House-builders/developers and their profit margins

[spikey]

Within a one mile radius of where I'm sitting right now in Sussex, there are four new estates being built, each of more than 100 "units".  Needless to say this is something of a hot topic locally, and one thing that keeps cropping up in conversation is how much money developers make.  Nobody I know has any idea.  So ...

 

Does anybody present happen to know if a big developer like Dandara buys a site and builds 100 homes on it, how much profit do they hope to achieve as a percentage of the average selling price?  

[burgundy]

18 minutes ago, spikey said:

Does anybody present happen to know if a big developer like Dandara buys a site and builds 100 homes on it, how much profit do they hope to achieve as a percentage of the average selling price?  

Probably a rather larger percentage than they actually end up making. 

I have been following progress on a new estate in my village which has involved decanting the new occupiers for a couple of months so that they can underpin the new houses.  The access road has flooded and become impassable each time there has been heavy rain. Given that these were expensive houses, sold to articulate, professional people, I suspect that the developers are having a hard time - and rightly so.

Best wishes 

Eric 

[MJI]

Loads being built near my parents.

 

All on flood plains, regularly floods, so locals renamed one estate the lakes.

[Jeremy Cumberland]

This new build 3-bedroom house in Workington is on the market for £205,000:

A small terrace on the same site is £125,000.

 

Clearly it must have cost less than that to build. The developer has most likely also had to put in the road and services (although there might have been grants or assistance from the local authority), and to have at some point paid an architect to design the thing, but as there are doubtless hundreds of similar houses around the country, I imagine the design cost per individual house isn't much.

 

The land in this case may well have been free (it is on the site of the old steelworks). I expect that land prices in Sussex are significant. Developers have a habit of buying up land cheaply and sitting on it, waiting for the time to be right to build. Your local developers are probably rueing going ahead when they did, with mortgage rates now being so high. I wonder how keen they will be to sell them - they might reckon it makes more sense to sit on them till mortgage rates recover and house prices rise again.

[chris p bacon]

8 minutes ago, Jeremy Cumberland said:

The land in this case may well have been free

Only in someones dreams..🙄

 

As a developer (small time) I can say that all anyone is interested in is how much money you make. I have said to people they could do the same as me, but they would have to risk up to £500,000 at a time with no guarantee you can sell when it's built, and that planning isn't too onerous with what they expect you to pay for in the locality.

 

As an example of where we moved from 2 years ago, the last site was a 2 bed house, the plot cost 75,000, this was incredibly cheap but it came with problems. The build cost was just over £100,000 and it sold for £250,000. This might sound a lot of money but there is also Community Infrastructure Levy to pay to the local authority, this was calculated at £7,500 (+ the local authority legal fees) and has to be paid before planning permission is issued.  This still leaves a large sum of money, but bear in mind that in the time it took to build the equivalent plot cost went to £120,000 with no increase in the final sale price.

I decided to move a couple of years ago as prices for simple plots for 1-2 houses  had reached £350,000+ which is plain bonkers.

 

As for the big developers, if people think they make too much money, buy shares in them. They're generally public companies and make money for shareholders.

 

[Kris]

28 minutes ago, Jeremy Cumberland said:

This new build 3-bedroom house in Workington is on the market for £205,000:

A small terrace on the same site is £125,000.

 

Clearly it must have cost less than that to build. The developer has most likely also had to put in the road and services (although there might have been grants or assistance from the local authority), and to have at some point paid an architect to design the thing, but as there are doubtless hundreds of similar houses around the country, I imagine the design cost per individual house isn't much.

 

The land in this case may well have been free (it is on the site of the old steelworks). I expect that land prices in Sussex are significant. Developers have a habit of buying up land cheaply and sitting on it, waiting for the time to be right to build. Your local developers are probably rueing going ahead when they did, with mortgage rates now being so high. I wonder how keen they will be to sell them - they might reckon it makes more sense to sit on them till mortgage rates recover and house prices rise again.

That is a lot of house for the money. Significantly smaller 3 bed semi's on a site near me are going for very nearly 300K. These are on an old mine site where there have found lots of shafts that have needed capping. 

[black and decker boy]

The house building part of the construction group I used to work for made 18-20% profit.

