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The number of self-build homes completed in the last three months of 2011 rose by 6.3% compared to the previous quarter. Self-builders were responsible for 8.4 per cent of all new homes completed for the period, based on figures recorded by the DCLG and the latest figures released by HM Revenue & Customs.
The total number of VAT refunds reported by HMRC under notice ‘VAT431NB – VAT refunds for DIY housebuilders’ for the quarter to 31st December 2011 was 1,940. Adjusted for the number of self-build projects where VAT is recovered by other means2, the total number of self-build home completions for the quarter was 3,020.
The total number of self-build homes completed in 2011 was approximately 12,050, representing 8.8% of all new homes for the year.
This is the second successive quarter on quarter increase in the number of self-build completions, and is a positive sign that the sector is recovering from the economic slowdown and the market suppression caused by the shortage of self-build funding since late 2007.
Year-on-year completions are still down by 16% compared to a smaller decline of 1.9% in the wider market. The DCLG recorded 135,520 new home completions in 2011 (public, private and local authority combined but excluding self-build).
Self-build completion levels are a lagging indicator of activity in the sector, as the average project takes eighteen months to two years to complete, compared to around twelve months in the wider housebuilding market.
An updated statement from Housing Minister Grant Shapps on Government initiatives to boost the housing market, including the self-build sector, is due later in March 2012.
To date, the impact of ‘Laying the Foundations: A Housing Strategy for England’ published in November 2011, has been primarily in the finance sector, where the number of self-build mortgage products available has grown steadily over recent months. There are now twenty-seven lenders offering stage payment mortgages. Details of all current mortgage products can be viewed here.
The wider availability of finance – leading self-build finance package, BuildStore Financial Services reported a 26% year-on-year rise in self-build mortgage approvals in the Q3 2011 – is likely to have a positive impact on the number of self-build projects in coming months. According to a 2010 survey of readers of Homebuilding &Renovating magazine, approximately 50% of selfbuilders require mortgage funds to buy a plot and build.
Initiatives to bring more self-build plots to market are also beginning to take effect. Over 400 new plots for self-builders are being made available through a variety of schemes.
This includes the release of the first site from an ‘enabling developer’, one of the key planks of the initiatives being spearheaded by the National Self Build Association (NaSBA), which has played a key role in putting self-build on the Government’s agenda. Full details are available in the NaSBA Spring Newsletter.
This first scheme – several others are in the pipeline – will offer twelve plots in West Swindon for people to design and build their own homes, with the potential for a further thirteen plots to be released on the same site at a later date.
The role of the enabling developer is to subdivide larger development sites into individual plots by building the infrastructure, such as roads, street lights, service connections and public spaces. Buyers can build their own home, have a custom home built for them, or have the shell built to weathertight stage and then fit the house out themselves. This is a mainstream model in the US, Australia and much of Western Europe, where a far higher percentage of the housebuilding sector is self-build of one form or another.
Enabling developers are exploring schemes in Norfolk, Milton Keynes and elsewhere. An announcement is expected soon on a new revolving credit facility from the Government to assist enabling developers in getting more schemes off the ground.
The Government Homes and Communities Agency (HCA) is launching five trial schemes on publicly owned land across the country, providing seventy new plots. If these schemes prove successful the HCA will release more publicly owned land for self-build.
Several local authorities are also looking at the provision of land for self-builders positively, including a scheme in Cherwell District Council which will provide 200 plots across ten sites in North Oxfordshire.
Analysis of the market for small development sites
Plotfinder.net is the UK’s leading online database of small development sites. A paid-for subscription service, plotfinder.net lists building plots and renovation opportunities for sale across the UK through agents and private vendors.
The Government could score an unintended own goal, as the new Community Infrastructure Levy (CIL) could thwart its plans to boost the self-build sector by increasing the cost of building a new home by as much as 33% in some areas.
The new tax is designed to fund the infrastructure required by new housing on a house by house basis. The CIL excludes only conversions and replacement dwellings which add less than 100m2, and is being rolled out across England and Wales, with twenty-five local authorities having announced schemes so far and more to follow. The scheme announced this February by Mid Sussex District Council adds from £150-235/m2 to build costs on most new homes in the area. With average build costs in the South East ranging from £705–1,543/m2 depending on size, quality and build route (DIY or main contractor) the CIL could represent an increase of 10-33% in build costs (excluding land). This is likely to derail some projects, or force self-builders to scale back their plans.
Before the phasing in of the CIL, infrastructure costs were funded primarily using Section 106 planning obligations – together with affordable housing contributions. Such obligations are typically applied only to larger developments – although some local authorities levy a commuted sum payment on single dwellings, including self-build homes.
The principle of sharing the cost of new infrastructure requirements across all new housing is fair, but few self-builders are aware of the CIL until they get their final planning permission and are faced with a very large and unexpected bill.
Over time, land prices are likely to be suppressed as they absorb the added development cost of the CIL, but sites bought in recent years at full market value could be rendered financially unviable by the new tax, and this is likely to reduce the number of new homes built at a time when Government is attempting to boost the housebuilding sector.
NOTE 1 – MARKET DEFINITION: The self-build market is defined as all new housing commissioned by its owner for their own occupation. It includes new homes where an architect or design and build contractor has been commissioned, those built by a main contractor directly for a private client, and owner-managed projects built using subcontractors and/or DIY labour, plus a small number of group self-builds.
NOTE 2 – METHODOLOGY USED TO CALCULATE SELF-BUILD MARKET STATISTICS
The only official statistic available on the size of the UK self-build market is the number of VAT refunds made each month by HMRC for completed projects under ‘VAT431NB – VAT refunds for DIY housebuilders’. This is a scheme which allows private individuals to recover the input tax paid on eligible building materials to ensure they benefit equally from the zero rate of VAT applied to new dwellings.
It is widely accepted that a significant proportion of self-builders recover input VAT by other means, such as via a VAT registered building contractor, or their own VAT registered business.
A survey conducted by Homebuilding & Renovating magazine found that of 336 self-builders who had recently completed a project, 64.3% had recovered VAT using 'VAT431NB’ with the balance recovering VAT by other means.
To get a more accurate indication of the true size of the UK self-build market, therefore, the HMRC completion figures are adjusted by a factor of 1.5554.