Summary

Custom and self-build (CSB) housing can be brought forward by a wide variety of organisations or individuals to meet a range of needs and desires using an array of approaches.

This advice note considers the various generic development models available, looking at different categories, the selection factors which may influence the choice of model to adopt, as well as the delivery approaches which can be employed to bring a project forward.

Introduction

The Right to Build Task Force has, to date, identified over 20 different models which could be adopted when bringing forward CSB housing.

Categories

These models fall into several categories, in terms of who is initiating or promoting the development, whether the customer is an individual or group of individuals, how the plots will come forward and the form of tenure proposed. These categories are summarised below:

• Initiator or promoter
  • Public Sector – local authority, housing association or registered provider, or other public sector body initiating or promoting an opportunity, either:
    • Directly through the development of land in their ownership, although this may be delivered with a third party; or,
    • By imposing a requirement for CSB housing through the planning process.
  • Private Sector – landowner, developer, individual or group of individuals.
• Customer
• Individual – in the main, a single household looking to secure a private home.
• Group – either:
• Private groups of individuals, charitable foundations, housing associations or registered providers or CSB developers working independently or with a third party to identify, secure and build out an opportunity; or,
• Project promoter identifying the demand for a group opportunity, possibly through a council’s ‘Right to Build’ Register, allocating land and marketing the opportunity. They may also, possibly working with the local authority, help groups to form, become constituted and appoint advisers to develop proposals, assess these proposals against key criteria and sell site(s) to the most robust and viable groups.
• How plots come forward
• Land – the provision of land only, with or without planning permission;
• Land and services – the provision of land with some infrastructure and services work undertaken to provide either a serviced parcel, site or serviced plots;
• Land and works – the provision of land with infrastructure and services in place to plots and some element of construction work undertaken on the plot, whether ‘Golden Brick’ works, a shell for self-finishing by the purchaser or a finished ‘turnkey’ home designed to suit the customer’s needs.
• Form of tenure
• Market housing – models looking to achieve a full market price for the product provided, ie no subsidy or discount involved. However, some consideration may be given to pricing these products to allow more ‘hands-on’ self-builders to establish some equity from ‘day-one’.
• Affordable housing – models requiring some form of discount, subsidy, equity or land ownership being held by a third party in perpetuity, possibly secured through a Section 106 agreement or other planning condition or obligation. CSB housing can deliver a variety of house types, densities, and sizes, as new build, conversions or extensive renovations, providing detached, semi-detached and terraced houses as well as apartments.

Selection factors

Decisions around the selection or adoption of these models can be influenced by a range of factors, as set out below.

• Site attributes and constraints
  • Location – whether rural or urban, within the settlement boundary or not, scale of development, part of a larger site or development, ease of access, etc.
  • Planning – whether planning permission has been secured, how planning will be secured and by whom, planning status (outline, detailed or permission in principle), planning obligations through Section 106 agreements – including Affordable housing, Community Infrastructure Levy exemptions and how they are secured.
  • Tax implications – Value Added Tax, Stamp Duty Land Tax, potential for use of Golden Brick delivery.
• Local or market considerations
  • Demand – sufficiently reliable and up-to-date local demand evidence for CSB, if available, will influence the scale of development, property types and sizes and, possibly, development models adopted.
  • Local housing market – anticipated sales values and sales rates.
  • Affordability – disparity between local income levels and property prices may put second-hand or new-build market housing out of reach of ordinary local people and make a CSB opportunity more affordable, depending on the product available.
• Motivations, objectives and drivers
  • CSB housing opportunities will be brought forward by a variety of parties, through numerous routes and for a range of reasons. Parties bringing forward these opportunities will include landowners, developers, local authorities, community groups, registered providers, individuals, and groups of individuals, each with their own aspirations and objectives.
  • Other decision makers or influencers will be involved in the process of bringing forward and delivering these opportunities, including local planning authorities, housing providers, customers and clients, funders, etc.
  • Motivations and objectives will differ between different parties involved in the process and may include the following:
    • Commercial considerations – desire to widen the brand of the offer by providing a greater variety of products which will attract interest and generate increased sales returns, minimising risk, maintaining control by minimising choice of customisation.
    • Viability and cash flow – maximising income or return on capital employed, demand on cash, managing project cash flow, cross-subsidising other elements or tenures.
    • Delivery – managing supply and demand, managing on-site logistics such as access to site, impact of operations on delivery and existing residents.
    • Choice – offering increased choice around property types, delivery routes, design, tenures, etc.
    • Affordability – provide options for those on lower incomes, both with open market products and Social or Affordable housing.
    • Community involvement and empowerment – working with local community groups or residents, consider community land ownership, community management, consultation, etc.
• Landowner or project promoter skills and experience
  • The skills, experience and core business of project promoters, landowners and developers will also influence the model(s) adopted. Landowners, or developers, with little, or no, experience in CSB housing may seek to dispose of the land, whether an entire site or specific parcel, to an experienced CSB developer to build out and sell. Whilst this may reduce the potential return the landowner will secure, it will also reduce the degree of risk and input required.
  • Alternatively, landowners or developers may seek to work collaboratively with other third parties either in some form of joint venture or as enablers or facilitators:
    • Facilitator – employed as an additional consultant to specifically facilitate or manage the delivery of the scheme, charging a fee for their services.
    • Enabler – consultant, supplier, contractor or subcontractor enabling or assisting in the delivery of the scheme, in order to secure an opportunity to provide their service or product as part of the development, charging a fee only for their normal service, not an additional fee for enabling (although this will vary from business to business).

