Cost model: Affordable housing

01 / Introduction

Since Building’s last affordable housing cost model 12 years ago the majority of the key messages remain today: demand continues to outstrip supply of new-build housing, driving up house prices and creating a barrier to first-time buyers trying to enter the market.

Statistics show the percentage of home ownership in the 25–34 age category has fallen by over 20% in the past 10 years, reflecting that it is now far harder for this generation to buy property than it was for their parents’ generation.

This article focuses on the various affordable tenures available, both for sale and rent in the UK market. Although the points raised are applicable across the country, much of the focus is Greater London, which provides the basis for the cost model, and its pricing.

The current UK requirement for housing is around 250,000 per annum and despite the number of housing starts returning to pre-recession levels, this figure is far from being met. Historically, housebuilders have rarely exceeded 150,000 new homes annually and the onus will fall on private developers to pick up the slack if there is any chance of providing the homes we need.

Why are we in this position? For a start, the 2008 financial crisis kicked off a period of limited bank lending and in turn greater inaccessibility to mortgages, which lowered the demand for property. As a consequence, housebuilders reduced their output and a substantial number of construction professionals were lost from the sector. This skills shortage remains in particular bricklayers, plasterers and carpenters, all key trades in residential development.

A shortage of bricks and the demand from the prime and super prime sector for concrete has also had an effect on the housebuilding sector. Furthermore it is an aging sector, with around 20% of the workforce above the age of 50 and this impending retirement swell is not being backfilled as construction struggles to attract new recruits of school or college age.

The EU referendum could add even more problems as a leave vote could prompt a slowdown in the migration of labour from mainland Europe that has helped to fill some of the voids in construction labour requirements over the past decade.

02 / What is affordable?

London house prices have soared to a point where they have doubled in the past seven years with the average property price now over £600,000. So what really can be classified as affordable in today’s market?

The London Plan defines “affordable housing” under three categories:

Social rented

• Owned by local authority or registered providers/housing associations
• Target rents set by National Rent Regime
• Can be privately owned but rents still governed as above.

Affordable rented

• Provided by local authority or registered social landlords/housing associations
• Prospective tenants must be eligible for social rented
• Subject to rent controls (no more than 80% of equivalent market rent)

Intermediate

• Available for either sale or rent
• Rates sit above affordable rented but below market levels
• Purchasers have shared equity in their property with the ability to gradually increase their stake. Note that since 2001 only 19% of shared equity tenants have staircased out and bought their properties outright.

A number of government initiatives have been developed over the past few years in an attempt to make home ownership more affordable for first-time buyers:

Help to Buy
This scheme helps by reducing the initial capital required for a deposit (typically 10% or higher) which is the biggest barrier to entry into home ownership. Both home movers and first time buyers are eligible up to a maximum property price of £600,000. Borrowers can put down as little as a 5% deposit while being able to borrow up to a further 20% via a government-backed equity loan.

The remainder of the property is then mortgaged in the normal way. The equity loan is not subject to any fees for the first five years from which point it then increases incrementally each year with the loan required to be paid after 25 years or when the property is sold, whichever comes first.

Starter homes
This initiative has suffered a mixed reception as there are commentators who believe given the high cost of property in the UK, the discounts offered still put home ownership beyond the reach of most first-time buyers. The scheme is aimed at first-time buyers under the age of 40 and works by offering purchasers a 20% discount on the equivalent market value of the property.

A restrictive covenant is in place for the first five years of ownership meaning that any onward sale within this period must be at the discounted level and not full market rate. The maximum discounted value allowed is £250,000 outside of London and £450,000 in the capital. The discount is funded by the developer as the scheme is exempt from the usual S106 obligations and it is this saving that enables the scheme to operate.

The nervousness from local councils relates to this point as it is believed that the removal of this obligation might lead to a less balanced affordable property output, with fewer social and affordable rented properties coming to market as a consequence.

Private developers are also looking at ways to help people get on the ladder. Pocket Living is one example of a successful delivery model which continues to grow. The Pocket units are sold at 20% discount against the equivalent market sale price and are defined as “affordable” within the London Plan, hence contributing towards the local authority housing targets. All units are 38m², one bed flats with set purchaser guidelines that must be met. Prospective buyers must not earn more than £90,000, they must work within the borough in which they are looking to buy and cannot already own a property.