 

the really good ones make 25-30%
 

this only applies in the good years.

 

in the bad years, they can lose the same or more.

 

you also have to ask how much money the former landowners make. Land prices locally in 2019/20/21 were over £400k per acre if it had planning or was zoned for housing. Agricultural land was worth more like £5k per acre.

[fulton]

1 hour ago, spikey said:

 

 

Does anybody present happen to know if a big developer like Dandara buys a site and builds 100 homes on it, how much profit do they hope to achieve as a percentage of the average selling price?  

Most developers are public companies and publish accounts, all the information should be there to work out profit or loss per unit, I spent 32 years working for developers, most years a profit was made but considering the high risk, and the money paid out before any return, the return on capital compared to other industries was average to poor.

[37114]

It doesn't surprise me reading comments @chris p bacon and @fulton as if developers were coining it in then everyone would be investing in them. In addition to land prices going up Materials prices have rocketted as well over the last few years and have been in constrained supply at times.

[spikey]

Thank you gentlemen.  So in order to make a, decent return on their investment, the big boys have to cram in as many small 3/4/5-bed houses with small gardens as the planning authority will allow, throw them together ASAP and then price them at the highest price they can. Is there then no hope of anyone nowadays building decent 2-bed homes with gardens that ordinary working couples in their 20s might actually be able to afford?

[spikey]

10 hours ago, Jeremy Cumberland said:

This new build 3-bedroom house in Workington is on the market for £205,000:

A small terrace on the same site is £125,000.

 That house in this neck of the woods would be £450,000 on an estate, more if non-estate.  Cheapest house we've seen for sale this year is £205,000 for a 2-bed end of terrace that needed major building works and was in a very poor location.  Cheapest new build £385,000 for tiny 3-bed semi on perhaps the worst plot on a big estate.  Starting price for a 2-bed flat (over a shop, with no provision for parking anywhere near) £205,000.

[Reorte]

Heaven knows when I last saw a new build that looks like anything I'd want to live in, or even have anywhere near me (not that it's really possible to avoid that). But builders are the only ones I don't have a problem with making money out of houses - the only investment in housing I regard as acceptable is investment in building companies.

[chris p bacon]

2 hours ago, spikey said:

So in order to make a, decent return on their investment, the big boys have to cram in as many small 3/4/5-bed houses with small gardens as the planning authority will allow

 

That's where most people get the formula wrong and presume that the developer gets to choose what they build. The reality is that the density of housing is legislated as part of planning. Yes, the developer might try and change to suit but essentially planning get the last word.

 

As an example, in Sandy (Bedfordshire) there are 2 estates to the North, Fallowfield & Ivel Park.  Fallowfield (Yellow) was built in the late 80's and is a open estate of 600 houses with semi detached and detached with a large open grassed leisure area in the centre. Ivel Park (Red) was from only 7 years later (90's) and is much more densely populated with terraced and a high proportion of 3 storey housing. 

Both of these developments densities and associated leisure space was as a result of planning, also note the school in the Fallowfield development which was built at developer cost

 

Also when you see large estates of housing, bear in mind that at least 30% are built as 'affordable' this might mean they're part rent part ownership , or they are handed over to a housing association at cost price+ (a difficult formula as it has to include a % of the cost of building as well as roadways, drainage and any other section 106 payments made)  The reason I never built more than 3 at a time was due to this policy, I just couldn't afford it.

 

Edited July 14, 2023 by chris p bacon

[Nick C]

12 hours ago, Jeremy Cumberland said:

This new build 3-bedroom house in Workington is on the market for £205,000:

A small terrace on the same site is £125,000.

 

Clearly it must have cost less than that to build. The developer has most likely also had to put in the road and services (although there might have been grants or assistance from the local authority), and to have at some point paid an architect to design the thing, but as there are doubtless hundreds of similar houses around the country, I imagine the design cost per individual house isn't much.

 

The land in this case may well have been free (it is on the site of the old steelworks). I expect that land prices in Sussex are significant. Developers have a habit of buying up land cheaply and sitting on it, waiting for the time to be right to build. Your local developers are probably rueing going ahead when they did, with mortgage rates now being so high. I wonder how keen they will be to sell them - they might reckon it makes more sense to sit on them till mortgage rates recover and house prices rise again.