Delivery approaches

Taking account of the available generic development models and the various considerations set out above, three generic delivery approaches have also been identified.

• Land speculator approach

  The land speculator model simply looks to add value to land by converting its development status. This model takes advantage of the high profitability and speed at which value can be created and added through unlocking the planning potential and technical complexity of a site to remove uncertainties and risk which would otherwise adversely affect land value. The model has limited demand in its basic form, but broader demand can be generated by identifying and unlocking a route to its disposal. Route to market for this model will be primarily through builders and commercial organisations who have the requisite skills and expertise to install the infrastructure and build the site out. Alternatively, serviced plots could also be sold directly to consumers without detailed planning permission. However, this will only be suitable on smaller projects which do not need the installation of heavy infrastructure.

  Additional value may be generated by:

  • Allowing a deferred land payment from the chosen builder subject to receipt of an overage linked to plot sales (ie not simply an agreed land value payment ‘up front’ but an element of ‘profit share’ later in the process).
  • Financing the plot infrastructure with the support of a contractor, or preferably a CSB developer as project manager or delivery partner (to benefit from their experience), for sale of plots to consumers to seek detailed planning permission and build their own homes as appropriate.
  • Inviting smaller developers or builders to compete for several serviced plots or parcels; this would promote competition and drive up value as well as helping to accelerate delivery if timescales for build out are imposed as part of any land sales agreement, to stop speculation.

• CSB enabler approach

  The enabler model takes the development process a few steps further. Enablers will typically prepare a site and service it, thereby maximising value by offering serviced plots for sale to consumers, rather than selling one or more serviced parcels to builders for them to build the homes. The model requires a degree of development expertise to deal with the implementation of infrastructure, the management of risk and investment of on-site services.

  By dealing with consumers directly, enablers can further enhance value and profitability by dealing with the design and consenting of individually styled homes. The design element can be completed efficiently and effectively by utilising design codes, and where appropriate, ‘plot passports’ to streamline the process and enable the client to secure a suitably designed development. Further value is added by offering certainty to consumers and their mortgage providers that a planning permission is effectively guaranteed, provided the plot purchaser complies with the design code or plot passport.

  Enablers who own land maximise returns by increasing the land asset value. Landowning enablers should not be confused with enablers that do not own land who use their development expertise and package services to monetise the CSB opportunity for a fee, share in the development profit of the plot sales or the ability to build the homes for the consumers who buy the plots through design and build contracts. The latter may be ideal CSB partners for organisations who do not have development expertise, but who want to control the development process to ensure the site delivers the form of development they want to see.

  Enabler development model plots are in relatively high demand amongst consumers wishing to build an individually designed home. Acquiring a building plot and reducing the development risk are considerable barriers to overcome for people who want to build their own homes. Sites which have permissioned serviced plots ready and laid out for development should therefore attract higher values because they are in demand. This is because they are a less risky investment for a would-be custom or self-builder.

• Developer builder approach

  The most common form of housing development involves building completed homes which are ready for occupation without the occupier having a primary input into their design. This is mostly associated with speculative housebuilding, which is not CSB even if the occupier has some choice over house types, finishes, kitchens, and sanitaryware. Neither is the off-plan sale of homes considered to be CSB housing.

  CSB involves the occupier having a substantial input into the design of their home. This can range from commissioning a full design and build from a builder to an occupier’s specification, to the building of watertight shell homes by a builder for their occupiers to finish or the purchase of a plot from a developer with the scope to commission the build from a package company.

  Depending upon the extent of design flexibility to meet individual requirements, the developer builder model can offer homes that meet individual needs whilst not burdening consumers with the obligation to take on the construction process themselves. Convenience has the potential to unlock demand but the complexity of managing the construction of a variable design attracts significant risk and complexity during the build out stages of a site. The developer builder model offers a high degree of control provided the organisation has the capability and resources to deal with the complexity involved or is willing to outsource some of the work.

  The developer builder model in the CSB market is evolving rapidly. Many bring sites forward with a range of offerings to increase appeal for their plots to consumers, whilst offering a degree of customisable convenience which is particularly attractive to consumers who do not have the time, patience or knowledge to custom build their own homes.

  As the CSB market emerges, a range of construction services are being developed from watertight ‘shell’ homes through to ‘internal fit outs’ and turnkey solutions. The different levels of build out being offered are as much about differentiation of product rather than an effective means of building out CSB home sites. Careful thought must be given to any proposal that promotes part-built solutions, particularly with regard to building warranty providers as well as the failure to build out a plot creating a negative impact on the mortgageability and saleability of adjacent plots on multiplot sites.

Inexperienced landowners or project promoters looking to undertake a programme of developing CSB sites may look to take an incremental approach, initially adopting a land speculator approach, obtaining skills and experience, then moving on to a CSB enabler approach and then a developer builder approach, as appropriate.