High Quality Residential Apartments - Cost model, March 1997

Introduction

The UK housebuilding industry is dominated by volume builders which, traditionally, have focused on the efficient production of a limited range of standardised pattern housing on greenfield sites.

The design and procurement processes adopted by volume builders are very different from those used by the contracting element of the construction industry. As a result, there have been limited opportunities for consultants or contractors in the private housing sector.

However, recent years have seen severe restrictions placed on greenfield sites and the introduction of government policy favouring the development of urban brownfield land. Currently, about 45% of housing is built on greenfield sites. The shift to developing brownfield sites could create opportunities for those designers and contractors that are equipped to deal with the greater complexities of higher-density urban developments. This would be the case particularly on sites where difficult planning issues need to be resolved.

This article examines the current state of the housing market and the forces influencing the direction of urban development. It includes: a review of research into consumer demand; design and specification issues; energy efficiency; contaminated land; and mixed-tenure housing schemes. The cost model itself examines the development costs of a new-built, four-storey apartment block and associated external works.

The market for private housebuilding

1996 can now be seen as the year the feelgood factor returned to the housing market. Rising optimism linked to increases in house price inflation - from 2% in March 1996 to 7.1% in December, according to the Halifax Building Society - has been converted to real activity on building sites.

Housing starts in Great Britain during the fourth quarter 1996 were up 33% on the same period in 1995. The burst of activity at the close of 1996 confirmed that builders and developers had been delaying the start of their construction programmes until there was more certainty that the market had turned.

The current market, with prices buoyed up, but with a limited supply of both new and secondhand property for sale, is subject to extreme local variation. Tables 1 and 2 examine increases in house starts and changes in average prices, illustrating the varied performance of the new-build and existing housing sectors, and also the variations in activity in the regions.

In the longer term, prospects are good and the government forecasts that 4.4 million additional households will need accommodation by 2016. There will be a greater demand for smaller units, triggered by higher levels of family breakdown and the entry of large numbers of young single individuals and elderly people into the housing market.

Government policy is to discourage urban sprawl and support development within existing urban sites. But, according to critics such as the Council for the Protection of Rural England, this will be difficult to achieve for two main reasons. One is the strong preference of many to live in rural areas. And, second, there is a lack of suitable brownfield sites in areas where residential demand is forecast to be high - London, the South-east and the South-west.

Apartment developments are particularly suited to urban, brownfield sites. The higher development density that can be achieved is appropriate to an urban location and has the potential for generating a sufficient return on capital to compete with non-residential land uses. A reasonable return is also necessary to fund any decontamination or remediation measures required.

The most popular sites are canal- or riverside - where premiums of 15-20% on the selling price can be realised.

Other trends in urban living, such as loft conversions and turning offices into apartments, are evidence of a response to the increasing demand for dwellings in central locations. In the case of central London, there is also a high level of demand for quality accommodation from Far East investors and employees of multinational companies.

Purchaser requirements

The housing market is highly competitive and developers must understand their market so they can respond to changes in patterns of demand or ownership. The continuing presence of negative equity in the studio and starter homes sector across the UK has been caused by a new generation of more affluent buyers. These people are able to enter the housing market at a higher price band than during the late 1980s, thereby making starter homes harder to sell.

Demand for two- and three-bedroom apartments and houses is being bolstered by the growth in the number of small households. However, despite the sensitivity of the market, little research is commissioned. Instead, developers rely on feedback from existing sites and ‘instinct’ to fine-tune a development to its intended market. Recent research by Savills Residential Research has confirmed the most important factors affecting buying behaviour are location, design and size of property. The research also revealed mismatches between consumer demand and what the market is able to supply.

Location is an overriding consideration, in terms of convenience of journey to work and proximity to local facilities such as schools. Design, in terms of ‘kerb appeal’, and size and distribution of rooms, is recognised as vital in differentiating between rival schemes. The choice of a home is often made on design and specification issues, such as external appearance or the quality of internal specification, rather than on the attributes of the site.

In apartment developments, investment in the quality of shared amenities, particularly landscaping and recreational facilities, is considered necessary to compensate for the perceived disadvantages of high-density, urban, communal living. This investment also adds to the market appeal of the development. In some cases, developers claim that an extra £1 spent on an enhanced specification can give a £3 return on selling price. Common approaches to increasing appeal include maximising the number of units that benefit from riverside views, providing enhanced and visible security measures and high-quality, managed common areas.

