliver on the “custom build” vision - the most high profile being Hab, the firm set up by Grand Designs presenter Kevin McCloud. Stevens admits that probably “fewer than 100” custom built homes have actually been produced so far in the UK, but sees that figure ramping up rapidly given the pipeline of sites identified by the HCA and local councils for this type of development. “We’re right at the beginning of this. But there are now three or four thousand homes in the pipeline. I expect this year we’ll see 200-300 homes on site, with one to two thousand in 2015. It should move pretty quickly.” Ultimately he thinks that it is feasible to imagine the 50,000 homes per year figure being reached by the early 2020s.
Certainly the data suggests that the demand for self- and custom build is there. A survey last year by Ipsos Mori found that 6.5m people, or 14% of the adult population, want to build their own home. Of that, one million said they were going to do it in the next year. But with only around 10,000 actually built per year, this means 99% of the demand for self-build homes in any one year is going un-met. Jon Sawyer, head of custom build housing at regeneration developer Igloo, one of the firms pushing hardest on custom build, talks anecdotally of the “clamour” to get hold of self-build plots when they become available.
And certainly the latest figures from Buildstore, the largest mortgage broker serving the self-build market, back up Stevens’ assertion that the decline in self-building is about to be reversed, with a 23% increase in mortgage enquiries in 2013.
There are a number of reasons why this demand for self- and custom build doesn’t get translated into reality. Sam Brown, a researcher for the University of Sheffield school of Architecture who completed a study into collective custom build last year, says the cultural factors should not be underestimated. “Eighty per cent of homes in Austria are self-built. A lot of that comes down to culture. In the UK we’ve become dependent on the work the major housebuilders do, but on the Continent they were never weaned off the idea that people build their own homes.”
Culture aside, many agree the principle practical problem is availability of land. “Anyone who wants to build, simply cannot find land. If you manage to find a plot there are other hurdles, but if you can’t find a plot in the first place, it’s a heck of a hard task,” says Stevens. Under the National Planning Policy Framework, every council is supposed to be assessing the demand for self-build in their area, and allocating land accordingly. Large sites are in the process of being made available in Bristol, Bicester, Lancaster and Dagenham. However, while communities secretary Eric Pickles has said that only around 50 councils have actually done this, an internet project called Landwiki set up to identify councils that have published pro custom- or self-build policies, has found only five with published policies.
With development land being such a precious commodity in many parts of the country, housebuilders make it their business to bid for any that comes available, further limiting the supply for self-builders. Mike Roberts, MD of McCloud’s firm HAB, says: “Competing [for land] with the machine of the traditional housebuilders is the biggest issue for us, particularly now the market is hotting up again.” And while Stevens and others say that some volume housebuilders have engaged positively with the push for custom homes - Persimmon and Barratt both have schemes with land set aside, for example - housebuilders are unlikely to prioritise plot sales to self- or custom builders. Why? Because their business models are set up on the basis of the 25% gross profit margin they expect to make on selling a finished home. While it may have made sense for some to sell plots during the recession to aid cashflow, the current strong demand means it makes more sense for most to develop themselves.
Steve Douglas, partner at housing consultant Altair, was chief executive of the Housing Corporation when it piloted self-build on public sites in the last decade. He says: “The developers just regarded it as something that added to the complexity of their projects, as you needed bespoke planning applications and extra work.”
“We’re optimistic about the potential of custom build. but we can only realise it with public land”
Jon Sawyer, Igloo
Hence the Home Builders Federation, while maintaining it is “generally supportive” of the push toward custom build, also warns of the danger that attempts to seed this market end up failing to create additional development beyond what would have been built anyway. The HBF therefore opposes any plan to force housebuilders to allocate a certain proportion of given sites to custom building. John Stewart, economic affairs director at the HBF, says: “For home builders the biggest concerns are the practicalities of a custom build section of individual homes on a larger site. These include access, the look and design of the homes, who is responsible for health and safety, how long the homes take to complete, and the residents of the main site being upset by self-builders working at nights and weekends.”
Defenders of custom build say that it can offer real benefits for developers, by giving them access to a new customer who wouldn’t consider buying a finished home, and hence allowing them to deliver sites more quickly, free up cash, and reduce the need for borrowing.
