Left to live
Much of the public rhetoric on the Housing Crisis revolves around ‘greedy developers’ setting prices too high for local people to afford. Those in the property industry know that it isn’t as simple as that. Most sites are sold prior to development. The purchaser is inevitably the highest bidder, and the price they pay dictates a need to create value from the end sales. So what can be done about this? Government intervention, either through land taxation, planning controls, or the release of their own land for less than market value is an option. Another is to bring down the costs and specification of the product to be able to sell at a lower price point whilst preserving margin. As operators such as Lidl have proved, bringing down costs, doesn’t need to mean bringing down quality. Rather you need to have a view on which costs add value to the consumer. IKEA are well practised at this in their furniture business and are now using similar techniques to do the same in their resi JV with Skanska, ‘BloKlok’. In their first UK outing BloKlok has secured consent for an apartment scheme in Worthing under which 30% of units will be affordable and 70% will be priced at a ‘left to live’ affordability model. This involves a calculation of what a typical resident can afford to offer based on typical mortgage pricing and living costs. They achieve this in part through a pre-fabricated design process, which brings down the unit costs and abbreviates the build to just a single day per apartment. In turn this allows them to target a wider demand segment, which takes some of the risk out of the sales.