Home builds held back by poor profit margins and high risk

Environment & Infrastructure is setting out to look at what might be done to speed up the process and will be bringing in consultants to talk to developers, architects and estate agents to get their views.

‘The key reason that drives any developer’s desire to build homes is simply the profit margin,’ said Hillstone Guernsey director Simon Holland.

‘At present the cost of construction is incredibly high, as a result the margins are tight. For this reason alone, developers will pause.’

He said that developers also faced a scarcity of labour, the inability to house any workmen brought into the island, and high interest rates.

‘There is also a massive amount of private sector work up for grabs,’ Mr Holland said.

There were a lot of well-paid domestic contracts that every architect in the island had work to tender for and that led to high prices.

‘This work is risk-free and plentiful. As such, developers become builders and they use the skills and resources for this risk-free work, as opposed to making massive and uncertain investments in house building.’

While the prices of houses are high – ‘some would say unaffordable’ – Mr Holland said they had not really tracked construction costs.

‘Costs have risen by a higher percentage than house values so the margins are being reduced, which is affecting a developer’s desire to build.’

Relaxing regulations could reduce build costs, but he thought this would be a ‘massive’ step backwards in terms of sustainability.

‘They could also look to supply some sort of government-backed funding at below market rates, but without additional construction workers, this will have a minimal impact.’

He looked forward to E&I’s engagement with the industry as it explored the possibilities, and said he would be keen to talk to the consultants.

Annalisa Spencer, director at Lovell Ozanne architects, recently worked on plans for the new Domains des Moulins site in La Charroterie. She said the industry would welcome proposals to stimulate the delivery of new affordable homes.

‘We need to continue to look at different, more innovative methods of construction and delivery on the island as a whole to improve delivery time and reduce costs,’ she said.

Among the ideas that might be coming from E&I is that of a new States-owned entity for developing homes.

Ms Spencer said that alternative housing association-assisted options as well as partial and shared ownership models needed to be looked at.

Perhaps ways could be found to incentivise the refurbishment of properties in St Peter Port into new residential accommodation, which might involve the relaxation of some planning requirements on protected buildings.

Among the factors holding up development were high build costs and land values reducing land owner/developer appetite for risk in what was an uncertain market.

On top of that were planning restrictions on the type and mix of accommodation, and strategic objectives not quite reflecting the market demand from a private development point of view.

Planning policy GP11, which demands a percentage of private development be given over to affordable housing, also was a stumbling block, she said.

‘A much more flexible approach to GP11, which has already begun, would be welcomed.

‘Physical restrictions such as flood risk, poor road infrastructure, electrical supply limitations and limits on lorry delivery size for prefabrication options are all local factors that make affordable, quick-build housing in Guernsey that much harder than the UK.’