Most of the firms which have entered the custom build market are essentially developers that are adopting this philosophy - they will give their customers a range of options, from selling them a serviced plot, or just the completed shell of a house, or options over the internal layout and finishing, to a complete home. But given the potential for greater profit from selling the finished home, there’s a clear incentive to push this option. Design for Homes’ Birkbeck says: “This was just an idea to help beat the credit crunch’s stranglehold on modest priced spec development. With Help to Buy restoring business to normal, custom build’s role is again sadly being marginalised.”
Igloo’s Sawyer says its model is different, as it will not itself build out any homes, either as contractor or developer. Having been appointed by the HCA to its largest self-build site, a 40-home scheme in Cornwall, it will manage the appointment of build teams, and make its money in achieving scale. “We’re optimistic about the potential of custom build,” he says. “But we can only realise it with public land, government support and an industry pointed in the right direction.”
Ultimately Birkbeck believes the sector could end up picking up the constrained or small sites that the major developers can’t make work. This is a view that Claire O’Shaughnessy, the HCA’s head of land and regeneration, tacitly admits when she says that the agency has used self-build on sites “to help us think creatively about how to unlock sites that are challenged,” though she is adamant it can also be suited to traditional large suburban sites.
But if custom build does just remain the resort of otherwise unwanted plots, there is little chance of it moving beyond the marginal place it currently holds in the development industry, and meeting the ambition to make a significant contribution to raising housing output.
The Homes and Communities Agency is aiding the development of custom build in two ways - first, through a £30m fund for specific projects, and second, through allocating HCA land to self- or custom build projects. The fund is due to support 18 schemes, four of which have been approved, two of which are under contract negotiation, and 12 of which are undergoing due diligence. No homes have been built yet on these sites. The HCA has allocated space on 12 sites, in two batches, with space for around 200 homes. The sites are a mixture of small stand-alone custom build sites, of which Igloo’s 40-home Trevenson Park scheme in Cornwall is the largest, and spaces on larger traditional housing schemes. Claire O’Shaughnessy, head of land and regeneration at the HCA, says the agency will continue to allocate more sites for self-build on a rolling basis.
What is custom build?
Custom build is a new term, coined effectively by the government in its 2011 Action Plan for the sector, and refers to a hybrid model halfway between classic self-build and traditional development. Nasba, the National Self-build Association, defines it as where the home buyer works with a specialist developer to help deliver their specific home. Essentially it is where some of the financial and project risks of self-build are off-set by a professional team negotiating the process on the buyer’s behalf. This can range from providing a buyer with simply a serviced site, to allowing the buyer to choose the internal layout of a home from options designed by the developer.
The reason for developing the new model is the idea that many more buyers will be attracted to the idea of having some degree of control over the design and construction of their home, than are actually able to procure and project manage the whole process of construction. But it is early days. Mike Roberts, MD of Hab, says: “It’s too early for us to judge what consumers will go for, but my own personal view is that full self-build will remain a bit niche. I expect the most traction for the “self-finish” plots, where we provide the thermal envelope of the building.”
Beyond the obvious attraction of having a hand designing your own home, there are potentially strong financial benefits that can off-set the cost of building a bespoke home. Firstly, the purchase of land is unlikely to trigger stamp duty, as it is likely to fall below the minimum threshold. Secondly, you’re not paying for a developer to take on the risk of borrowing money to finance construction and sales risk, something developers typically award themselves a 25% gross profit margin for. Jon Sawyer, head of private rent and custom build housing at Igloo, says: “The reason people are getting excited about custom build is because, providing the premium that you pay for building a one-off is not 25%, there’s money to be made. The house can be cheaper than buying a finished house.”
Better homes for less – can custom build, crowd funding and mutual home ownership solve the housing crisis?
Wednesday 5 March, 13.30 - 14.30
The government is backing custom build with a £30m fund and housebuilder HAB is using crowd funding to finance its custom built schemes. Does this mark the beginning of a new housing revolution? With Kevin McCloud, Kathryn Adedeji and Dr Paul Chatterton