Land values determine the reality of affordable housing

There is currently a great deal of debate about affordable homes, a lot of which is uninformed.

I worked for a major national house-builder during the 1970s, 80s and early 90s. From the early 80s I was director and general manager responsible for the company’s Scottish division.

Contrary to one opinion recently contained in an article on affordable homes in the Scotsman it was never my experience that builders loaded the price of mainstream houses on a development to cover the shortfall created by discounting others. A developer can only charge what the market value is and rarely has the luxury of banging prices up at will.

The reality is that developers offer a price for land based on obtaining planning consent in terms acceptable to them. When the planning consent is granted there will be conditions attached regarding affordable housing provision and probably contributions to the community such as primary school provision, play areas, road widening etc. as well.

The developer costs these matters and then adjusts his offer to the land owner to take account of the costs he will incur complying with the planning requirements.

The biggest factor in house prices today is most often land value often 50 or 60% or more of the house price in ordinary locations.

In really prime locations the land element in the house price will be many times more than the construction cost. The more desirable a location the more expensive the land is.

Discounting the mainstream house prices is, in my opinion, tinkering round the edges. Discounting a £1.5 million house in Chelsea or Kensington will hardly make it affordable. The construction cost of normal specification houses doesn’t vary much because of location, so one answer to increase the supply of truly affordable homes is to remove the land cost element from their price.

The designated affordable houses could then be sold at construction cost plus overheads. The developer’s offer to the land owner would reflect the fact that the land element for the affordable houses was at nil value.

The land owner gets less than otherwise for his land but when one considers the enormous windfalls landowners get as beneficiaries of the local authority granting planning permission for housing it seems only fair and reasonable that the community should benefit from the subsequent increase in the value of the land in question.

Assume an acre of good agricultural land to be £10,000. With planning consent this could easily go to £500,000 and considerably more, so few will shed tears if the landowner has to drop to £400,000 or so in order that truly affordable homes can be provided either for sale or rental.

Quite honestly it is difficult to see another way of getting to the root of the problem.

Clearly there would need to be strict conditions attached to any such house sales to ensure the properties were not sold on for profit and remained in the affordable sector. There could be claw back or right of pre-emption clauses for example. Surely not matters beyond the wit of man.