4. Affordability and project costs

4.1 Material costs

All materials used in the build are natural and preferably locally sourced. This reduces the costs associated with production, transportation and storage.

Costs of constructing a strawbale house with a team of expert builders are in the region of £920 per square metre. This would result in estimated construction costs from £53,000 for the 58 m² one-bedroom house to £103,000 for the 112 m² three-bedroom property. These costs compare very favourably with both standard masonry and timber-framed with straw infill construction. These costs would reduce if there are significant numbers of training courses. The table below shows the different costs per square metre for the different construction methods.

Comparisons of estimated costs of 90 sq metre terraced house (all figures incl. VAT)

Construction type	Cost per square metre (£)	Total cost for 1,602 metres (£)
Conventional construction – brick	1037	1,661,274
Timber frame with strawbale infill method	995	1,593,990
Loadbearing strawbale method	920	1,473,840
Loadbearing strawbale method (with discount for self build element)	701	1,123,002

4.2 Self Build

While some of the above comparisons assume that the construction work is carried out using a main contractor and appropriate sub contractors, if there is a significant amount of community involvement in the construction the pictures changes somewhat. It is still essential that skilled roofers construct the roof but the labour costs associated with most other areas will decrease.

Given the potential for decreased costs and increased education opportunities, LILAC intends to use the loadbearing strawbale method with a self build element run by a training provider such as amazonails. Using the costs above the overall cost for the construction of the 200 square metre community co-house building would be £184,000 if constructed by a specialist team or £140,000 if it incorporated elements of self-build. For the whole scheme the construction costs are reduced by about £0.5 million, from approximately £1.6m to £1.1m. This may increase or decrease depending on the complexity of the build, fittings etc.

The aim of the self build courses run by amazonails and others is to engage with those people who are unfamiliar with the building process and allow them to learn in an inclusive and supportive environment. They are particularly interested in encouraging those who, for one reason or another, would not usually be found on a building site such as women, older people and those with disabilities. Courses include a combination of theory and practical construction beginning with an overview of the history of straw bale building. This then leads onto information on standard design details and construction principles. The courses then provide attendees practical experience by building a small strawbale structure. amazonails training staff provide full and comprehensive Health and Safety training during taught courses, introducing course participants to a wide range of tools and skills associated with straw bale building. Appendix 7 details the costs of the self build courses.

4.3 Financing the project

The project will be financed by payments of 10% of the value of equity shares by members, grants, development loans that later become mortgages and a loanstock issue if necessary.

Each household will pay 5% of the value of the equity shares they can afford to finance on joining and at least another 5% when the land is purchased. This will pay for the initial payment on the land. If they join after the purchase of the land they will pay 10% on joining. Depending on the cost of the land we may need to make a phased purchase with the initial payment from member’s deposits and subsequent payments from the development loan.

We intend to apply for funding for various costs during the design and build phase. We have estimated that it is realistic to gain grants covering up to 10% of project costs. We are in negotiations to secure mortgages/development loans from Ecology Building Society and another lender. These will be drawn down in phases during the development to minimise interest accrued in the development phase.

Mortgage repayments are calculated at a rate of 6.65% although we hope to secure a lower rate because interest rates are currently low. We will have an interest guarantee form CHFS, and we will build to high ecological standards. Ecology Building Society have indicated that they would be able to lend up to £1 million. Ecology Building Society offer discounted rates for projects with Code for Sustainable Homes 4, 5 or 6 of up to 1.25% below their normal rate as set out below.

Ecology Building Society interest rates discounts on Ecology C-Change Mortgage

Building Standard	Discount (%)
CSH 4 or AECB Silver	0.75
CSH 5 of AECB Passivvhaus	1
CSH 6 or AECB Gold	1.25

4.4 Affordability targets

We have calculated monthly payments as approximately 35% of net income as this is the widely accepted definition of affordable housing (if we reach a high ecological standard 40% may be affordable).

Based on land costs of £500,000 and build costs of £701 per sq metres (based on amazonails costings) the household income necessary to make the repayments on equity shares to the value of the build costs affordable is £16,947 for a 1 bedroom property, £23,029 for a 2 bedroom property, £27,190 for a 3 bedroom property and £34,232 for a 4 bedroom property. As long as incomes are balanced within the community, residents can earn less or more (maintaining the equity shares within the +/- 10% range). Appendix 9 outlines some scenarios for different household types.

