Viability is one of the ways developers have of avoiding the social obligations of developments. The government instructs local authorities to make sure that their demands on developers (mainly for social housing) leave the site as “viable”. This argument reduced the social housing component of the Comeytrowe development from 25% to 17%. (Though we can’t examine the argument because all of the financial details have been redacted).
The trick is to separate the profit on building a group of houses from the value of the land on which they sit.
Taylor Wimpey has 180 subsidiaries plus several Limited Liability Partnerships based who knows where. The company that holds the land will not be the one that builds the houses. No doubt the transaction is at arm’s length.
The cost to a developer of building a house is around £1,350 per sq metre in the South West. In Taunton, the average price for a newly built detached house is around £250,000. This will be around 85 sq metres so the pure build cost will be £114,750. This includes a profit of 15-20% of the total price. The cost of the associated works will add another 50% depending on the size of the development.
The balance is the cost of the plot. The magic of development is to convert low-cost land into high-value plots. The preferred route is greenfield sites.
An example
In 2018 Taylor Wimpey bought a large part of the Portman Estate (1,100 acres) for £12m. In the planning consultation, they outline plans for an “eco-village” of 1,600 houses on a small part of that landholding. (They also have another bid for part of it)
The eco-village
Let us be generous and assume that the build costs of an “eco-village” will be £2,000 per sq metre but that the houses still sell for £250,000. At 30 houses per ha (the SWaT guidance) this uses 53 ha.
Total build cost – £288m
Total value – £400m
Plot value £112m
For this small part of the site, they have recouped their total cost of purchase ten-fold
Looking at the total site:
1,100 acres = 445 Hectares
take off 20% for undevelopable land or roads etc… = 356 Hectares
@ 30 Houses per Hectare => 10,688 House capacity
£2,000 per sqm @ 85 sqm Build cost = £170,00 => Profit = £80,000
For 1600 houses, profit = £128m (10x purchase of the land)
For 10688 houses, profit = £855m (70x purchase of the land)
This is the magic of planning permission. It is the primary reason why publicly quoted companies like Persimmon and Taylor Wimpey show profitability at levels exceeded only by Microsoft, Apple and Facebook.