Too good to be true?

Three weeks ago, the Scottish social housing sector got a bit of a shock: deputy prime minister John Prescott was heard heaping praise on it. In his address to the National Housing Federation’s annual conference, Prescott lauded the Scots for managing to build social homes for three-quarters of the cost of English homes. It was, he said, all thanks to their use of modern construction techniques.

A saving of 25% is certainly an arresting figure for English associations competing for development-partner status and struggling to stick within ever tighter margins of efficiency. But housing experts have been left scratching their heads wondering just how the government calculated the figure. Could such a large disparity, they wondered, be wholly explained by the use of “modern construction” methods?

Big savings

As Ian Keys, partnership director at UK-wide outsourcing provider Pinnacle PSG, says: “Twenty-five per cent is a massive cost difference. It would suggest that the Scots’ management, construction or regulatory structure is allowing them to make some big savings.”

So what does lie behind the numbers? A spokesman for the ODPM says the figure used by Prescott was compiled from an “amalgamation” of statistics provided by the Scottish Executive, the Department of Trade and Industry, ODPM and Office for National Statistics. He adds that the figure was calculated from more than 20 pages of statistics – but that, unfortunately, no breakdown is available.

Where Prescott got his figures remains something of a mystery. There is no analysis of Scottish construction costs in the DTI Construction Statistics Annual 2003, which in the main covers England. Using what figures there are elsewhere to make comparisons is fraught with difficulty.

The Scottish Executive is able to provide some construction cost figures, and a spokesman points to a benchmarking exercise that has tracked housing associations’ costs. It shows costs per square metre have gone down slightly, from £1024 in 1997/8 to £1000.87 in 2003/4. But according to the Royal Institute of Chartered Surveyors’ Building Cost Information Service (BCIS), such figures can be equivocal because the larger a house the less its square metre cost.

Are like-for-like properties being compared? The Scottish Executive was unable to say for certain whether their figures were the ones being used by the ODPM.

The BCIS has no data for Scotland so cannot comment on average build costs in the country. But it is able to give a figure for England. Based on the feedback received from 200 housing associations, average build costs are about £80,000 for units procured through the design and build route. This figure rises to £100,000 for private developers (who require at least a 20% profit margin). Both figures exclude land costs.

Treat with caution

You might think then that if Scotland’s social homes come in at 25% less than England’s, they must cost an average of £60,000 to build (or £72,000 for private developers). But Chris Parker, technical consultant at BCIS, warns that all averages need to be treated with caution. “Our figures, as averages, include costs as varied as London’s and Cumbria’s. It can be hard to get an accurate picture of costs by looking at averages alone,” he says.

Gordon Smith is area director for the Grampian region at Communities Scotland, the country’s social housing regulator. He admits that he’s “not sure what to make” of the government’s construction cost figures. “It depends so much on what type of house you are dealing with. Construction costs for a four-bedroom home can hit the £100,000 mark in some areas,” he says. Smith points to the widespread use of timber frame in Scotland as one area of contrast to the English housing sector. “Presumably this is what the deputy prime minister was referring to when he talked about the greater use of modern construction methods in Scotland. It seems to be one of the main differences between the two countries.”

According to the UK Timber Frame Association, about 90% of new social housing in Scotland is timber frame, but in England the figure is more like 40% (it falls to 12% if the private sector is included).

Cheaper than bricks and mortar

But Bryan Woodley, chief executive at the association, says timber frame structures only work out significantly cheaper than bricks and mortar if the building’s whole-life costs are taken into account.

England can expect a stream of surveyors and project managers coming over Hadrian’s Wall to teach English contractors to build with timber frame 

Bryan Woodley, UK Timber Frame Association

“Usually there would only be a 4% initial variation of cost between using timber frame and a traditional build method. You’d only see a large differentiation of around 30% if you looked at the building’s whole-life costs – around 60 years. In this respect timber frame is cheaper because of its lower maintenance costs and higher insulation value,” he says.

Woodley also points to the advantage of using timber frame in adverse weather because the structure will have a roof laid upon it at a very early stage.

Then there are the sustainability credentials of timber. “In Scandinavia, from where the UK tends to import timber, for every tree harvested, two are planted,” says Woodley. “Constructing with timber frame also produces less carbon than traditional build, so I can see why the government is encouraging this approach. It fits in with its promise to reduce carbon emissions.”

The use of timber frame structures in England is increasing. Scottish housebuilder and timber frame specialist Stewart Milne is planning to open its second factory in England to complement its £10m plant near Oxford. As Woodley says: “England can expect to see a stream of surveyors and project managers coming over Hadrian’s Wall to teach English contractors to build with timber frame. Times are changing and the use of timber frame will continue to increase in England.”

So do how do Scottish housing associations regard their construction costs? Pat McCall is development manager at Glasgow-based Cube Housing Association, which manages around 3000 properties and is one of Scotland’s largest social landlords. Cube recently completed the construction of 30 units in East Renfrewshire at a total cost of £2.02m or £67,000 per unit. McCall says the use of timber frame means the build time is swift, which keeps costs down. But a more important factor was securing free land from the council.

“It’s finding land that creates headaches – I imagine that’s the same wherever you are in the UK. A real challenge for us is finding contractors that are truly willing to work within a partnering framework – using open book accounting,” she says.

Elsewhere in Scotland, housing associations are collaborating on procurement deals to help drive down costs and boost efficiency. Alison Crook, property and development director at Perthshire Housing Association, which runs 1300 homes, says that as relatively small organisations – in contrast to the Housing Corporation’s 71 super-development partners in England – Scottish housing associations are increasingly working together to achieve economies of scale. “The mergers that you see so often in England aren’t so common here. Perhaps it’s because the different communities want to maintain their difference. Also, our homes are spread out over a wide rural area, so it might not make sense to create large associations. But we still recognise the benefits of pooling expertise,” she says.

To this end, Perthshire has joined forces with five other associations (Hillcrest, Castle Rock, Link, West of Scotland and Kingdom Housing Association) to form a collective called Larach. Each association is working on a demonstration project to experiment with different approaches to issues such as sustainability and procurement. The associations also carry out benchmarking exercises and have jointly signed up four partner private development companies. Crook hopes Larach will demonstrate that full-scale merger isn’t necessary to increase performance.

Economies of scale

Larach is one of several collaborative projects to boost economies of scale. Another is the Devanha Initiative – a group of five housing associations based in north-east Scotland. Communities Scotland’s Smith says such projects are indications that Scottish social landlords are looking to create economies of scale and addresses Prescott’s hint in his National Housing Federation speech that the duplication of resources needs to be avoided.

Taking a further step forward to addressing efficiency issues, Aberdeen-based Tenants First Housing Cooperative (a member of the Devanha Initiative) is considering how to reduce construction costs in the future. The co-op, which manages 1200 homes, has just completed five homes that were built using a modular construction technique developed in Holland. At a total build cost of £100,000 each, the units weren’t cheap.

But, says Sandy Murray, chief executive of Tenants First, the co-op has every intention of using the method again. “These units would have been completed within two weeks in Holland. We had planning issues to contend with so the process took a couple of months. But we have learned from this experience and consider it potentially a highly cost-effective approach in the long run.”

Clearly, Scottish housing professionals are as eager as their English counterparts to reduce costs and increase performance. But whether the Scots are as ahead of England as Prescott suggested remains for most an opaque area. As Gordon Smith says: “More work needs to done to illustrate the comparisons between England and Scotland. Few people seem sure about how the two compare.”