Introduction to the private homebuilding sector

KEY LEARNING POINTS

  • No robust data is currently collected on the scale of the sector. The best figures available suggest that about 10,000 homes a year are currently being delivered by private homebuilders
  • At present there are two broad categories of homebuilder – those in their 50s and 60s (who build their dream retirement home), and those that are seeking to build their first home (and for them affordability is the main driver)
  • There is strong demand, and the biggest hurdle for most would-be private homebuilders is the challenge of securing a suitable building plot
  • The sector is changing rapidly, with new players entering the market and new supporting legislation that is in the process of being introduced
  • Many local authorities (currently around 40 per cent) are taking action to support the growth of the sector

INTRODUCTION

The private homebuilding sector is diverse. There are many ways that ‘self’ and ‘custom’ build homes can be procured. Given this diversity and the fact that limited central data is collected about this part of the housing market, robust statistics are largely unavailable.

This Briefing Note provides a brief overview of the sector. It explains who private homebuilders are and the overall levels of known and suspected demand. It also includes a brief overview of what local authorities are being asked to do by the current and emerging policy and legislation.

About

This is one of many Briefing Notes that explain resourcing, planning, land, finance, demand, marketing, consumer support and various technical issues. To see the full range of guidance click here.

Definitions

For the purposes of this Toolkit we have made the following definitions:

NOTE

This Briefing Note will be revised when the Regulations to support the commencement of the Self-build and Custom Housebuilding Act 2015 and the Government’s Right to Build policy are finalised.

DEFINITIONS

Until recently most people have used the term ‘self build’ to generically describe the private homebuilding sector. This is a misnomer, as most people who build their own homes don’t do the building work themselves.

In this Toolkit we use the generic term Private Homebuilding to describe this form of housing. This is because we think this is a good ‘umbrella’ term for the many different approaches people employ to build a home for themselves. It is however not intended to be a formal definition.

‘Private Homebuilding’ can be divided into three main sub-strands:

Custom Build

This is when people commission the construction of their home from a developer/enabler, builder/contractor or package company. With ‘custom build’ the occupants usually don't do any of the physical construction work but still make the key design decisions. Exact proportions are not known but based on our understanding of the market, around a 60 per cent of all private homebuilding is currently delivered this way.

Self Build

This is when someone gets involved in, or manages, the construction of their new home (with or without the help of sub-contractors). At present around 40 per cent of projects are defined as ‘self build.’

Group Projects

This is when a group of people set themselves up as an organisation to procure the construction of a number of homes as a collective. There are many ways this can be done – for example, by creating their own development company, or by setting up as a housing co-operative, a co-housing organisation or as a housing association.  This is currently a small share of all private homebuilding - accountable for roughly 3 per cent.

A formal definition of custom and self build housing is now set out in emerging Government legislation (see below):

HOUSING AND PLANNING BILL

Clause 8 Definitions

(A1) In this Act “self-build and custom housebuilding” means the building or completion by —

(a) individuals,
(b) associations of individuals, or
(c) persons working with or for individuals or associations of individuals, of houses to be occupied as homes by those individuals.

(A2) But it does not include the building of a house on a plot acquired from a person who builds the house wholly or mainly to plans or specifications decided or offered by that person.

Extract from Chapter 2 of the Bill which was introduced in Parliament on 13 October 2015

Although not a formal definition, the description used by Housing Minister Brandon Lewis in the House of Commons on 24 October 2014 when introducing the Self-build and Custom Housebuilding Bill is also a helpful reference point. The Minister said “It is right to put on record the important distinction between Custom Build and Self Build within the sector. The definition of ‘Self Build’ covers someone who directly organises the design and construction of their new home, while ‘Custom Build’ covers someone who commissions a specialist developer to help to deliver their own home. What matters for the purposes of this Bill and our proposals on a new Right to Build is that we develop a framework that promotes both.”

MARKET SIZE AND DEMAND

Unlike other forms of house building there are currently no definitive statistics collected for the private homebuilding sector.

