A new report has shown that the cost of building a ‘straightforward’ three-bedroom home is higher that home may be worth in as many as 60 local authorities.
The policy briefing has been published by the cross-sector housing body The Housing Forum and aims to help non-experts and policymakers understand the costs of building a house or flat, and those working in one part of the housing sector understand more about what affects costs in other parts.
Drawing on evidence from their members, representing organisations delivering housing across the supply chain, they shown how the cost of building a house breaks down, not including land costs.
Key findings are that:
- Construction costs for an average-sized three-bedroom semi-detached house in the easiest possible setting are estimated at £133,000.
- After adding on the costs of external works, planning, professional fees, services and finance costs, the total cost of building this house comes to £202,000.
- There are a large number of additional ‘abnormal’ costs to building a house, meaning that a more typical cost would be around £242,000.
New environmental and building safety requirements such as the Future Homes Standard will mean that this cost will rise to £251,700 in the near future.
Taking into account a modest allowance for purchasing the land, even the £202,000 ‘straightforward house’ may cost more to build than it could be sold for in one in five local authority areas. The report cites improved construction standards as one of the drivers of higher costs, and notes that “there are many aspects of the costs which we cannot reduce, or which we could reduce but only at a cost to the environment which we probably don’t want to pay.”
As solutions, the report suggests measures to speed up the planning process would reduce the upfront costs, including of borrowing money to purchase land and so help bring costs down. This could be achieved via a more stable policy environment, ensuring that local authorities have an up-to-date local plan, better resourcing planning departments, and avoiding additional planning burdens without first considering the additional cost.
Reducing the costs of borrowing for SMEs, and providing demand stimulus for newbuild homes, would both improve viability to build new homes.
Most crucially, the report states the importance of ensuring that the affordable housing sector has sufficient grant funding to meet the government's housing goals.
The report comes as the Chancellor Rachel Reeves prepares the Autumn Statement and the upcoming spending review. In advance of this, The Housing Forum is calling for a £4bn Housing Accelerator Fund.
Launching the report, Director of Policy and Public Affairs, Anna Clarke, said: “After years of inflation, it is clear that more needs to be done to make new housing more financially viable. There are things which the housing sector can do, like standardising designs and finding efficiencies in construction, but ultimately leadership must come from a national level. The government must do what they can in the short term to bring down costs, including ensuring a stable policy environment, provide financial certainty for social landlords looking to deliver new homes, and lead the way in researching ways to reduce the cost of building new homes.”
Mash Halai, Managing Director, John Rowan and Partners, said: “There’s no denying that the last two or three years have been challenging to navigate. With rising costs, stagnating sales values, reduced funding, inflation and interest rate rises – it’s been a perfect storm of variables that have severely impacted the residential development sector. The Housing Forum’s insightful and timely report aims to provide a clear understanding of the challenges faced by the sector and proposes what changes could be made to support it. The market needs investment and access to different funding options, not only to meet the government’s housing targets but to ensure the development of sustainable homes for all.”
