Self-Build and Custom Build: an Introduction
13 April 2023
Over recent years, the Government has experimented with promoting alternatives to conventional residential development in order to help solve the housing crisis. Two such alternatives are ‘Custom Build’ and ‘Self-Build’. These terms are often thrown around in planning circles. However, what do they mean in practice, and are they worth investing in from a developer’s perspective?
Self-Build vs Custom Build
Generally speaking, a Self-Build development gives the eventual home owner complete control over their property. The home owner is potentially involved throughout the development lifecycle (from land acquisition to practical completion). A development which includes Self-Build plots would normally provide for the developer to service the plot with infrastructure, such as services, estate roads etc. The plot purchaser would be responsible for the construction of the home itself, and the associated risks. Typically, they would appoint their own building contractor in this regard and liaise directly with the local authority on the discharge of plot specific planning conditions and building regulations requirements. The trade off from the home owner’s point is view is that they also take on a much wider range of risks than a normal plot purchaser would. Risks that the developer would normally take on (such as issues with ground conditions, build cost overruns etc.) would be for the home owner to manage.
A Custom Build development is slightly different, in that the eventual home owner shares a degree of risk with the developer. The degree of risk depends on which Custom Build model the parties pursue. Some typical options are set out below:-
- Serviced plot – basic services (roads, service connections etc.) are provided, but the completion of the house itself is down to the buyer.
- Watertight shell – the developer would provide the shell of the house, but allow the plot purchaser the freedom to fit out the interiors. The plot purchaser would manage the internal building project and therefore have the keys prior to the house being ready to live in.
- Turnkey – the developer provides a menu of options, this could be for the exterior and the interior of the house. The plot purchaser will be given the house in a ready to live condition. In practice, the arrangements here do not differ much from a conventional plot sale.
Unsurprisingly, Custom Build and Self-Build come with their own planning and construction issues, both positive and negative.
Planning & construction considerations
Under the current CIL regime, there is (subject to adherence to certain requirements) an exemption for Self-Build and Custom Build plots. Developers typically take advantage of these by including earmarking certain plots as Self-Build and Custom Build at the planning stage. There is also a potential further advantage in doing so, as Self-Build and Custom Build may be capable of being delivered as Affordable Housing, counting towards the requirement for their sites. However, this can often be difficult to achieve in practice, and tenures are limited.
One potentially significant disadvantage of the Self-Build and Custom Build model from a developer’s perspective is that the Self-Build and Custom Build owners are generally free in planning terms to design their own home, within the constraints of the site wide planning permission. This flexibility can however cause issues for the developer in selling neighbouring conventional plots, as purchasers looking at those plots have to be prepared to accept a degree of uncertainty as to what the neighbouring Self/Custom Build house will end up looking like.
This uncertainty also extends to the duration of the construction period for the neighbouring Self/Custom Build plots. As it will often be down to the Self/Custom Build plot owner to progress some or all aspects of the build, there is a risk that the Self/Custom Build plot owner will overrun on their build programme, or stall their development altogether. The conventional plot purchaser could therefore end up living next to a building site for some time.
Clearly, pursuing Self/Custom Build plots on a development comes with additional challenges for the developer, but how marketable are Self-Build and Custom Build plots in today’s market?
Marketability considerations
From our perspective of this market over the last few years, Self-Build and Custom Build plots have not been as quick to sell as conventional plots on the same developments. Most Councils maintain a ‘self-build register’ which will indicate buyer interest in such properties in their locality. We would suggest developers make early enquiries of the Council in this regard to gauge the appetite for such plots within the locality in which they are considering providing Self-Build and Custom Build plots. Unfortunately, the reality at present is that many potential purchasers of Self-Build and Custom Build plots are being put off by the soaring rates of build cost inflation currently plaguing the construction industry. Be that as it may, there are signs that inflation is starting to ease. As such, it would not be unreasonable to expect the demand for Self-Build and Custom Build to start to grow once more.
How we can help
Clearly there are a number of challenges for a developer, both commercial and legal, in pursuing Self-Build and/or Custom Build plots on their developments. Many of the legal risks identified with Self-Build and Custom Build above can however be mitigated with a proper legal and planning framework. Birketts’ Housebuilder Team has a great deal of experience in this area. If you are considering Self-Build and/or Custom Build or have any questions or queries on this topic, please do not hesitate to get in touch.
Sectors
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2023.