HPH260 : What’s the difference between a self build and a speculative development? – with Mark Stevenson
Managing Director of Potton Homes, Mark Stevenson, looks at how self build, custom build and speculative development differ.
Interview with Mark Stevenson
Mark Stevenson has spent most of his career working for house builders and developers, including in the role of Construction Director for ten of those years. For the last seven years he has been the Managing Director of Potton Homes, a company that specialises in making the process of self building homes as simple as possible.
Self build is about self-commissioning
While this isn't the case in all projects, for the most part self build isn't about physically building the house yourself, but about getting in the right team of people to build it for you.
Even the biggest risks can be managed
Mark cites obtaining planning permission as the being the biggest risk to a self-builder. He wouldn't advocate buying a plot of land without a permission on it, but instead suggests identifying a piece of land, securing the rights to buy it with an option and then getting planning permission. Once that has been secured the sale can be completed.
“So from a risk point of view in self build, it’s all manageable. It’s about the choices you make in how to limit your exposure to those risks, and make sure you’ve got a way to get out of a problem without it becoming too expensive too quickly. So I don’t think self building is actually that risky, if managed properly and managed professionally.”
Custom build is a government re-brand of self build
Their intention was to encourage potential self builders who didn't have the confidence, or want the risk, of buying a plot of land, seeking planning permission or organising the build themselves. They wanted to explain to the market that planning permissions could be put in place on plots beforehand, builders are on hand to build them, and they just need the individual to customise the design to suit their requirements.
Mark agrees that there are plenty of blurred lines between the two, with different offerings between custom build companies. To some, such as Potton, it means helping the owner move their plot forward and asking what house they would like to build there. Another company might offer a plot of land with a selection of five houses to choose from.
Potton show homes try to provoke a response – be it positive or negative
Potton provide a diverse mix of show homes at their centre with the intention that people walking round can immediately react to what they like and dislike about them. Provoking these responses helps mesh the ideas and concepts together of what would work for that individual.
“By walking around the physical property you can start to understand how you could commission something that’s all about you and your family, and deliver something that functions in the way that you want to behave and live together as a family. And that’s just about spaces and how things work.”
The centre is about being able to develop your brief with the subjective attributes that you perhaps hadn't thought of before, but have been triggered as a response to being in those spaces.
A speculative development can be one house or many
A speculative developer tries to predict what someone would want to buy at the end of the entire process. They make the choices about what a purchaser may want, how it should look and how it should perform. In doing so they are trying to maximise the value of that asset in the hope they can sell it and make a profit. There is a fair amount of risk involved as they are speculating on the profit, which is only realisable at the point of sale.
An individual buying a single plot with the intention of building a house to hopefully sell for a profit, is a speculative developer in much the same way as volume house builders, but without the economies of scale, the bigger margins and bigger profits to make.
Mark estimates that a developer would be looking to make a profit of around 15-20%. Individuals might be happy to take a bit less as they don't have the overheads. The volume builders may take decisions in the development process to maximise their profit in order to sustain their business, and push harder to cover their large overheads.
Take emotion out of the process
This is Mark's first piece of advice to anyone wanting to undertake a speculative development. As soon as you start becoming emotional you might start incorporating things you yourself like, but others may not and therefore perhaps not add value to the house. It's about keeping a keen eye on value and offering products, contents and functionality of the house that someone will give you the money back for.
“Development is about a systematic approach to making the fundamental choices that maximise value and reduces your risk. And in doing that and controlling your costs, you make sure the return is as large as possible.”
Market test to see what demand there is for what you're offering
With Ben's intention to build his development to the Passivhaus standard, Mark suggests he market test to see what kind of demand there might be, and even if there is a demand, whether it would be likely to achieve a higher price. With the mainstream market being conditioned to accept that a house might not have great performance, sales are more commonly driven by factors of location and functionality.
With far fewer people in the market looking for a Passivhaus, Mark questions the likelihood of finding one of those who is looking for that product, in that area, with the architectural design that has been chosen for them. With so many variables it may mean struggling to find a buyer for what has been created.
Mark would advise being careful how it was marketed, highlighting the low energy bills, rather than emphasising it being a Passivhaus, in order to appeal to more of the house-buying community who may not know what the term means.
Self build is driven from a personal viewpoint, speculative development is a business proposition
Mark describes self builds as being about individuality and making sure you deliver on what is right for you and your family. You'll invest and spend whatever you feel is appropriate.
A speculative development on the other hand is a business proposition. You're trying to appeal to certain types of individuals who might offer that bit more money to maximise profits. It becomes a set of business decisions based on whether you will get your money back and if there is a profit to be had.
Developers appeal to the mass market, instead of pushing boundaries
Mark says while it's great to be individual, providing a safer, more standardised offering will produce more customers willing to buy your product, and ultimately raise prices and profit. And this is why there is a proliferation of the four bedroom executive house with a central front door and four windows, because someone somewhere has worked out this is the formula for building at the least cost to maximum return.
For a lot of people, what's the alternative?
For many people with busy lives, who don't have the time to shop for a second-hand house and spend several months doing it up, buying a developer home is about convenience. The only alternative is the nice new site just down the road, with the extra bedroom and space they need, offering a good price, part-exchange and legal fees paid. And, Mark says, that's why we've ended up with a sterile development environment.
Custom build can be a middle ground
Mark sees custom build succeeding where it incorporates the individuality of a self build, and takes away the risk of speculating what someone might want to buy by asking them in advance and negotiating a price that both parties are happy with.
Tips for tackling a small scale development
- Anything you do well is normally driven by passion, and this is no exception. You need to really want to do this to do it well, and passion will carry you through the weight of the work
- Be impersonal and keep emotion out of it
- Do market research to understand what people want and how you can incorporate those things – perhaps even contacting local estate agents to find out what houses people want to buy
“But just don’t go off on a leap of faith that your beliefs are the ones that everyone else should have, because it’s not necessarily the dream that everybody shares that you might have.”
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About The Author
Lucy Cowell is owner of the Virtual Assistant company Quantum PA. Being immersed in the world of architecture for over 20 years and since working with Ben Adam-Smith, she is now determined to build her own house one day too!