Tuesday 19 July 2011

Missing Figures Round

The BBC has been criticised by some for misleading reporting, but this is beyond the pale:

But overall, self-build saves money, supporters argue. The average new build home costs £189,940 compared to a self-build cost of £84,000 if you do the work yourself or £146,000 if you employ tradesmen to do it for you.

The difference between £189,940 and £84,000 is largely the cost of a plot of land with planning permission (minus a bit for builder's profit margin and the value of your own labour). The difference between £189,940 and £146,000 is because a speculative builder takes risks and has to make a profit margin on top of his actual costs.

In any event, it's not clear whether the £146,000 figure includes the land cost, as it seems wildly over-stated. My next-door neighbour had himself a massive semi-detached house built (in his side garden) with all mod cons. He told me it cost about £120,000 all-in; a basic house would have been about £80,000 but he got a bit carried away.

Lynda Williams was given a plot of land in mid Wales by her father. She didn't have the money to hire a project manager so ended up building it herself from a timber frame. It took eight months and meant putting it together in the evening after work. The main motivation was getting value for money. Her mortgage was £110,000 but it is now valued at £260,000.

Let's assume that the mortgage paid for the construction costs, the balancing figure of £150,000 is the (largely artificial) scarcity value of a plot of land with planning permission.

8 comments:

Lola said...

Ahem. We paid £35,000 for a house on a plot in rural Suffolk in 1987. Basically the hosue was shite. I gutted it and rebuilt it and added on quite a bit and built a large double garage. Total spend over the years, I suppose about £110,000. Valued in 1989 at about £175,000.

Value now? £450,000. Cost to build it now? I suppose £180,000 ish.

It's all location value...

Bayard said...

"Let's assume that the mortgage paid for the construction costs, the balancing figure of £150,000 is the (largely artificial) scarcity value of a plot of land with planning permission."

Not sure that's a valid assumption. Even assuming she got in tradesmen to do the heavy lifting and the specialist work (electrics, plumbing), she is still saving on the builder's cost of project management and overheads, by doing that bit herself, which, as you point out above is a quarter as much again. So allow £27,500 for that and, say, another £4,500 for what she saved on labour, that brings the balancing figure down to £118,000, which is high for the value of a plot in mid-Wales. I'd say £80,000 would be closer to the mark. There's not so much scarcity value when you have a hell of a lot of land and not many people.

Mark Wadsworth said...

L, B, it's worse than that. The bulk of that £270,000 or £118,000 or whatever is pure bubble value, it's not real value at all.

Lola said...

MW - Tell me about it!!!! All that 'value' is a chimera.

formertory said...

I think it's fair to say that some of the "balancing figure" is attributable to a hypothetical purchaser of her finished house NOT having the hassle of waiting 8 months for the house to be ready to move in to, of the physical work, of the office work (claiming back VAT, pricing, ordering). We built a house 5 years ago (fortunately we were able to stay ensconced in the old house until the new one was ready) and I can assure you there's a good deal of hassle involved.

It in no way contradicts your basic point but is a factor.

Mark Wadsworth said...

FT, fair point.

Not having to go through all that hassle must be worth at least £10,000 or £20,000 (your guess is as good as mine). But the big builder does this for a living, for them it's routine and they get massive economies of scale (they only need to bribe one town planner once to get permission for a hundred houses).

neil craig said...

There is no real reason, except that you would never get planning permission & no established market, why you shouldn't be able to lay out flat foundations, with water and lecy and order a Toyota modular house from Japan at about £40 K

http://www.jetsongreen.com/2008/07/toyota-homes-lo.html

Bayard said...

NC, the link you give says $200K for a basic house. Where do you get the £40K from? Also there are plenty of places where planning permission would be no problem for any sort of house, just not in the Green Belt. Alternatively you could buy a plot with a crap 1930's system built bungalow on it and replace it with your new Toyota.

"The bulk of that £270,000 or £118,000 or whatever is pure bubble value, it's not real value at all."

Well, I'd say it was the bulk of £75,000 actually:
http://www.parrylowarch.co.uk/details.php?property=729&sale_type=1