Crowding together to fund Sheffield homes
When custom-build expert Yan Lew-andowski decided to pursue a PhD, he was invited into the Sheffield University Management School for a chat with lecturer Dr John Paul Kawalek.
Within the hour, thoughts of further study had been abandoned. The conversation had turned to the housing crisis and the pair had come up with a pioneering new way of financing and building affordable homes.
CrowditBuildit is now up and running, a plot has been secured and investors appear keen to pour money into the small development, which has the support of Sheffield Council. Homes are being offered for sale at 13 per cent below market value and, if successful, the business model will be rolled our across the country.
“I met John with a view to doing a PhD on how we could change the housing construction system in the UK and I told him about my involvement in custom building in the south east in the mid-1990s. We would buy land, split it into plots and pre-sell to individuals before building to their requirements,” said Yan. “That led on to us discussing how difficult it is for developers to access finance and for first-time buyers to get on the property ladder.”
John had just completed a project on crowdfunding and by the end of the meeting the pair had pooled their ideas and come up with the CrowditBuildit concept.
It works by finding a suitable site. In this case it is a small parcel of brownfield land at Merton Lane, Wincobank, near Meadowhall, that the council had struggled to sell. Sheffield is one of 11 vanguard councils given government funding to promote and enable custom and self-building. Part of that Right to Build pilot scheme was identifying suitable land.
“We asked if they could help us trial our idea and they were very supportive. We bought the Wincobank land and have approval for six custom-built semi-detached houses,” said John.
The cost is to be financed by equity-based crowdfunding rather than a bank loan. This gives investors a bricks and mortar share.
“There are a few examples of build to-rent property projects that have been crowdfunded but they are loan-based. This equity-based way of doing it is new, as is using it for custom building,” said John.
The projected return for investors in the Sheffield project is at least 8.5 per cent. As soon as the build is complete and the properties are sold, the original outlay is returned with the interest.
“We have invested ourselves and are looking to raise £460,000 altogether,” says Yan, who is in talks with investors from London. He adds that the benefit of crowdfunding is having the land and development costs upfront. Bank loans can be problematic as finances are released in stages as construction progresses and that doesn’t always align with ordering materials and hiring contractors. CrowditBuildit, he says, will be able to negotiate good deals with suppliers. Its profit margins are also lower than a conventional developer and, as a custom builder offering buyers a degree of choice in the design of their home, it is exempt from paying a community infrastructure levy.
“That’s how we are able to cut costs and make the properties affordable,” said John.
The six Sheffield semis, aimed at first-time buyers, have a price tag of £99,000, which is £16,000 below their market value of £115,000. To stop speculators, there is a resale clause. They can only sell for 80 per cent of the market value in the first year of ownership and 90 per cent in the second year. At the end of the third year you can sell for the full market value.
“When the house is built there will be ready-made made equity in it, which means the owners will end up with a sizeable deposit on their next home. If they stay then they could be mortgage-free within 15 years instead of the average 25,” said Yan.
It’s taken over a year to get CrowditBuildit off the ground, mainly due to establishing new legal structures to satisfy the Financial Conduct Authority and organising contractual agreements for investors.
John and Yan are so confident of success, they are already planning ahead and exploring the possibility of building bungalows and shared housing. They are looking at buying council-owned brownfield sites and already have plots lined up.
“CrowditBuildit developments have to be done for altruistic reasons. We want to build homes that are valuable for society and we can build them quickly by using brownfield sites and harnessing investors’ money,” said John.
“This is an entirely new model that could change the way we build in this country and we think policy makers can learn from it.”
* Visit www.crowditbuildit.com for more information.
PILOT PROGECT STUDIED
The CrowditFundit development at Wincobank is being analysed by Sheffield University and by the council.
Coun Mazher Iqbal, cabinet member for infrastructure and transport at Sheffield Council, said: “We’re doing everything we can in Sheffield to address the housing shortage and build more homes, especially affordable housing for first-time buyers.
“We’ve provided funding to enable research around CrowditBuildit’s project to help establish a real and viable alternative to the usual types of housing delivery in Sheffield.
“The potential benefits for first-time buyers are huge and we’re pleased to support such innovation.”