Design

With the exception of niche markets, such as ‘loft-style’ developments and some dockland schemes, the construction of apartments uses traditional methods and materials. Rendered blockwork, good-quality stock brickwork and pitched, clay-tiled roofs dominate the choice of materials. This reflects the conservatism of both purchasers and developers.

Internal finishes tend to be determined by the developer rather than the design team, with the final selection being left to the purchaser. Planning issues correspond closely with concerns of purchasers by focusing on issues of development density, parking provision, amenity spaces and, particularly, privacy distances. Building to permitted densities is constrained by requirements for car parking. The incorporation of a garage within the footprint of the house, or the inclusion of elements of below-ground parking, raises the cost of a scheme of town houses, but increases the number of units that can be built.

Apartment developments tend to be planned as inward-facing courtyard schemes. These give enhanced security and lessen external noise. Internally, there is emphasis on creating generous accommodation for the living room and master bedroom. The level of subdivision tends to be high, and preferences for en-suite bathrooms and additional living rooms are incorporated into the space planning.

Apartment buildings are generally planned with single-storey units grouped around a single access corridor and protected staircase. Other units on urban sites, such as terraced houses, are usually planned on a narrow footprint over three or four storeys to maximise the overall density of the development. The result of this is an increase in the costs of vertical circulation. Town houses with a single garage within the building footprint require a particularly high circulation area.

PVCu windows are popular in private housing because of their high thermal performance and low maintenance costs. PVC is also often specified for pipework, cable insulation and floor tiles. However, plastic products are recognised as potentially harmful to the environment and their use in construction will increasingly be questioned as green issues come to the fore. Housing associations tend to lead on environmental matters and are now specifying more timber windows. Use of softwood adds 13% to the capital cost of windows; hardwood windows cost an additional 50%. Timber windows also have significantly higher life-cycle costs.

Sound insulation is particularly important in apartment developments, as noise transmission is one of the key reasons why detached housing is preferred to all other house types. Party walls are constructed either as a single skin of dense concrete blockwork or as two skins of medium-density blockwork with a 75-100mm cavity. Party floor construction needs to be similarly dense, typically constructed from precast concrete planks. Together with plaster finishes, the mass of both floor and wall constructions should exceed 500kg/m2. Resilient floating floor systems are widely used to counter transmission of sound, with a closed-cell foam layer below the screed in kitchens and bathrooms.

Heating systems are usually conventional, comprising a gas-fired, balanced-flue boiler and steel panel radiators. Purchasers generally prefer to see radiators; consequently, underfloor systems are not popular.

Landscaping and external works are key factors in the success of all apartment housing schemes. The kerb appeal of the development can be enhanced by well-designed, mature landscaping. The long-term condition and maintenance of shared areas will also have some impact on resale values, as will the costs of upkeep that are recovered through service charges. Typically, external works account for 15-30% of the overall development budget, depending on the extent of car parking and public open space required. External works costs can also be increased by local authority requirements that have been negotiated as part of a planning (Section 106) agreement. Typical requirements include enhancements to roads and road junctions, public open spaces and rights of way, such as riverside walks. Local authorities are now being encouraged by government to include social housing during negotiations with developers over planning. Some form of planning gain is increasingly a prerequisite of major inner-city or urban developments.

Energy efficiency

As a general rule, private housing developers build to the minimum acceptable standard laid down in the Building Regulations rather than to maximise energy efficiency. Energy conservation has yet to become a significant consumer issue and few developers are prepared to invest the comparatively small extra cost in energy efficiency measures.

The measures shown in the table below have been advocated by the Building Research Energy Conservation Support Unit following a study of the effectiveness and capital cost of energy efficiency good practice.

Adoption of these measures is estimated at £600-1000 a unit (£6-12/m2), depending on the size of the unit). Some buildability issues need to be addressed in connection with the measures - particularly the detailing and installation of insulation to floor slabs and primary pipework.

The benefits of energy efficiency can be assessed in terms of the Standard Assessment Procedure ratings introduced in the 1995 revision of Part L of the Building Regulations. SAP ratings range from 1 to 100, where 100 represents a high standard of energy efficiency. The SAP rating of dwellings complying with the current requirements of Part L typically range from 80 to 85.

The measures in the table can result in SAP rating improvements of between 5 and 13 points. Improvements are easier to achieve in larger units. Installation of a condensing boiler, which recovers most of the heat from the exhaust gases that would otherwise escape into the atmosphere, is the single most effective means of increasing efficiency.

