Why more sustainable homes in Bath should not be more expensive to buy?

It may seem counter-intuitive but homes built to higher standards In Bath, for example Code for Sustainable Homes Level 5 should not cost any more to purchase. This is because the impact of higher standards is typically borne by the land owner, and not the builder or purchaser of a home.

This statement is probably best understood by examining the bar graphs below which show the cost breakdown for a development in Bath. The left hand graph shows the cost breakdown of homes built to Code for Sustainable Homes level 5 (CfSH 5) and the right hand graph shows homes built to minimum building regulations. If you look at the 2 graphs carefully, you will notice the development costs of about £7.7million per hectare are identical in both cases. The costs includes developers profits, so the sales values of the homes are simply the costs per hectare divided by the number of homes (26) or an average of £293,000 per home, whether built to CfSH 5 or not.

ViabilityStudyGraphForBath

The main difference between the 2 bar charts is that the additional cost of building to Code for Sustainable Homes Level 5 (red line) reduces the land value (blue striped line) by £175,000 per hectare from £2.5 million/hectare to £2.325 million/hectare.

The government argues that as a result of imposing higher standards this reduction in land value impacts the volume of land coming forward for house building and reduces the number of homes being built. We would argue this is not the case for Bath; without the allocation of this greenfield land for housing by B&NES council this land would only be worth its agricultural value of about £20,000/hectare. The question therefore becomes if you are a land owner, owning agricultural land worth £20,000 hectare are you less likely to sell the land if you can only sell it for £2.325 million/hectare rather than £2.5 million/hectare? Transition Bath would argue that although the land owner might prefer to get £2.5million/hectare the slightly reduced price of £2.325million/hectare is still 100 times the agricultural value and therefore the land owner is unlikely to turn down the opportunity.

The only circumstance where the land owner is less likely to sell the land is in an area of low sales values where prices are  low enough that the costs of building to higher standards is commensurate with the land values – but there is nowhere in Bath where house prices are low enough for this to be the case.

A brief examination of recent sales in Bath:

Site Seller Purchaser Land Sales Price Hectares Land Value/Hectare
Ensleigh South MOD Skanska

£3,900,000

1.6

£2,437,500

Warminster Road MOD Square Bay

£12,500,000

6.63

£1,885,370

Ensleigh North MOD IM Properties/Linden/Bloor

£17,125,000

5.67

£3,022,948

Foxhill MOD Curo

£47,000,000

19

£2,473,684

Keynsham East B&NES Barretts

£12,400,000

6.5

£1,907,692

Average

£2,345,439

backs up this claim. Developers have recently been happy to pay an average of £2,345,000/hectare for land. It does suggest there is a significant margin to impose additional requirements, for example higher  s106 payments for school building or affordable homes requirements on housing development sites in Bath.

Posted in Energy, Planning.