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What Are The Cost Considerations For Developing Land Into Housing In The Uk?

By Author: Chris Westerman
Total Articles: 133

Investors in raw land, looking to develop it into much-needed housing, are also responsible for infrastructure development. But to what extent?

For those looking to make alternative investments into UK strategic land, it is worth noting that Conservative MP Nick Herbert raised a few difficult issues - along with unpleasant scenarios - when he published an opinion piece in the Daily Telegraph in late 2012. In it he suggested that some communities are failing to build adequate infrastructure (read: sewers, schools and roads) as they accommodate residential development.

Herbert is quick to acknowledge the pressing need for housing in the UK, as most expressly indicated by Census 2011. But he cites scenarios where inadequate wastewater systems, overcrowded schools and clogged highways show a lack of planning and appropriate resource allocation in the development process. Implicated are, of course, the investor-developer-builder teams who bring about these developments. Herbert introduced an amendment to the Growth and Infrastructure Bill debated in the House of Commons that requires planning authorities to ensure sufficient infrastructure be included in new development.

The costs associated with providing adequate infrastructure in a rapidly-growing population are always a point of debate. Apart from Herbert’s arguments, there are several factors at work in the UK and around the world to consider where it comes to defining what infrastructure entails and how to achieve it:

The UK’s Community Infrastructure Levy (CIL) - Newly created to be faster, fairer and more transparent, the CIL is an option for local councils to charge developers and land owners for the added community costs of new developments. Monies can be used for new roads or road improvements, new health centres and park improvements - per the discretion of local authorities. It also ensures a predictable fund stream that enables effective planning, as well as accountability to local (extant) residents as to how the levy monies are spent. (Note: Herbert is sceptical that this new levy will be sufficient because it carries no mandates for local planning authorities.)

Larger, exurban lots present lowest upfront costs (U.S.) - A paper published in 2009 (Rayman Mohamed, “Why do residential developers prefer large exurban lots? Infrastructure costs and exurban development”) in Environment and Planning B: Planning and Design looks at data from public records of construction costs in South Kingstown, Rhode Island in the U.S. Of course the American approach to development differs and they do not have some of the constraints and levies that exist in the UK. But when the lots are large so too are the prices, while infrastructure costs are only incrementally more. This difference takes on greater contrast when compared to the urban, vertical-built opposite.

But dense cities offer most sustainable complex costs - The “new urbanism” movement popularized in the UK, Europe and the Americas seeks to reverse the suburbanization and ex-urbanization sprawl patterns with a densification of population, transportation, commercialization and city services such as sewers and all other public utilities. The differences from the South Kingstown study (above) is that this looks at the longer-term resource consumption of development (which nets out in favour of densification). Some argue that it creates a lower quality of life, however that is subjective and open to much debate.

Infrastructure in “community assets” - The Joseph Rowntree Foundation (JRF), which endeavours to support resilient communities, argues that community infrastructure ideally incorporates intangibles such as “social capital” (those things that foster connections between individuals), “social networks” (inter-dependencies between individuals and organizations) and civil society (faith-based organizations, political parties, voluntary and community organizations, etc.). JRF makes policy recommendations relative to the affordable housing, with a focus on house price volatility - a matter that is easily connected to sustainable development.

As Herbert, a Conservative, argues in his Telegraph piece, there ultimately is an ongoing juggling act where it comes to infrastructures and its costs, short-term and long-term. “We should not deny young people the chance we’ve had to own our properties,” he says. “But it also means taking care not to damage the countryside. And at the very least, it means ensuring that where such housing is needed, there is adequate infrastructure to support it.”

Be it for market rate, affordable or social housing, significant questions ultimately find answers in those willing to invest in critically needed development. Any and all building will alleviate the pressure from its current state, but of course quality of life issues must be considered along the way. Investors in market housing need to consider all costs - including those cited above - when determining the risks inherent in those investments.

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