The best data available to represent the size of the sector has historically been derived from the number of VAT reclaims that are submitted to HMRC by private homebuilders.  Private homebuilders can recover VAT costs for building materials on their projects; so many submit a claim to HMRC. This has to be done within three months of the completion of a home.

However, this data underestimates the size of the sector. This is because many people don’t submit their claims on time and some don’t claim at all, particularly where private homebuilders work with developers/enablers, builders/contractors or package companies who are VAT registered and adopt mechanisms such as the “Golden Brick” to help private homebuilders recover the VAT they have incurred.

VAT data dates back to 1983, and this shows that in a typical year between 6,000 and 11,500 VAT reclaims are submitted to the HMRC.

Research undertaken by ‘Homebuilding and Renovating’ magazine suggests that 36% of private homebuilders don't submit a reclaim. These figures can therefore be adjusted (by adding in an extra 36 per cent) to give the current best, albeit crude, estimate of annual private homebuilding numbers across the UK.

This information shows that the sector built nearly 18,000 homes in its busiest year (2005-6), and output fell to around 9,400 homes in 2014-15. The most recent quarterly figures suggest that this drop in output is beginning to reverse.

Private homebuilding output hovered between about 14,000 and 16,000 homes a year, until the recession. The latest figures suggest that output is increasing again

The regional breakdown of the current figures suggests that the South West, South East, Scotland and Northern Ireland as the most active regions for private homebuilding.

The distribution of self build completions across the different regions of the UK

Scotland and Northern Ireland have a long-standing tradition of private homebuilding, so in these parts of the UK the proportion of all new homes delivered this way is significantly higher than elsewhere.

In England demand for private homebuilding is particularly strong in the South West, where many people want to retire.

WHO WANTS TO BUILD?

Private homebuilders can be broadly split into two distinct groups.

At present a significant proportion of all private homebuilders are at, or near, retirement age. They usually have the resources (from the sale of their existing properties) to fund the acquisition of a plot and to pay a contractor to build their ‘dream retirement home’.

Many current private homebuilders are in their 50s or 60s. They tend to have bigger budgets and often build energy efficient homes to retire in

A growing number of younger families are now building their own homes. For many in this group, the driver is affordability – they see it as a way of getting more for their limited budget (by avoiding paying a developer’s profit, saving on Stamp Duty Land Tax and, where possible, doing some of the work themselves to reduce costs).

For younger families the focus is often on affordability – they tend to build smaller homes

Groups of private homebuilders are also often able to secure some economies of scale and reduce the cost of construction – so many collectives have a younger demographic. A recent survey by NaCSBA suggested that one in four potential private homebuilders likes the idea of working together as a group.

One in four people are interested in the idea of building a home as part of a group

There are many reasons why people want to build their own home. Private homebuilding can be cost-effective as people don’t have to pay a developer’s profit and marketing costs (often equivalent to 20 per cent or more of the cost of a new home). Homebuilders can also recover some VAT and can save on Stamp Duty Land Tax. Where private homebuilders chose to ‘self build’ they can make even greater saving.

The ability for people to plan the size and design of their home is another important reason why they want to build. According to the RIBA only one in four people would choose a new home built one of the major housebuilders over the last 10 years. It is also well established that new homes in the UK are much smaller than those in other countries.

Other reasons include the ability to build more energy efficient homes, to get involved and acquire new skills, and, a sense of entrepreneurism and achievement.

The Ipsos MORI surveys also concluded that people would be more likely to support new housebuilding in their area if private homebuilding made up a larger share of the new housing developments.

We also know from our own comprehensive survey of all local authorities in England (NaCSBA, July 2015) that local demand assessments are recording steady demand for custom and self build housing. For example Cherwell District Council’s Register for Graven Hill has about 2,500 registrations, and Right to Build ‘Vanguard’ councils are reporting increases in demand with several hundred people often being registered. On average our estimate is that councils are currently (December 2015) recording about 200 people on their Registers; and these numbers have often been achieved with limited publicity.

