Monday, 23 June 2008

Social housing myopia

The Mail's report on the continuing collapse in prices of new flats in those blocks that have sprung like mushrooms across the south-east should surprise no one. Did their buyers never wonder why the sales prices were a third higher than equivalent Victorian and Edwardian properties nearby? Did they never ask who was actually paying for the 30% - 35% of units to be built as 'social housing'? Now of course private owners of flats in these blocks are waking up to the fact that a third of their monthly mortgage payments are buying the flat for the housing association tenants down the landing.

Just another stealth tax.

7 comments:

rosscoe said...

It doesn't work like that, the flats are worth what they're worth as a builder you have very little control over the price that you set for your product- that is done by the market.

The social flats are priced in at the start of the project and the land value is adjusted accordingly. It's the orginal landowner who bears the cost not the new residents.

Mark Wadsworth said...

Rosscoe is bang on target. There are other 'external costs' to all this HA nonsense, of course.

Tim Almond said...

It's not that - the same thing happened in the late 80s with flats.

Most people would prefer a house, but in boom times, a flat is often all some FTBs can afford. When the boom ends, it's much harder to sell houses because FTBs see houses within reach and don't even look at the flat option.

Stephen Newton said...

If the flats sold for 30 per cent more than a house down the road, they must have been worth 30 per cent more at that time; it's the market – supply and demand – that sets the price.

Your suggestion that they'd have sold them at thirty per cent below the market value, if not for the social housing element, is rather naive. The house builder has duty to shareholders to realise the best price. If the market would take it, they'd have asked for even more.

Raedwald said...

rosscoe -

To a point. A developer, as you suggest, works backwards; a housing density of x bedspaces / ha can be achieved, 30% are social housing, 70% can be sold for y and the cost of construction is z, the developer's margin is 15% therefore the residual land 'value' is the residue of these - in theory.

In practice, 'y' is inflated. Compare the cost/m2 of new flats in a social housing mixed development with cost/m2 of surrounding conversions - it's significantly higher. Some is due to the premium of a new property, some is due to '5% deposit paid' deals and a lot is due to good marketing, showflats and the selling of instant 'lifestyle' to the punters.

Here in south London a lot of these mixed developments are becoming instant slums. Like a new car, the value drops as soon as the sale is made. The buyers are paying for the social housing.

John B said...

"Some is due to the premium of a new property, some is due to '5% deposit paid' deals and a lot is due to good marketing, showflats and the selling of instant 'lifestyle' to the punters.

"Here in south London a lot of these mixed developments are becoming instant slums. Like a new car, the value drops as soon as the sale is made. The buyers are paying for the social housing."

The first paragraph may well be true; the first two sentences of the second paragraph may well be true, but the final one doesn't follow.

If there were no social housing element, the developers would *still* get a premium for a new property, a premium due to deposit-paid deals, and a premium due to good marketing. They'd just make more money (or more accurately, they'd just have had to pay more money for the land in the first place.)

rosscoe said...

Exactly as John B says.

The real damage that the policy of putting a proportion of HA in every development causes is two fold.

Firstly it reduces land value of sites at a time of housing need, this actualy reduces the supply of land and thus increases the price of housing as more people (who aren't eligible for the affordable units) scrabble for fewer and fewer available units. This contributes towards the boom and subsequent bust in the housing markets.

Secondly the Local Planning Authorites see the provision of the affordable units in themselves as a community benifit. This leads to them sometimes encouraging bad design and encouraging/forcing the developer to squeeze even more units on to site than might otherwise be desirable (sometimes its more profitable to build fewer bigger units). This combination of bad design and the squeezing in of units is likley to lead to the construction of modern slums as described in south london, it's certainly been the case in the area where I build on the south coast.