I've just had a quick look on rightmove - the cheapest new-build 3-bed detached house near here, though it looks a fair bit smaller than that, has an asking price of £525,000...

[Nearholmer]

A great deal of what people don’t like about new-build developments is dictated by public policy, so the ultimate ‘cure’ is a slow one: vote for different politicians locally and nationally.

 

Another factor is the competence, or lack of it, of the local authority team when it comes to effectively using the monies that developers (and thereby house buyers) contribute to the public coffers, and the diligence of the local authority team in ‘policing’ compliance with the terms of planning permissions. Some are very good at both, some are bizarrely useless, letting opportunities to serve local residents well slip through their fingers. Part of that is, I think, about lack of practice, but some is down to local politicians who just don’t get it, or don’t care, so don’t hold their officers to high standards, so it’s back to who you vote for.

 

I live in Milton Keynes, where thankfully we have a very competent team of bods at the council, partly a result of inheritance from the former development corporation, and our local politicians are wide awake, because the council is forever ‘hung’, and many seats marginal, so we get reasonably well served. Just over the border is Aylesbury Vale in one direction, and they aren’t so good, and have some very sneaky zoning policies where they allow development that ‘parasites’ on infrastructure funded by MK.  In the other direction Central (corrected)-Beds, which seems a bit muddle-headed. They have obviously got good intentions in places, grand plans almost, but somehow don’t seem to see them through properly - their former planning officer was a neighbour of ours and he seemed to be tearing his hair out in frustration over mixed messaging from elected politicians half the time.

 

Just look at the way the present government has tacked-about on housing policy according to the way the wind is blowing within the different factions of their own party to get an idea of how public policy (= what you vote for or not) affects all this.

 

 

 

Edited July 14, 2023 by Nearholmer

[chris p bacon]

1 minute ago, Nearholmer said:

In the other direction Mid-Beds,

You must mean 'The peoples republic of Central Bedfordshire' (Mid Beds went some years ago)  They were one of the first to adopt CIL - Community infrastructure levy but didn't think the formula through. Now they are awash with money for play areas but nothing for cemeteries, if they haven't spent the money in 10 years they have to give it back to the developer. I sat next to a Leighton Buzzard councillor at a 'do' who had a brilliant idea to fiddle the spending of monies so they could use CIL for other purposes. I pointed out that would be illegal but she didn't see a problem as in her words "Developers are awash with money and the public don't care" ..needless to say I reported her comments and action was taken (it turned out the plan to spend the monies was already in place!)

 

Politics aside, Central Beds has gone from a majority Tory council to 28 independents at the last election. If there was inaction before it will only be worse with so many different ideas being voiced.

[Nearholmer]

Yes, sorry, Central Beds.

 

It does seem to be a particularly confused council at the elected representative level. AV I don’t see as confused, they seem to be more deliberately foot-dragging, doing no more than central government obliges them to do, because the prevailing trend among their voters and politicians is one that would really rather not have any development at all!

 

I was down in East Sussex visiting family in my home town last week, and by golly gosh is development going completely wrong there! I’ve never seen such an emergent mess of substantial add-on housing with so little attention to the infrastructure to which it all connects - their water and sewerage systems were in a mess beforehand due to underinvestment, and I really can’t fathom how the crumbling and constricted roads in the town will cater for the additional traffic. Somebody sure as heck isn’t doing a good job there!

 

I’m probably being unfair, of course.

 

 

Edited July 14, 2023 by Nearholmer

[black and decker boy]

This debate shows how difficult a topic / policy it is:

 

People don’t want development where they live

people want more housing (just not where they live)

population growth & societal changes means we need more housing

Politicians set legislation with density targets to get more houses in a given area (but also for developers to fund new roads, schools play areas and open space etc)

politicians have recently passed legislation to make new builds use less energy = high build cost.

 

people complain about small plots and high prices (and generally any development big or small will have vociferous local objection campaigns).

