Futuregazing … on development viability

Research by cost consultant EC Harris and property consultant Savills released at the Mipim property show in Cannes, France, earlier this month shows exactly how emerging policy is impacting on residential development viability.

EC Harris calculates that recent legislation has already added 5% to build costs, while forthcoming legislation, such as the revised Part L of the Building Regulations, is set to add a further 5%. When Savills added into the equation other demands on developers such as increased S106 affordable housing, infrastructure charges, and other environmental demands such as meeting higher EcoHomes standards, developer margins would be slashed by 40% (see chart). Savills also factored in the potential cost impact of the Treasury's proposed planning gain supplement.

Savills head of research Yolande Barnes said that in the past, increasing property values had helped boost developer margins, but that now the market was levelling off, there was an over-supply of apartments in some locations, many easy brownfield sites have been developed, and some developers were struggling to understand urbanism. As a result, Barnes said:

"A scary gap is opening up between build costs and property values. The game now is about reducing costs and/or increasing value, because the market is not going to do it for you."

Graham Kean, head of public sector at EC Harris warned: "Developers will need to re-engineer their delivery, and will have to be more selective about who they work with. The threat to margins will drive change."

Speaking at the launch of the research, Nick Shattock, property director of developer Quintain, said that there would be an onus on developers to, "buy land cheap and adapt or die".