As part of the S106 obligations a restrictive covenant is placed to ensure that the property remains affordable and hence must be sold on to a new owner who also meets the criteria.

03 / Integration

There are a number of issues that need to be considered when affordable housing is delivered as part of a mixed-tenure development.

The viability equation is often very tight when including the required percentage of affordable units into a scheme. To offset the reduced income from these units, developers must ensure that the design is efficient, simple and cost effective while still upholding the quality required for planning and sustenance of sales values on the remaining market rate units.

Sometimes, the full market rate product is at a level where the inclusion of affordable units would likely diminish the sales values, therefore a payment can be made to the local authority in order to build the affordable units elsewhere in the borough. This approach has been viewed with some scepticism in the past as it can take considerable time for the funds to be reallocated, delaying the building of the affordable units.

On the other hand, it could be said that by building dedicated affordable units rather than integrating them into a more costly development, over time, a greater number of affordable units can be built for the equivalent value. This is something we touch on in the final two sections of this article.

Mixed-tenure blocks containing affordable units require a considered approach to design so that efficiencies and cost effectiveness is maintained and scheme viability secured. Separate entrances and circulation for the differing tenures bring issues with achieving a good a net:gross floor area ratio while adding expensive structural core elements to the building. Care must be taken not to create obvious segregation of facade palette without ignoring the fact the affordable returns would preclude the use of expensive materials.

Life cycle costing and unit size are critical design considerations for affordable housing. Strict adherence to London Housing Design Guidelines for unit size is important to ensure that no excess space is created (this discipline is still required within market sale units, however there is a possibility of additional revenue within this part of the market).

Ongoing maintenance is the responsibility of the registered provider or local authority and as such it is imperative that the fit-out costs are viewed from a whole life perspective and not merely capital cost. Investing in more durable surfaces, better quality appliances, and so on, may seem counterproductive in trying to squeeze viability, but over the course of the asset’s life, the cost of maintenance on low quality items will far outweigh the upfront cost, and improve longer term returns.

04 / Innovation

Given the pressure on the residential sector to deliver affordable homes in large quantities, it is not surprising that the industry has begun to respond by looking at innovative ways of meeting the demand. Whether it be through the exploration of off-site manufacture or simply the streamlining of design using a standard kit of parts to deliver a special purpose affordable product, a number of initiatives are underway.

One such study (Future Residential) was led by AHMM with support from AKT II, Wallace Whittle and Alinea. This was commissioned by Lipton Rogers and examined how to deliver an efficient residential scheme both in terms of design and buildability. At the outset the aspirations were to create a repeatable, cost efficient chassis for a building while maintaining key parameters such as LHDG adherence, dual aspect provision and inherent sustainable attributes.

Starting with the development of an optimal floor plate, aspects of the design were tested to ensure the most cost efficient, flexible and simple to construct building.

This produced an efficient chassis system with cost effective components and materials forming a building that can be replicated numerous times with only minor site-led variations. Speedy delivery of such units, facilitated by short design periods and known construction/installation site works would help to alleviate the pressures on the industry to deliver housing quotas.

Time is a critical factor in viability assessments so speed of construction is another area of innovation which is currently being explored to try to improve the delivery of affordable housing. A number of companies are now offering off-site volumetric construction, promising up to a 40% programme saving over traditional methods.

Although not specifically aimed at the affordable market, modular construction could well be a good fit for the tenure. Strict adherence to LHDG standards, common specifications for internal fit out and a cost effective palette of facade materials are all essentials in making affordable housing viable and they align nicely with the key requirements for modular delivery.

On a capital cost comparison, a modular constructed building is still generally proving more expensive than its traditional counterpart, it is the potential programme savings which offer the key opportunity to improve the appraisal.

The cost uplift can generally be attributed to a slow or inconsistent pipeline of orders being put through the factories, impeding any economies of scale.

Another barrier to the implementation of modular is the lack of flexibility to make design changes once initial orders are placed, creating a subsequent cost premium should they be required.

05 / Cost Model

The cost model is based upon a mixed tenure apartment building comprising of 162 open market units and 54 flats within the affordable sector and is based in zone 2/3 in London. The apartments are arranged in a single, seven-storey building with four cores and separate entrances for the private and affordable units. We felt this model is appropriate given that the mixed tenure model is the most common form of affordable delivery in London.

