Thursday, July 28, 2005

Property developing- can you climb the property ladder?

Can You Make a Living Building One House a Year?

It’s a reasonable question. Many people, usually non-builders, are attracted by a lifestyle built around the notion that you can. Maybe you have a little capital saved up, inherited or locked up in a house; use that to buy building plots and borrow to build and live off the profits. How would it go? Perhaps £100,000 needed to get up and running, another £100,000 borrowed to finance the build and live off the £50,000 a year profits.

Actually it’s a very appealing prospect, which is the main reason it’s so hard to achieve. There are many others sharing the dream, along with countless selfbuilders who may not even be bothered that much by the price of the land. All this competition pushes up land prices and scuppers the business plan.

Twenty years ago there were many small businesses active in this market but the tide seems to have turned against them.

In 1983 there were nearly 30,000 NHBC builders (registered with the trade body the National House-Builder's Council), only half of whom built a house in any given year. Today there are just 15,000 NHBC builders.

In 1983, 10,000 NHBC builders were building fewer than 10 houses a year and contributed 15 per cent of new homes. Now there are just 4,000 builders this size and they contribute 8 per cent of output.

In contrast, the output from the Top Twenty housebuilders has increased year on year. The way land is now released – i.e. in great big chunks – plays into their hands: they have land purchasing teams working on optioned land five, ten, even fifteen years out. The small builders are left with the scraps and the scraps are getting thinner and thinner.

So, whilst the model remains an attractive one, the reality is that it’s extremely hard to put it into practice. There aren’t enough small plots around for it to be economically viable.

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