 

HOW MANY PEOPLE WANT TO BUILD?

There is clear evidence that many people across the country want to build their own homes. Consumer surveys by organisations such as the Building Societies Association and Confused.com suggest that between a third and a half of the UK population is interested in building a home.

Ipsos Mori has undertaken regular surveys on behalf of NaCSBA for the last three years (2013-15). All have concluded that around half of the adult population would like to commission their own home at some point and around 12 to 14 per cent of the adult population (seven million people), are actively researching how to achieve that goal. The surveys also suggest that about 700,000 people are keen to start building within the next year. 

Although this level of interest and activity will vary around the country this means there could be, on average, about 20,000 people in every borough researching how to build, and 2,000 people keen to take active steps to commission their own home.

WHAT ARE THE MAIN BARRIERS FOR WOULD-BE PRIVATE HOMEBUILDERS?

A survey of nearly 6,000 would-be private homebuilders (NaCSBA, July 2013) identified three main hurdles.

Access to reasonably priced building plots was easily the biggest challenge – this was four times as high a hurdle as the next two barriers; securing planning permission, and getting access to finance.

The biggest challenge for would-be private homebuilders is finding a suitable building plot

Top Tip

Demand is strong

Around 700,000 people in the UK say they want to start building their new home in the next 12 months. Most councils that have set up Registers already have hundreds of people seeking opportunities to build

OTHER FACTS ABOUT THE SECTOR

At about 10,000 homes a year, the private homebuilding sector makes a sizable contribution to our housing supply and helps to diversify our housing industry promoting more competition and choice for consumers.

The country needs to build more homes and we have lost many of our smaller builders. The proportion of new homes constructed by firms building fewer than 500 units per year (a standard shorthand for SME house builders) has fallen from around two thirds in the late 1980s to less than a third in recent years. This trend accelerated during the economic downturn, with NHBC figures showing the proportion of homes built by SMEs falling from 44 per cent in 2008 to a mere 27 per cent in 2013. The number of builders who build fewer than 100 new homes per year has dropped by more than 50 per cent over the past six years. The majority of new homes (54 per cent) are now constructed by just 11 large housebuilders (those that build more than 2,000 homes a year).

Private homebuilding is also good for the economy. AMA’s latest Market Research concluded that the value of the private homebuilding market is expected to reach around £4.4bn in 2018.

The private homebuilding sector has the potential to speed up supply, particularly where permissioned serviced building land is facilitated, or where custom build developers offer package solutions and ‘shell homes’.

Any increase in the private homebuilding sector should create opportunities for new investors; it would also support existing builders, suppliers and tradespeople in the local construction industry, which helps local economies.  Every project sustains seven construction jobs for a year.

Despite these encouraging facts and its growth potential, we know that the size of the UK private homebuilding sector is very small when compared to our European neighbours where about half of all homes are built this way. In Germany, for example, about 60 per cent of all homes are procured by private homebuilders.

How supportive are private sector housebuilders?

According recent surveys from both the NHBC and the FMB most small and medium sized builders see the expansion of the self and custom build housing sector as an opportunity for their businesses. The NHBC (October 2014) found that 54 per cent of smaller builders would prefer to build more homes for private homebuilders. FMB (September 2014) found even stronger support for private homebuilding among its members with 89 per cent saying that they see it as a good thing for their business. The FMB also concluded that the provision of serviced plots was essential to scale up supply and create new opportunities.

Larger builders are also becoming engaged in the private homebuilding market with projects coming forward from volume housebuilders such as Charles Church, Barratt Homes and David Wilson Homes. Councils are also in discussions with Linden and Bovis Homes over projects on some larger housing sites. 

What about firms specialising in custom build?

