EYE’s Freedom of Information requests show collapse of self-build market despite claims

A Freedom of Information request by EYE to HMRC has revealed the astonishing shrinkage of the self-build market and highlights the uphill struggle of spin docors to make it meaningful in the context of the 1m new homes a year promised by the main parties.

We asked the question because of attempts to talk the market up – particularly to the Government which has in the last couple of years made reference to the potential of self-build as a contributor to solving the housing crisis.

However, the reality is that the self-build sector has collapsed.

Always small, it has roughly halved in the last 20 years and is now so tiny as to look discountable in terms of the 1m homes a year now promised by the main parties.

The Government appears, however, to be unaware of its own figures.

Individual self-builders and people converting non-residential properties into homes can reclaim VAT on materials.

There are two HMRC schemes enabling them to use this – one for builders of new homes, Notice 431NB, and the other for converters, Notice 431C.

The schemes are available not just for people physically building their homes, but for those who have their homes built for them and who might buy only some – and in some cases, just a very few – of the materials, for example paving slabs.

In the nineties, there were between 10,000 and 14,000 self-builders and converters reclaiming their VAT each year.

However, in each of the past two years there have been around only 6,500 reclaims.

In the financial year 2015/16, there were 5,278 self-builders reclaiming VAT, and a total of 1,086 converters – a combined total of 6,364.

In the financial year 2016/17, there were 5,477 self-builders and 1,068 converters reclaiming VAT – a total of 6,545.

These totals compare with claims that the self-build and custom build sector is growing at 6.25% a year, and that there will be 16,500 completions by 2020. The claims were made in a report which itself cost £750 plus VAT.

If correct, then these forecasts would be reliant on sharp growth in the custom-build sector – where buyers have some input, which can be very limited, into the design. Custom-build is also un-trackable.

The totals obtained by our FoI request also compare with claims that the sector has a strategic role to contribute to the Government’s house building targets.

Last week, housing minister Alok Sharma opened the UK’s first ‘plot shop’ in Bicester, Oxfordshire. It says it will sell up to 1,900 plots of land based on demand for self-build and custom-build.

Sharma said: “We need to get creative with how we build our housing in this country, to deliver more of the right homes in the places people want to live.

“With the opening of the UK’s first ‘plot shop’, the journey to building your own home can now start on the high street.

“As confirmed in our housing white paper, we are committed to doubling the number of custom and self-build homes by 2020 – so that anyone who wishes to design their dream house can do so.

“Through diversifying the housing market in this way, we can give people greater choice over the homes they live in – whether that’s buying on the open market or by commissioning and building their dream home.”

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3 Comments

  1. NickTurner

    If you keep saying something often enough and keep hearing something often enough you will believe it. Self build has always been there but the numbers are so small to have no real effect on the  overall number of new builds required.

    Two ways to help reduce the housing requirements lists are as always simple but Governement does not do simple.

    Firstly allow councils to build council houses to rent. Not everyone wants to own a house( even if they could afford it) or indeed go to university but governments in the past have tried to tell people what to do.Notice I use the word councils and not Housing Associations.

    Secondly, if the Governement were to allow a small percentage of existing houses to be built on greenfield sites adjoinng all our villages throughout the UK it would have a significant effect on the numbers. Say a village has 100 houses then you allow 5 or 10% of new builds. This reduces the need for wholescale infrastructure such as new roads, sewers, doctors surgeries and schools. It would prop up local village services including those pubs, shops, schools and churches that so often complain of dwindling numbers.We seem to forget that these ‘protected’ villages were once themselves new builds or have evolved. It would also bring back the smaller builders plus associated trades to the locality thus creating job opportunities.

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  2. P-Daddy

    The two challenges initially are the gaining of planning permission…individuals are so often pulled over the coals, which is very discouraging. It is seemingly easier to get planning for 50 in this climate than 1, as it helps councils fulfill quotas…never a good thing! Secondly, when a self builder, who has the dream but is invariably time poor looks for support, the industry locusts (builders) soon appear and start a process of over complication and over pricing of services against a backdrop of rising material costs and bureaucracy over building regs. It is off putting for many. I have seen some staggering examples. Its a shame as the self builders are the ones who will be prepared to push boundaries, embrace technologies and we don’t need more generic house types.

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  3. MichaelHolmes98

    Dear Roz. Your analysis of that part of the custom and self build sector where homebuilders buy materials themselves and reclaim the VAT on a DIY basis through Notice 431NB and 431C is correct but as you will be aware from your many successful years covering the sector, this does not tell the whole story in terms of the size of the custom and self build market.

    Only those who are not VAT registered through some other means are eligible to use the DIY VAT refund scheme as they have no other way of recovering the VAT on zero rated supplies. Anyone building their own home who is VAT registered – farmers, builders, subcontractors, and anyone who owns their own VAT registered entity – must recover VAT paid on eligible materials (and services in the case of 431C) through their monthly or quarterly return, and will wish to do so for reasons of cash flow, rather than wait to make the single one-off claim after the project is finished, that the DIY refund scheme permits.

    VAT registered farmers – who often have access to land and can build using exception policy – and those employed in the construction industry, make up a large proportion of the current self build market in the UK. In addition to failing to capture this part of the custom and self build market, the HMRC figures for the DIY refund scheme do not include anyone who builds their own home using a VAT registered builder or developer, or a custom build developer, and therefore pays no VAT because this has been zero rated at supply.
    Custom build, where a housebuilder or developer builds a bespoke home to order, is an increasingly popular route to an individual home, typically on a serviced plot bought under a separate transaction, so that SDLT or LBTT are only levied on the land transaction and not the construction services. This is the part of the market Government in England expects to grow significantly.

    In addition to this, there are a surprising number of self builders who are simply unaware of the VAT refund scheme and do not make a claim and so do not appear in HMRC data.

    The National Custom and Self Build Association (NaCSBA) conducted a survey of a sample group of those who have recently built their own home to understand how they benefited from the zero rating of VAT on eligible labour and materials used in the construction of a new dwelling. The results revealed the following: 
    25.34% paid no VAT on eligible services because the main contractor zero rated all invoices 
    5.38% paid no VAT on eligible services because the developer/Custom Build provider zero rated all invoices
    6.73% paid standard rate VAT but recovered this through a business or other VAT registration
    50.22% paid standard rate VAT and recovered this through the Notice 431 Scheme ‘Refunds for DIY Housebuilders’ NB or C.
    12.33% paid standard rate VAT but did not make a claim to recover this
    0% Other (please specify)
    Sample Group 446
     
    To get an indication of the true size of the custom and self build market it is necessary to adjust the HMRC DIY VAT Refund numbers by a multiplier that takes account of those who benefit from the zero rate of VAT on new dwellings by other means.
     
    The multiplier based on NaCSBA’s 2016 survey (as above) is 1.992. Using this methodology, the size of the custom and self build market in 2016-17 is just over 13,000 completions (13,050).
     
    The results contrast with the same survey conducted in earlier years where a higher proportion of those building their own home used the DIY VAT refunds schemes as opposed to using custom build developers or a main contractor.
     
    In summary, you are quite correct to report that the self build market fell significantly following the credit crunch in 2007 when mortgage availability declined and only those with significant means were able to build their own home. The low point was 10,000 completions in 2012-13, however, the market has since grown each successive year.Month by month data for HMRC refunds using Notice 431NB and C supplied to NaCSBA recorded 6,273 refunds in 2015-16 and 6,592 in 2016-17, an increase of 5% year on year. Growth in the last quarter of 2016 was 6.5%.

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