Demystifying the Housing stock crisis and Addressing the cost of building a house

I was recently asked “ If there is a Housing crisis, why don’t property investors juts build more houses rather than buy them” I though this was a great question and it got me thinking.

Here I explore that question and look at the facts behind the Housing crisis we experiencing.

Building a house is a dream for many, but the reality of costs can be daunting. The average cost to build a 3-bedroom house ranges from £196,000 to £500,000, excluding the price of land. When factoring in land acquisition, planning fees, legal expenses, materials, project management, and trades, the expenses escalate. Additionally, considerations like utilities installation, road layout alterations, and compliance with legislation further inflate the budget.

In addition, developers tackling projects involving 10 or more houses must allocate 20% of the build to affordable housing, impacting the bottom line. Funds for Section 106 contributions must also be factored in. Moreover, regulations under the Town and Planning Acts, National Planning Policy Framework, and local council policies add layers of complexity. Factors such as parking allocations and adherence to local and neighbourhood plans require meticulous attention.

Small property developers often face challenges when it comes to building houses, and these hurdles can stem from various factors. One major issue is the cost and time involved in land acquisition and regulatory compliances. Small developers typically lack the financial resources and economies of scale enjoyed by larger firms, making it difficult to compete in the market. Additionally, the lengthy and complex building process can consume valuable time and resources, further adding to the costs and delays.

Moreover, the return on investment for small property developers may not always justify the risks and efforts involved. Fluctuating market conditions, unpredictable demand, and competitive pressures can make it challenging to achieve profitable margins, especially for those with limited experience or access to financing.

In essence, a combination of cost constraints, time limitations, and uncertain returns often dissuades small property developers from engaging in house construction projects. To address these barriers, policymakers and industry stakeholders may need to explore measures such as streamlining regulations, providing financial assistance, and fostering collaboration to support the growth of small-scale development initiatives, if the Government is going to meet Rishis’ promise of delivering 385,000 affordable homes a year.

Housing crisis – what housing crisis

Contrary to popular belief perpetuated by the media, the UK doesn't suffer from a housing crisis but rather from an affordability crisis. With 1.21 million individuals on council housing waiting lists and over 271,000 people homeless, the focus must shift towards addressing affordability rather than merely increasing housing stock.

A potential solution lies in utilising the 261,189 long-term empty homes across England. By repurposing these properties to house the homeless, the number of unhoused individuals could drastically decrease to under 10,000. Rising rents and mortgage costs contribute significantly to the affordability challenge, highlighting the need for systemic changes in housing policies.

Despite government pledges, the delivery of affordable homes falls short of expectations. In 2022-23, only 63,605 affordable homes were completed, far below the promised 385,000. This underscores the urgency for more effective measures to tackle the affordability crisis and ensure adequate housing for all.

Building a house involves navigating a labyrinth of costs and regulations. However, the true housing challenge in the UK lies not in the scarcity of properties but in the lack of affordability. Addressing this issue requires a multifaceted approach involving policy reforms, increased affordable housing provision, and innovative solutions to repurpose existing resources.