Introduction
In many cases throughout life when a person says that they cannot afford something it really means that they chose to spend the money they have on something else. With houses this is often not the case, in that a large percentage of the population are prevented from becoming home owners due to the multiple of income rules used by lenders. This has created a situation where the salary they have does not allow them to qualify for a mortgage although they will often be tenants in buy to let properties, invested in by others, where the rent has to be set at at least 130% of the mortgage payments.
New Atlantis has asked us to look at what we can do and suggested that we try to launch a themed project to tackle this problems as an additional 2005 project. We already had one project scheduled for 2005.
The elements in the price of a property
Property prices are a function of scarcity, with insufficient houses and insufficient land and skilled people to meet the future need, houses will continue to rise in price, and more investors will make money and more people will be forced to become tenants who would prefer to own their own homes.
The cost of a new home is in part the cost of building it, comprising labor and materials, part the profit made by the developer and part the cost of the land.
In addition where large developers are involved, they are often expected to make a sizable contribution to local infrastructure or incur other additional costs.
Reducing the cost of new homes
The cost of new homes can be reduced. Like all self builds eliminating the developer and either the purchaser or a site manager supervising the build, which in most cases also takes away the requirement to contribute to the local infrastructure.
The second area where cost can be saved is in working as a group, and saving costs, sharing site management and equipment hire and more effective buying by the group.
Selecting more cost effective designs to build and using techniques that allow lower cost production, will further reduce costs.
Reducing the plot cost is the other area where major costs can be cut.
Reducing plot cost
There several ways to reduce plot costs considerably.
H3 Search Ltd, has already made two research trips to the USA, looking at how lower cost housing is constructed in two states, at the suggestion of New Atlantis, with a view to a community housing project to solve this need, but New Atlantis has come to the conclusion that with the additional savings through self build and organization we have now in place, that we would be better handling this project.
Maintaining repeatability
The major flaw in this and any similar scheme is that many people would like to use it as a means of wealth creation, as opposed to a means of obtaining housing, and as the properties would sell at market rates, allowing the subsidized purchaser to sell, releasing very large amounts of cash, and move to other properties, or back into rented property, it may not release an affordable house for others to occupy. If this is seen as the likely outcome, it not only would defeat the objective, beyond the first group to benefit financially, but would also not be acceptable to those who would be being asked to offer land at affordable prices.
In order to allow people to use this as a first step on the housing ladder and move on and at the same time to maintain the ability to help people get into homes, a solution needs to be defined that would allow a non profit trust to hold a percentage stake in the property, and on the sale of the property to get that percentage of the sale price, and this return can then be used to establish a grant fund allowing other properties to be subsidized on a percentage basis, for those who fail to qualify to get a mortgage on the full price. This would mean that each affordable house created in the first case, would result over time in very near to the same number of properties. that can be subsidized. by taking a share in the future, at no cost to the state, council or trust. The number would reduce over time due to a percentage of the profit being lost due to taxation on each sale.
We feel from our research that this would be perceived to be fair, and individuals if not governments and councils could be persuaded of the merits of such a scheme.
In our view this is feasible to do, but the normal chicken and egg problem exist, we need members with a desire to participate in this type of project before we can actively search for and take options on property, talk to planning departments etc, but without some started it is impossible to say exactly how much saving we can make
Spin off affordable housing
Currently a percentage of people will fall short of being able to get a mortgage at the full price of a house, but would be able to get a mortgage to obtain a self build house, due to the discount usually approaching 40% normally and particularly where maximum savings are accrued as a part of a group this may be higher. We feel the percentage of people who have not previously considered or become aware of this, and can now qualify to obtain self build property so housing becomes available to them without them utilizing the scheme outlined above. Given this we feel that it is practicable to undertake a themed project for 2005, to help people who could not otherwise afford to buy their own home to move into home ownership.
Some people may be able to qualify to buy a home, but not a home of the size, to the specification and with the top fittings they desire, and there is nothing wrong with this, and for some of these people continuing rental maybe a sensible option. In some cases this may be due to a perceived difference in status between people who have different sizes and styles of homes. The self build route allows people to have a larger and better fitted out home at the same price, so these people may well feel that this option can solve their wishes.
Research we need to do
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Self Build Homes Club is an international club
and trading title of Self
Build Homes Club llc. Local services
to serve members are commissioned for the club by New
Atlantis International Services Corporation.
All major commissioned companies involved, have New Atlantis trust status.