The key metrics for the building are:

• Gross internal floor area: 194,040ft²
• Net internal floor area: 146,895ft²
• Net:gross efficiency: 75%
• Wall: floor ratio: 0.60
• £/ft² GIA: £235
• Cost per affordable apartment: £202,000.

By way of a comparison and in order to show that special purpose affordable buildings should be a better way to deliver the volumes required, we produced an alternative cost model based upon a Future Residential concept.

The key metrics are shown below and assume a one-off project in respect of the rates used. Volume and repetition should enable the build costs to be further improved upon those shown and highlight the benefits of adopting such a concept.

• Gross internal floor area: 80,407ft²
• Net internal floor area: 66,134ft²
• Net:gross efficiency: 82%
• Wall:floor ratio: 0.50
• £/ft² GIA: £185
• Cost per affordable apartment: £186,000
• Saving over mixed tenure model (per unit): £16,000.

If modular construction was adopted for the same typology we would expect in the current market to pay in the region of 10–20% more than the traditionally built alternative.

The overage is very much dependant on the amount of traditional on-site activities required and the degree of repetition involved. Volume orders and a strong pipeline will also help to reduce the cost premium.

All rates are base dated at Q2 2016 and are reflective of a two-stage competitive design and build tender (although a modular or SPV approach would offer alternative procurement options). Exclusions from the cost model include: demolitions, fees (professional and pre-construction), external works, section 106/278 agreements, VAT and all other developers costs.

