The insatiable demand for housing in the UK won’t be eased any time soon.
A research note from Savills suggests that government plans to encourage building on brownfield sites to plug the housing gap won’t be that effective.
Brownfield land is land that has been previously used for industrial or commercial use and so the costs of developing residential homes on it is higher. There might be chemical waste to clear up, for example.
Savills has done the maths and notes that almost half of earmarked developments might not be profitable enough to follow through on:
As a very rough guide, it costs around £100 per square foot to build a new home on a simple development-ready site (so excluding abnormal costs) and a typical new home needs to sell for at least £200 per square foot once developer profit, payment for land and other costs including finance have been included.
Using £200 per square foot as a price threshold suggests that around 40% of the potential homes in the brownfield database are in areas where likely new build house prices may make development financially difficult if not impossible
Here’s the chart:
It might even be worse than that, as the £200 per square foot benchmark could be underestimating the costs:
Realistically, the cost of development on brownfield land may be even higher due to factors such as site remediation and higher densities in urban locations.
Reducing the risks and costs involved in planning will help deliver some additional sites but the housing capacity of already identified brownfield land may well disappoint.
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