High energy efficiency can e achieved by the use of wider, fully insulated cavities (150mm) in external walls, the upgrading of ground-floor slab insulation and the introduction of more sophisticated heating controls. The upgrading of SAP performance by 18 points, from 82 to 100 points, has been shown in studies for BRESCU to give a 42% cut in total energy costs, together with a 36% reduction in carbon dioxide emissions.

Brownfield sites

Government policy to direct 50% of new residential development into urban areas will force housebuilders to take on increasingly more difficult brownfield sites. Housing associations and other social housing providers have previously tended to take on the best of the brownfield sites. However, as funding for social housing has fallen and competition for urban sites intensifies, more contaminated sites will be considered for development by the private sector.

Developing brownfield sites has also been affected by the introduction of a series of government measures - the landfill tax, the 1996 Special Waste Regulations and draft guidance notes dealing with contaminated land - that are likely to increase development costs.

  Although the landfill tax (October 1996) is aimed at increasing recycling and cutting down construction waste, estimates of its impact on building on brownfield sites range from 1-2% of overall development costs. Exemptions can be obtained for the disposal of historically contaminated waste but applications for exemption need to be made one month in advance of disposal. This can introduce significant delays into the construction process. Spoil resulting from construction work is not exempt from the tax. Landfill tax rates are likely to increase ahead of inflation as an instrument of the government’s environmental policy.

  The 1996 Special Waste Regulations Act provides a more rigorous system for managing the disposal of hazardous waste. The regulations impose a fee of £15 per consignment of special waste.

  The contaminated land guidance notes established the principle of ‘polluter pays’. Where the original polluter cannot be found, however, liability may lie with the current owner or occupier. Establishing the existence and extent of contamination will become critical when buying and selling land. Contracts will become more complex as they incorporate allocations of liability for future decontamination. As housing land uses will require higher standards of clean-up, residential land values may fall as a result and, in urban areas, the land may revert to former uses.

The overall effect of these measures will be to increase costs and discourage the regeneration of derelict land for housing. The costs of ‘easy’ brownfield sites will also increase as contaminated land regulations reduce the flow of urban sites available for development.

Affordable housing

The shortage of low-cost housing, either for sale or to rent, will get worse as the funds available to housing associations and other public authorities are systematically reduced. As an alternative to public funding, the government is seeking to involve private developers in the provision of social housing via the planning system. Draft guidance circulated by the DOE during March 1996 examined ways in which local authorities could negotiate for the inclusion of an element of affordable housing in a private scheme as part of the planning approval process.

Guidelines in the DOE draft circular set out the following criteria: site size, suitability, and economics and provision - affordable housing should be introduced only on sites with more than 50 units or larger than 2ha (25 units or 1 ha in inner London) the need to achieve a successful development - including consideration of the balance between private and social housing, the mix of dwelling types and the management and responsibility for the social housing element.

To date, no consideration has been given to who should pay for the development cost of the social housing element. It is possible that part or all of the costs might be considered by local authorities to be planning gain and the developer would be asked to pay. Although the number of social housing units created in this way will be small, the impact on schemes both in terms of marketability and bottom-line cost could be significant.

Procurement route and programme

Volume builders generally run their own construction programmes, including the design and procurement process. They directly employ specialist subcontractors to maximise flexibility and use in-house staff to control site operations.

Other forms of procurement, principally design-and-build or occasionally lump-sum contracting, are used only when a developer has to buy in outside resources to design, procure and manage the construction programme. The design-and-build route has clear advantages when used for uncomplicated houses but may not be suitable for developments where higher quality is required.

The involvement of consultant designers is often critical in the early stages of apartment housing and inner-city sites because of the potential complexity of the planning issues and the difficulties presented when designing for high densities.

Analysis of the model

The cost model details the construction costs of a four-storey apartment building. The gross internal floor area of the scheme is 1176m2. It comprises 12 apartments ranging in size from 75 to 105m2.

Unit rates are based on price levels current in February 1997, obtained by competitive tender for a lump-sum contract. The scheme is located in outer London. Demolition works are excluded from the cost model, whereas allowances for a proportion of total site preparation and external works costs are included. Adjustments to the unit rates for other schemes should take into account the cost implications of location, site conditions, programme and, particularly, procurement route.

The cost model scheme is based on a joint development in west London by Fairclough Homes and Persimmon Homes, designed by PRP Architects.

All costs in the model are based on a scheme located in outer London. For schemes in other regions, costs should be adjusted by the location factors contained in the table below.