 

a Housebuilders went busy recently, one of main causes was the huge delays and backlog in the planning system preventing them building out their plots. The Daily Mail would probably just say they had a land bank….,

[62613]

12 hours ago, fulton said:

Most developers are public companies and publish accounts, all the information should be there to work out profit or loss per unit, I spent 32 years working for developers, most years a profit was made but considering the high risk, and the money paid out before any return, the return on capital compared to other industries was average to poor.

That's capitalism, though; risk - taking to make a profit

[kevinlms]

23 minutes ago, black and decker boy said:

This debate shows how difficult a topic / policy it is:

 

People don’t want development where they live

people want more housing (just not where they live)

population growth & societal changes means we need more housing

Politicians set legislation with density targets to get more houses in a given area (but also for developers to fund new roads, schools play areas and open space etc)

politicians have recently passed legislation to make new builds use less energy = high build cost.

 

people complain about small plots and high prices (and generally any development big or small will have vociferous local objection campaigns).

 

a Housebuilders went busy recently, one of main causes was the huge delays and backlog in the planning system preventing them building out their plots. The Daily Mail would probably just say they had a land bank….,

'Nimbyism' at it's best. Or 'I'm right, Jack'!

[kevinlms]

Many builders, including some big ones, have gone bust in the last couple of years in Australia. Mostly because of rising costs of building materials and of skilled labour rates to build them.

Yet builders in recent times, gave fixed price contracts to attract customers - a disaster waiting to happen. At the same time, there were lots of government grants, that effectively pushed up housing costs by the same amount as the grants - now who would believe such a thing would occur?

 

Some developments have been restarted, because somehow, funds were made available to complete.

 

But not before some spontaneous fires and theft of fittings from almost completed homes. It is thought that these actions were taken by sub contractors, reclaiming their materials, after a builder went broke and increasingly unlikely for subbies to see their money.

[Reorte]

9 minutes ago, kevinlms said:

'Nimbyism' at it's best. Or 'I'm right, Jack'!

I get rather angry when people complain about "nimbyism", considering the level of development we've already got in this country; it's a word that usually seems to be used by people annoyed that they can't make a ghastly mess of somewhere that's not next door to them.

 

Also considering the level of development we've already got (I'm astounded that anyone doesn't have an issue with it, when you're never that far from at least a large town in the majority of the country, and every town, city and village seems to have a middle aged flabby spread of modern developments) I'm also very much against anything that pushes up demand for housing.

[Nick C]

This article seems appropriate here:

https://www.bbc.co.uk/news/uk-england-cambridgeshire-66156561

 

Certainly in the town where I live, there are a lot of new homes being built, and not a lot of resources to go with them - We've had several office blocks in the town centre converted to flats over the last decade, plus a number of new estates - but we've got fewer GPs - last I heard was over 4,000 patients per GP. There have been a couple of new schools, but that's about it. There are far fewer jobs in the town (as witnessed by the above-mentioned loss of office blocks), which means more people commuting - but no upgrades to either rail or motorway - our peak trains are amongst the most overcrowded in the country.

 

While I understand there is a need for more homes, it needs to be done properly - with all the appropriate infrastructure in place BEFORE the houses are occupied - and without destroying our natural environment in the process...

[MR Chuffer]

9 minutes ago, Nick C said:

but we've got fewer GPs

As I've banged on about in another thread, we are currently unable to fill 1 in 5 GP posts at the moment; even with the so called new workforce plan, that will rise to 1 in 4 by the end of the decade (may even be 1 in 3). You can't fill a bath (with new resource) if you've left the plug out. My daughter resigned as a GP the other day, intolerable hours, 10 hour shifts plus 2 hours of paperwork at home. The NHS is a basket case - don't get ill!

Edited July 14, 2023 by MR Chuffer

[kevinlms]

7 minutes ago, Nick C said:

 

While I understand there is a need for more homes, it needs to be done properly - with all the appropriate infrastructure in place BEFORE the houses are occupied - and without destroying our natural environment in the process...

That is a common problem here. A recurring thing is only one main access road and the it can be jammed in peak hour.

 

One estate had only an exit on to the freeway, facing away from the city. They fought their way to the exit, then travelled 5km in the wrong direction. Then need to navigate their way off the next exit, go around, then re-enter going the correct way - at least 3/4 hour wasted effectively before they got started.

Foe some strange reason, they are thinking of selling up!