ITV News - Interview expert on why developers build large 'luxury' properties in UK

Contrary to what many think, developing multiple smaller units is FAR more profitable than building one giant unit that has fewer buyers and is harder to sell. You see, three 1-bedroom flats will gross more than one 4 bedroom flat and will be more liquid too.

The root of the problem lies with the wretched planning system and the various housing frameworks, and the kangaroo court of local politicians that sit on planning committees, who think they are more important than their worth.

Build-to-rent landlords and build-to-sell developers want greater number of units, but an investigation in the national housing framework will show that planning officers are being forced to ask developers to make larger units for bigger families to balance out the numbers against the smaller units coming from commercial to resi PD conversions.

It's simple, it comes down to cost and profit.

There is very little profit and incentive to build a small property, to build affordable housing there are so many rules and regulations to keep to its unattractive prospect.

Having come from a construction in social housing background I have seen what hoops builders have to go through to satisfy housing associations and councils.

Larger properties can be more cost-effective to build and fetch more of a premium, meaning more money in the builder's pocket and less hassle.

Developments of flats are more profitable but builders have to sell more of them. Bigger properties also get scaled-down costs and not subject to stringent regulations for layout and amenities that flats are. They are less popular than 2 beds because of their limited life spans (i.e. may not suit a partner or children). The need for property has changed post-pandemic - outside space (and working space) are a consideration where previously access to transport was the demand factor, certainly in larger cities for younger buyers buying their first home. Workers are however returning to offices and demand for city-based properties is on the rise. More affordable properties in these areas will be needed if a larger property out of the cities is kept - and due to the higher stamp duty and cost of borrowing those next time buyers now face.

Development Land prices have consistently risen, including last year, by 2 – 2.7%. Fixed costs are roughly the same, whatever the house size they are building. For example, legal fees, planning applications, Architecture and Estate Agents fees, the connection of services, Gas/Electric/sewage/water and insurance.

All costs on building materials have gone up over the last few years and adding in delays in getting hold of materials like windows, for instance. This has increased costs and reduced profit. So building lower value one bedroom houses is less cost-effective than building higher value 4/5 bedroom houses. The average build cost per sq m is approximately £1800 and developers look to make 17 – 20% profit on their builds.

So the cost of land + Building cost + delays = bigger houses to maximise profits.

Construction of new properties continues to miss government targets and the one-bedroom flat market is no different. The one bedroom property market became less desirable during the COVID pandemic as people sought more room and outside space and it will take some time for an increase in supply to come back into the market. Property development takes some time, from finding and acquiring a site through to getting planning permission and eventually building the property. This means that an increased demand today will take some time to flow through to supply to meet that demand.
Typically, these properties are aimed at first-time buyers and Buy to Let investors, both of whom have had challenges in recent times. Two-bedroom properties and bigger typically have a greater reach in terms of potential purchasers.