SHELL WORKS

Substructure	3,664,360	203	12
Excavation; including disposal off site (3,320m³ @ £55)
Pilling mat; including disposal (1,496m² @ £55)
CFA Piles; 600mm diameter, 25m deep, including disposal of pile arisings off site, trimming tops of piles, pile / integrity testing (373nr @ £4,620)
Secant piles to perimeter of basement; 750mm diameter, 25m deep, including 250mm thick reinforced concrete liner wall, waterproofing, reinforced concrete capping beam (1,525m² @ £340)
Reinforced concrete to pile caps and ground beams; including reinforcement and formwork (1,631m³ @ £475)
Reinforced ‘Calitite’ concrete to ground slab to basement; 300mm thick, including Cellcore HX S 225mm thick, blinding, waterproofing, reinforcement and formwork (221m² @ £255)
Reinforced concrete to ground slab to ground; 250mm thick, including Cellcore HX S 225mm thick, blinding, reinforcement and formwork (1,287m² @ £155)
Reinforced concrete to suspended capping slab to basement; including reinforcement, formwork and insulation (363m² @ £185)
Allowance for lift pits (8nr @ £7,500)
Frame	2,208,960	123	7
Reinforced concrete frame; comprising columns, shear walls, upstands, core walls and beams, including reinforcement and formwork (18,027m² @ £120)
Steelwork walkway; including connections (254m² @ £180)
Upper floors	2,522,850	140	8
Reinforced concrete to upper floors; 250mm thick, including reinforcement, formwork and movement joints (16,819m² @ £150)
Roof	776,445	43	2
Reinforced concrete to roof; 250mm thick, including reinforcement and formwork (1,732m² @ £150)
Roof finish; paving on spacer pads, including waterproofing, insulation and root barrier (325m² @ £350)
Roof finish; biodiverse roof, including waterproofing, insulation, 50mm drainage board, geotextile filter membrane, 40mm drainage layer, recycled brown roof substrate (715m² @ £215)
Roof finish; blue roof, including waterproofing, insulation, 50mm drainage board, geotextile filter membrane and 80mm ballast (701m² @ £190)
Allowance for abseil access (1 Item @ £25,000)
Allowance for access ladders and walkways (1 Item @ £5,000)
Allowance for lightning protection (1,732m² @ £15)
Allowance for lift overuns (4 Item @ £15,000)
Stairs	416,500	23	1
Reinforced concrete internal stair; dog leg, half landing, total rise per floor 3.5m, including reinforcement and formwork (49nr @ £8,500)
External walls, windows, doors and balconies	8,236,140	457	26
Facing brickwork; Flemish bond (snapped headers), flush joints, including SFS substrate, insulation and internal plasterboard lining (228m² @ £355)
Facing brickwork; Flemish bond (headers to project by 25mm, snapped to cavity side), flush joints, including SFS substrate, insulation and internal plasterboard lining (999m² @ £385)
Facing brickwork; Flemish bond (headers omitted to create perforated effect in 215mm thick wall) (95m² @ £250)
Facing brickwork; half lap stretcher bond, flush joints, including SFS substrate, insulation and internal plasterboard lining (6,164m² @ £355)
Diamond profiled aluminium cladding and spandrel panels; PPC finish, including SFS substrate, insulation and internal plasterboard lining (401m² @ £585)
Ideal Combi A/S Futura, aluminium timber composite; 28mm double glazing, including all ironmongery (2,869m² @ £550)
Projecting balconies; including pressed aluminium soffit, membrane and decking (215nr @ £7,550)Handrail to the above (1,653m @ £420)
Recessed balconies; including privacy screen (7nr @ £6,900)
Handrail to the above (51m @ £420)
External walkway; paving on spacer pads and PPC pressed aluminium cladding panel to soffit (254m² @ £600)
PPC steel balustrade to the above; Including flat handrail(115m @ £450)
Apartment external entrance doors; single door, including frame and ironmongery (28nr @ £800)
Louvered doors; single, including ironmongery (3nr @ £1,000)
Louvered doors; double, including ironmongery (21nr @ £1,500)
Bin store doors; double, including ironmongery (4nr @ £2,000)
General access scaffold to all areas (10,898m² @ £100)
Internal walls and partitions	408,300	23	1
Partition to apartment party walls; metal stud partition system, 2nr 15mm Gyproc SoundBloc, 100mm insulation taped and jointed (5,268m² @ £75)
Partition to risers; blockwork (220m² @ £60)
Internal doors	195,600	11	1
Apartment internal entrance door; single, including painted softwood frame, full height side panel, hardwood veneer and ironmongery (188nr @ £800)
Internal riser door; single, including painted softwood frame, hardwood veneer and ironmongery (42nr @ £600)
Internal basement doors; single, fire rated, including painted steel frame, steel faced and ironmongery (8nr @ £2,500)
Internal finishes	504,756	28	2
Screed to all areas; 28mm K Screed or similar (18,027m² @ £28)
Fittings, furnishing and equipment	0	0	0
Included in residential fit-out works – communal areas
MEP	6,111,153	339	20
Sanitary installations; included in residential fit out works - apartment fit out
Disposal installations (18,027m² @ £28)
Water installations (18,027m² @ £15)
Heat source (18,027m² @ £47)
Space heating and air treatment (18,027m² @ £16)
Ventilation systems (18,027m² @ £30)
Electrical installations (18,027m² @ £54)
Gas installations (18,027m² @ £2)
Protective installations (18,027m² @ £20)
Communication installations (18,027m² @ £37)
Special installations (18,027m² @ £24)
Lift installations (18,027m² @ £50)
Builders work (18,027m² @ £16)
Preliminaries, OH&P and contingencies	6,104,108	339	20
Preliminaries @ 15%
OH&P @ 5%
Design reserve and contingency @ 3%
Total shell works	31,149,172	1,728	100

