Rising cost of development goes through the roof
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If land is to be developed or redeveloped, the end
"product" must have a value which is greater, or at least
equivalent to, its cost of construction. Otherwise it simply won't
get developed. It really isn't rocket science.
In recent decades, with the surge of house prices outpacing
development costs, developers were asked to contribute towards
community infrastructure costs and also supply quotas of affordable
housing, on the back of the land value surplus.
However, with the fall in house values and a lack of subsidy
grants for affordable housing, the cost to build dwellings in many
parts of Kent, particularly the coastal areas, means we are seeing
more and more negative land values across the county. Without
government financial intervention, such areas are unlikely to see
much new development after the end of this year when affordable
housing grants promised at the beginning of the year run out.
Recent research by Shelter indicated a cluster of Kent and Essex
coastal towns were becoming repossession hotspots partly due to the
increasing levels of unemployment in those areas.
This in turn will result in an increased demand for affordable
rental accommodation but with the intermediate rents set as high as
80 per cent of open market rent. This, combined with reduced
housing benefits on the horizon, could make homelessness in Kent a
real issue.
In central and western parts of the county, together with the
Canterbury area, values tend to be higher and more readily outweigh
costs. MP Grant Shapps recently announced the potential sale of up
to £10 billion worth of surplus public land for new housing; no
doubt this will include the Fort Halstead Ministry of Defence unit
to the north of Sevenoaks which is planned to shut down. Clearly
large tracts of public sector land will appeal to national
developers.
The smaller, regional or local developer, who historically has
been responsible for the construction of most of the houses in
Britain, will hardly get a look in and even if there were smaller
tracts of land available to be built, the banks are very
constrained in their lending.
The nature of housing is also changing. There is decreasing
interest in development schemes for flats mainly due to the poor
cash flow and lack of equity among first and second time buyers,
compared with family housing where there is likely to be sufficient
equity from house purchasers in order to obtain mortgage
finance.
In places such as Maidstone, we are unlikely to see much more
development of flats around the riverside but there is a strong
demand for house building on the green edges around the town.
Of course, Kent continues to have high aspirations for the
redevelopment of its regeneration areas, particularly around the
Thames Gateway and the north Kent coastal areas of Thanet and
Dover, helped by the proposed Local Enterprise Partnership. Without
funding, either in the form of grant aid subsidies or by bank
finance, progress will be very constrained until we have a positive
return to where we were in 2007 - and accountants
PricewaterhouseCoopers is suggesting that could be delayed for
another 10 years!
It would be a pity for the Garden of England to fall into a
neglected state and it is vital employment opportunities must be
recreated at the earliest opportunity to drive our regional economy
forward.
n David Parry is a partner based at the Maidstone office of
Cluttons LLP. He can be contacted on david.parry@cluttons.com
Wednesday, September 07 2011
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