The $64,000,000 Question

Some people may have wondered why the Thorpe & Felthorpe Trust have been so desperate to gain support for their development scheme. We all remember the Trustees earnestly assuring us during their 'charette' that their motivation was mainly to provide something of benefit to the local community and, although profit was a motive, it was by no means primary. Many people have wondered why, if that was the case, they have devoted so much effort to pursuing their scheme despite the dazzlingly obvious fact that nobody wants the woods turned into a vast housing estate.

Answers aren't hard to find. If Broadland District Council were to grant planning permission for 800 houses, they would effectively be handing T&FT a winning lottery ticket. Let's remember before going any further that T&FT already own the woods outright, which puts them in a very advantageous position compared to most would-be developers, with no cost to them for development land.

The conventional rule of thumb employed by developers is the 'third-third-third' rule. This means that, when estimating profits, the assumption is that roughly a third of the final sale value of houses is made up of land cost; another third is made up of construction costs; and the final third is profit. According to this rule, T&FT could expect TWO THIRDS of final sale prices to be profit, as there is no land cost in their case.

The 'third-third-third' rule is, of course, only rough, but has historically been surprisingly reliable. In the current economic situation the profit margin may be somewhat lower. It may seem excessively generous to reduce it by, say, 30% - leaving T&FT with 36% profit on every house sold - but I am doing so here to safeguard against any accusations of exaggeration. This is, effectively, allowing up to 64% of the sale price of each house to be accounted for by construction costs alone.

On this basis, T&FT's profit projections work out as follows (if you dislike figures, please skip to the last three paragraphs, and return to the intervening section if you want to see how the conclusions were arrived at).

We start with 800 houses. If the full 40% requirement for 'affordable housing' were to be met (and this is unlikely as developers have many ways of getting away with providing a far lower percentage), this equates to 320 houses.

If we call the average sale price of each affordable housing unit £100,000, this gives 320 x £100,000 = £32,000,000

This leaves 480 houses. If we say that 30% would be 'average' price, this means 144 houses sold at c£170,000 = c£24,480,000

This leaves 336 houses. If we say that 50% would be 'exectutive' style houses with an average price of £275,000, this means 168 houses sold at c£275,000 = c£46,200,000

This leaves 168 houses. If we say that 50% are a bit more expensive, with an average price of c£350,000, this mean 84 houses sold at c£350,000 = c£29,400,000

This leaves 84 houses. If we say that 50% are 'high-end' houses, with an average price of c£450,000, this means 42 houses sold at c£450,000 = c£18,900,000

This leaves 42 houses. If we say that these are 'luxury' houses with huge gardens (such as those envisaged for Brown's Plantation), with an average price of £650,000, this means 42 houses sold at c£650,000 = c£27,300,000

TOTAL sale price for all 800 houses = c£178,280,000

Going by the profit margin estimate given above, the T&FT would make 36% profit on £178,280,000 which is £64,180,000. That is nearly £13million for each of the five Trustees.

If we revert to the 'third-third-third' rule, the profit figures could be almost doubled. These figures are only estimates. But even when accounting for falling house prices, static labour costs and rising materials costs - and even when deducting tax payable on profits - the net profit on 800 houses with no initial land costs would nonetheless be huge. Trusts are generally set up with at least an element of tax avoidance in mind: without knowing the details of the T&FT's tax status it is impossible to guess to what degree the Trustees might benefit in this respect.

The £££ signs must have lit up in the T&FT's eyes some time ago. From their perspective, many millions of pounds is what they have to lose. The members of Friends of Thorpe Woodlands and thousands of other local people have no financial stake in this game, but we have 205 acres of superb woodland to lose. Money can be made, lost and made again, but once the woods are gone, they are gone forever.