COMMUNAL AREAS

Stairs	245,000	14	18
Mild steel handrail (588m @ £150)
Mild steel balustrade (392m @ £400)
Internal walls and partitions	0	0	0
Included in shell works
Internal doors	24,500	1	2
Internal core doors; single, fire checked, including painted softwood frame, hardwood veneer, glazed panels and ironmongery (35nr @ £700)
Wall finishes	526,670	29	38
Finish to exposed reinforced concrete wall and columns; epoxy paint (1,296m² @ £20) finish to lobby; feature wall, 20mm brick slips and flemish bond (633m² @ £350)
Finish to reinforced concrete and blockwork walls; plasterboard and paint (4,682m² @ £25)
Finish to partitions and linings; emulsion paint (9,950m² @ £10)
Skirting to partitions and linings; MDF skirting and painted (3,685m @ £12)
E/O for stained oak skirting to corridors and lift cores (1,843m @ £10)
Floor finishes	110,557	6	8
Finish to communal corridors and apartment lobbies; carpet (1,070m² @ £50)
Finish to entrance lobby, concierge and post room; stone paving PC flooring (188m² @ £163)
Finish to security office and cleaner’s cupboard; slip resistant vinyl (35m² @ £32)
Finish to office; engineered timber flooring (25m² @ £74)
Finish to refuse, bicycle store and basement; Epoxy ‘Anti Slip’ Floor paint (403m² @ £16)
Finish to stair cores; Watco UK clear floor sealer (608m² @ £15)
Allowance for entrance matwells (5nr @ £1,575)
Ceiling finishes	102,120	6	7
Finish to common corridors; acoustic ceiling panel, including 100mm plasterboard perimeter (1,070m² @ £60)
Finish to entrance lobby; suspended plasterboard ceiling, including cove detail, taped and jointed, primed, sealed and decorated (158m² @ £100)
Finish to concierge, post room, security office, cleaner’s cupboard and office; suspended plasterboard ceiling, taped and jointed, primed, sealed and decorated (90m² @ £30)
Finish to refuse and bicycle store; suspended plasterboard ceiling, taped and jointed, primed, sealed and decorated (403m² @ £40)
Finish to basement; Epoxy paint (165m² @ £20)
Fittings, furnishing and equipment	108,950	6	8
Nameplates, direction signs, numbers (216nr @ £50)
Secure letter boxes in entrances (216nr @ £125)
Concierge desk (1nr @ £15,000)
Cycle racks; Sheffield hoop style (226nr @ £150)
Cleaners cupboard with sink and services (4nr @ £2,500)
Storage bins; 1,100 litre Eurobins (35nr @ £350)
MEP	0	0	0
Included in Shell Works
Preliminaries, OH&P and contingencies	265,815	15	19
Preliminaries @ 15%
OH&P @ 4.5%
Design reserve and contingency @ 3%
Total communal areas	1,383,612	77	100

PRIVATE APARTMENTS

Stairs	65,000	4	1
Staircase to duplex units; timber, including balustrade and finishes (15nr @ £3,000)
Spiral staircase to duplex units; Including balustrade and finishes (2nr @ £10,000)
Internal walls and partitions	479,915	27	5
Internal partitions to apartments; metal stud partition system, 1nr 12,5mm Gyproc Wallboard, 25mm insulation, taped and jointed (10,120m² @ £45)
Internal partition to apartment bathrooms; extra over the above for 1 layer of Moisture Resistant 12.5mm Gyproc MR (4,903m² @ £5)
Internal doors	433,550	24	4
Internal doors to apartments; single, including painted softwood frame, hardwood veneer and ironmongery (754nr @ £575)
Wall finishes	433,728	24	4
Finish to bathrooms, en suites and kitchen splashbacks; ceramic tile (5,146m² @ £55)Finish to partitions and linings; emulsion paint (10,433m² @ £10)
Skirting to partitions and linings; MDF skirting and painted (3,864m @ £12)
Floor finishes	650,430	36	6
Finish to kitchens and bathrooms; porcelain tiles, laid on screed (1,515m² @ £90)
Finish to living areas; engineered timber flooring, wax finish (5,215m² @ £75)
Finish to bedrooms and stores; carpet (3,513m² @ £35)
Ceiling finishes	307,320	17	3
Finish to apartments; suspended plasterboard ceiling, taped and jointed, primed, sealed and decorated (10,244m² @ £30)
Fittings, furnishing and equipment	2,007,204	111	20
Kitchen to private apartments; Zinzin (3m) handless furniture, composite work surface and glass splashback (by others), Franke one and a half bowl undermount sink, tap as Penthouse, LED recess lights, Electrolux oven, hob, fridge / freezer and 45cm dishwasher (159nr @ £5,280)
Allowance for cooker hoods to the above (159nr @ £158)
Kitchen to private penthouse apartments; Virto (3g) handless furniture, composite work surface and backsplash by others, Franke one and a half bowl undermount sink, tap as specified, LED recess lights, Bosch oven and microwave, Electrolux hob, fridge / freezer and dishwasher (3nr @ £7,105)
Allowance for cooker hoods to the above (3nr @ £210)
Sanitaryware to private apartments; bath, close coupled WC pan and seat, pedestal wash hand basin, chrome plated tapware, recessed thermostatic shower mixer with chrome head, shower screen; mirror with lighting; storage under basin; casings; pipe ducts; panels; fixing of fittings and sanitaryware (162nr @ £3,150)
Sanitaryware to private apartments; shower tray, close coupled WC pan and seat, pedestal wash hand basin, chrome plated tapware, recessed thermostatic shower mixer with chrome head, shower cubicle and screen; vanity unit; casings; pipe ducts; panels; fixing of fittings and sanitaryware (73nr @ £2,940)
Fittings to master bedrooms of private apartments; wardrobe doors and fittings (162nr @ £1,313)
Fittings to bathrooms and en suites of private apartments; vanity units (235nr @ £525)
Fitting to living area of private apartment; oak veneered full height shelf unit and mirror (162nr @ £368)
MEP	3,875,805	215	38
Sanitary installations; included above
Disposal installations (18,027m² @ £11)
Water installations (18,027m² @ £19)
Heat source (18,027m² @ £17)
Space heating and air treatment (18,027m² @ £30)
Ventilation systems (18,027m² @ £17)
Electrical installations (18,027m² @ £75)
Protective installations (18,027m² @ £17)
Communication installations (18,027m² @ £19)
Builders work (18,027m² @ £10)
Preliminaries, OH&P and contingencies	1,962,573	109	19
Preliminaries @ 15%
OH&P @ 4.5%
Design reserve and contingency @ 3%
Total private apartments	10,215,525	567	100