The custom build market is expanding rapidly and there are now more than 25 specialist custom build developers or enablers active in the UK. They range from large nationwide companies delivering many schemes a year of 100+ homes, through to smaller regional/local firms delivering sites of 10-50 homes. Further details are available from NaCSBA – please see:

www.selfbuildportal.org.uk/developer-built-one-off-home

Top Tip

Identify local custom build enablers

There are more than 25 specialist custom build companies operating in the sector. Identify those active in your area and engage with them to explore how they can help deliver more local projects

HOW IS THE PRIVATE HOMEBUILDING MODEL CHANGING?

The private homebuilding market in the UK has traditionally been associated with detached homes built in suburban and rural locations on single plots of land (in many cases enabled by converting or replacing existing buildings). This in part has been caused by risks of getting planning permission and land availability. In a few cases, proactive groups of people have built homes collectively on larger sites.

This model is changing fast. There are now an increasing number of bigger housing sites coming onto the market that offer numerous opportunities for people to build their own home. These range from smaller sites with a capacity for up to ten homes, to medium sized sites of between 10-50 plots and significantly larger opportunities for hundreds and even thousands of homes (as is the case at Graven Hill in Oxfordshire. For a detailed case study of this project see Graven Hill, Bicester.

HOW KEEN ARE LOCAL AUTHORITIES TO HELP?

The NaCSBA survey of all local authorities in England (conducted in July 2015) found that about 40 per cent of councils were taking actions to help boost the opportunities available for people who want to build their own homes.  The key findings from this survey were: -

  • More than 60 councils have already set up a local demand Register or are carrying out assessments, to measure the local level of demand for people who want to build their own homes
  • More than 70 councils are creating significant opportunities for private homebuilders through their Local Plans and other programmes. These typically involve identifying areas or sites where private homebuilding is encouraged and where serviced plots should be released for a range of different developments
  • Thirty councils have already acquired or are identifying suitable sites or locations for their own new private homebuilding initiatives

Councils in the North East are currently the most proactive where 70 per cent of them are progressing initiatives to make it easier for people who want to build their own homes; and three other regions (the South West, East of England and West Midlands) have more than half their councils supporting the sector. The least active region is currently London, where just 18 per cent of local authorities have so far done anything. The Greater London Authority has, however, recently established a pan-London Register to support its own plan-making activities.

NaCSBA’s Research and Development Programme survey of all councils in England (July 2015) showed that the overall level of activity across England has approximately trebled since 2012

New legislation and the ‘Right to Build’

In the 2014 Budget the Government announced that it would consult on a new Right to Build that would give prospective private homebuilders a right to a council facilitated building plot. The new Right is designed to address the main barrier to more people building their own homes – the availability of suitable, serviced plots of land.

The consultation closed on 18 December 2014 and a summary of responses was published in March 2015.

In September 2014 the Government announced that 11 local authorities would become Right to Build ‘vanguards’ to test out how the Right might operate in practice.

Legislation for the first element of the Right – the requirement for local planning authorities to establish registers of custom builders who wish to acquire a suitable plot of land to build their own home – was brought through Parliament in Richard Bacon MP’s Self-build and Custom Housebuilding Act 2015.

The Act also requires local authorities to have regard to the demand on their local register when exercising their planning, housing; land disposal and regeneration functions. This legislation is expected to be commenced in early 2016.

 

In October 2015 the Government introduced the Housing and Planning Bill which sets out provisions to amend and supplement the 2015 Act to introduce the second element of the Right to Build – the requirement for councils to make land available. The Bill defines what self and custom housebuilding is and places a duty on them to grant sufficient suitable development permissions on serviced plots of land to meet the demand established by local registers.  This legislation is expected to be commenced in late 2016 or early 2017.

Government guidance is currently in preparation to support this legislation.

CREDITS

The NaCSBA Research & Development Programme is funded by the Nationwide Foundation and aims to promote the self-build and custom build sector as an affordable route into housing for a greater number of people in the UK.

For further information, please visit:

www.nacsba.org.uk or www.selfbuildportal.org.uk