The table below details the household incomes required to make equity shares affordable under three scenarios: financing the value of the build cost, the build cost minus 10%, and the build cost plus 10%. Households earning less than the income required for build cost minus 10% would not be able to afford to live in the project unless they had savings to purchase some of the equity shares. Households earning more than the income required for build cost plus 10% could only contribute to equity shares of the build cost plus 10%. If 35% of their net income was more than this, the rest will go into the project contingency and future fund to increase sustainability and affordability.

Household income requirements

Gross household income required	1bed	2bed	3bed	4bed
To finance equity shares of the build cost -10%	£15,277	£20,812	£24,599	£31,007
To finance equity shares of the build cost	£16,947	£23,029	£27,190	£34,232
To finance equity shares of the build cost + 10%	£18,617	£25,246	£29,781	£38,379

4.5 Project costs and monthly outgoings

In view of the pioneering nature of LILAC and the additional benefits it will bring, we hope to acquire land below market value. Where this is not possible, we would pursue a phased purchase on open market prices. The budget in this Plan is based upon the assumption of acquiring land for £500,000 with a phased purchase agreement. Build costs are estimated at £701 per sq metres (based on amazonails costings).

4.5.1 Total costs

The total costs for the design and build phase for a new build project of 20 units and with a common house will be £2,141,987. We aim to get grants for at least £206,760 of these costs. We may issue IPS shares to the value of £50,000. Members will pay at least 10% deposit to join the mutual home ownership scheme. The table below summarises the project expenditure and income sources.

Expenditure and income for the design and build phase

Description	Estimated Cost	Mortgage	Shares	Grants	Deposit
Land Acquisition	500,000	285,000	0	0	215,000
Site investigations	5000	0	0	5000	0
Legal body & lease agreement policies	1000	0	0	1000	0
Construction homes	1,118,796	1,040,826	50,000	27,970	0
Construction (cohouse)	140,200	0	0	140,200	0
Professional Fees 14% (See table below)	176,259	143,670	0	32,590	0
VAT - nil if newbuild	0	0	0	0	0
Planning	7370	7370	0	0	0
Building Control	4700	4700	0	0	0
Valuation	1000	1000	0	0	0
Stamp duty	26,782	26,782	0	0	0
Interest on development loan	34,980	34,980	0	0	0
Contingency 10%	125,900	125,900	0	0	0
Total	2,141,987	1,670,227	50,000	206,760	215,000

Professional fees

Item	% of total construction cost
Quantity surveyor	2%
Planning supervisor	0.50%
Structrual Engineer	2.00%
Mech and Elec Engineer	1.50%
Project Manager	1%
Architects Fees	7%

4.5.2 Running costs

Running costs of the total project have been calculated to include mortgage repayments, maintenance, service charges and insurance. Maintenance, service charges and insurance are indexed at 3%. Equity payments will increase in line with income in these projections and has been estimated at 3%. We have calculated running costs for the first five years and in the tables below we show running costs at year 1 and 5.

4.6. Comparison with open market value of properties

The build and design costs for the properties are shown in the table below. These include the divided cost of the co-house and other costs of benefit to the whole community.

House size (beds)	LILAC build cost
1 bed flat	£61,265
2 bed terrace	£81,335
3 bed terrace	£95,067
4 bed terrace	£118,306

For comparative purposes, the current open market values of properties in inner west Leeds (Bramley, Armley) are shown below. These prices are taken from standard brick built terraces ranging in age from 10-100+ years, apart from the one-bed apartment which is in a new three storey development.

House size (beds)	Open Market build cost
1 bed flat	£65,000
2 bed terrace	£85,000
3 bed terrace	£115,000
4 bed terrace	£157,000

Our proposed house costs are less than open market values in inner Leeds, with the additional benefits that they will be built to a higher ecological specification, and have lower heating bills, and have the further added value due to being part of a co-housing community with access to facilities and communal gardens.

For comparison, Springhill Co-housing in Stroud, Gloucestershire, estimate that the value of use of the co-house and living in a community has added at minimum 15-20% to the price of the homes. For example, a five bed house cost £200,000 on completion in March 2004 and sold in 2006 for £405,000, an increase in value of 102.5%. The average increase in house prices in this area of Stroud between 2004 and 2006 was 13% (www.home.co.uk) so for this property the increase was significantly higher. Springhill have a waiting list of people who want to move in to the community, showing a demand for this sort of accommodation and community.

Taking into account the current value of properties in the area, the added value of a high ecological standard of building and being part of a community, we believe that the open market value of our properties would be significantly higher than their build cost. This will ensure adequate value to loan ratios.