AFFORDABLE APARTMENTS

Stairs	0	0	0
Internal walls and partitions	157,355	9	6
Internal partitions to affordable apartments; metal stud partition system, 1nr 12,5mm Gyproc Wallboard, 25mm insulation, taped and jointed (3,348m² @ £45)
Internal partition to affordable apartment bathrooms; extra over the above for 1 layer of Moisture Resistant 12.5mm Gyproc MR (1,339m² @ £5)
Internal doors	136,000	8	5
Internal doors to affordable apartments; single, oak-veneered including softwood frame, stained and lacquered finish and ironmongery (272nr @ £500)
Wall finishes	138,096	8	5
Finish to bathrooms and shower rooms; ceramic tile (1,339m² @ £40)
Finish to kitchens; glass splashback (53nr @ £500)
Finish to partitions and linings; emulsion paint (4,018m² @ £10)
Skirting to partitions and linings; MDF skirting and painted (1,488m @ £12)
Floor finishes	174,856	10	6
Finish to kitchens; porcelain tiles, laid on screed (164m² @ £90)
Finish to living areas; timber effect laminate flooring including plywood substrate (1,772m² @ £60)
Finish to bathrooms and shower rooms; cork floor tiles (244m² @ £60)
Finish to bedrooms and stores; carpet including underlay (1,223m² @ £32)
Ceiling finishes	102,090	6	4
Finish to affordable apartments; suspended plasterboard ceiling, taped and jointed, primed, sealed and decorated (3,403m² @ £30)
Fittings, furnishing and equipment	450,098	25	16
Kitchen to affordable apartments; Zinzin (3m) handless furniture, composite work surface and glass splashback (by others), Franke one and a half bowl undermount sink, tap as Penthouse, LED recess lights, Electrolux oven, hob, fridge / freezer and 45cm dishwasher (54nr @ £4,270)
Allowance for cooker hoods to the above (54nr @ £158)
Sanitaryware to affordable bathroom; bath, close coupled WC pan and seat, pedestal wash hand basin, chrome plated tapware, recessed thermostatic shower mixer with chrome head, shower screen; mirror with lighting; storage under basin; casings; pipe ducts; panels; fixing of fittings and sanitaryware (82nr @ £2,573)
MEP	1,099,647	61	39
Sanitary installations; included above
Disposal installations (18,027m² @ £4)
Water installations (18,027m² @ £7)
Heat source (18,027m² @ £6)
Space heating and air treatment (18,027m² @ £7)
Ventilation systems (18,027m² @ £6)
Electrical installations (18,027m² @ £17)
Protective installations (18,027m² @ £6)
Communication installations (18,027m² @ £5)
Builders’ work (18,027m² @ £3)
Preliminaries, OH&P and contingencies	536,992	30	19
Preliminaries @ 15%
OH&P @ 4.5%
Design reserve and contingency @ 3%
Total affordable apartments	2,795,134	155	100
Total Cost Model	45,543,443	2,526	100