SOME MUSINGS ON COST & FINANCING

BUILDING COST

(My apologies if these speculations sound uninformed – I’m just throwing out some ideas for contemplation/discussion)

Building costs vary widely depending on the country, location within the country, and the type and spec of the building.  For the UK, which would be near the top of the cost scale, a base guideline (2017) for houses is £1000/m2 – so perhaps £2000/m2 for high-rise apartments.  If so a typical (say 75m2) average-spec 2-bed residential unit might cost £150,000 to build.  If we add 20% to cover the pro-rata cost for the land, common areas, stairs, lifts, gardens and landscaping, etc., we get to £180,000 per unit*.   

However, in a building containing a very large number of apartments, there would be considerable economies of scale.  Additionally, due to the much higher densities of OA-Cities, the land cost per unit would be minimal.   At a rough estimate the land apportionment for each OA-City apartment would be less than 20m2, not much more than a bedroom.  Thus, £180k may be an over-estimate.    

 (*The retail selling cost would be much higher – which explains why property developers get so rich).  

Building cost could be significantly reduced using modular construction techniques – walls and floors or even entire apartment shells could be constructed off-site and simply slotted-into a framework.

 There is also the possibility of using the voluntary labour of future residents – who could be paid in future rent credits.

If our OA-city-to-be comprises 3,600 units of 50 sq m (average) – the build cost might be £360 million.  

Of that £360m how much could be borrowed from the banks?   Lets assume, given the very unusual nature of this building, the banks would be conservative and only prepared to advance 75%.  If so, then 25% of the £360 million will have to be stumped up by private and corporate investors – i.e., £90m.  This amount, or a large part of it, could be financed through bond issues or other money-market methods – and possibly even “crowd-funding”.   If money-market sources are insufficient, or unavailable, the project will need either a single very wealthy investor (our erstwhile Prince) or, more likely, a consortium of investors.  Given the nature of this project and its many and varied socio-political objectives, these “founders” would need to be “like-minded” in order to agree on a provisional charter outlining the goals and philosophy of the future community.   

Once this is all agreed, and the initial “seed” money pledged, the “founders” group could get outline planning permission and, if bank finance is unavailable or insufficient, they could issue a “prospectus” with the aim of attracting additional investors to buy shares in the co-op/project.   This 2nd group of investors might then be invited to join the original “founders” group and, together, decide on the final draft of their city “charter”.   Or maybe all investors will vote in direct proportion to their share-holding.

So now that the seed money has been raised, or at least pledged, for the residential part – what about the financing of the shops, offices, other workplaces, hotel, restaurants, cafes, etc?  

Once building approval is gained plenty of institutional investors will want to to invest in the project and some big companies might even become shareholders in the residential side if they wish to locate some of their operations – a call centre for example – and take advantage of the lower wage structure.   In order to do so they might want to reserve a section of apartments specifically for their employees.   

Of course, at some point in this process, the land has to be bought or “optioned” (subject to planning approval).   Assuming 20 hectares (50 acres) – 10 hectares for the building and another 10  for the “domain” – this is likely to cost from £5 million upwards to £20 million or more, depending on the location and on the likelihood of gaining planning permission.  

Either way, this should be relatively easy to finance as (once planning approval is given) the value of the land will shoot up.  Of course, none of this will be easy especially in the nimby-nation of England – look at how many years it takes to approve an airport expansion, high-speed train, etc.  

Despite England’s enormously pressing need for OA-Cities – both public and politicians are fearful of change and would seemingly “prefer” their allegedly cherished countryside covered with millions of red-brick matchbox houses.  As I have said elsewhere, I don’t seriously believe that this will ever happen in the UK – or at least not until other countries have shown the way.