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Nothing, it seems evokes such passionately polarised feelings as the luxury home. For environmental protesters and policy-makers it is the last work in inefficiency, unsustainability and social exclusion; for the British public, it鈥檚 their ideal home 鈥� as the Joseph Rowntree Foundation found out recently (25 June, page 14).

Up to now, housebuilders have loved the upmarket home, regarding it as a safe and profitable product in the tough times that followed the 1989 recession. Housebuilders proudly boasted of the growth in their average unit selling price and Berkeley Group was among the best with an ASP last year of 拢315,000.

But now for housebuilders the love affair with luxury appears to be coming to an end. In the past two weeks, Berkeley Group and Crest Nicholson鈥檚 top management have both extolled the benefits of moving out of the leafy cul de sac and into the gritty city. This isn鈥檛 just marketing talk; both are changing their businesses to focus on mixed-tenure urban regeneration. And while the rest of the industry may not be following their example yet, other housebuilding names are declaring that they will be developing fewer luxury homes and more smaller, cheaper units.

The need to sell homes in an increasingly hardening and price-sensitive property market is fuelling some of the present talk, but there is a belief that a more fundamental shift is happening in the housebuilding industry. 鈥淗ousebuilders are dividing into two camps: the volume housebuilders and the urban city developer,鈥� says James Moody, director of agent DTZ Residential. 鈥淭hey have two different sets of criteria: the Barratts and the Persimmons are all about unit numbers; the Crest Nicholsons and Berkeleys are becoming more development focused.鈥�

A number of factors have brought change upon the industry, points out Dominic Grace, head of new homes with agent FPDSavills. 鈥淭here are more flats being built, reflecting the trend for urbanisation with PPG3. Development has got much more sophisticated 鈥� it鈥檚 not just about housebuilding on greenfield sites, it鈥檚 about mixed-use, high-density development.鈥� In this new environment, housebuilders may discover that their traditional way of operating 鈥� as a set of regional businesses with high staffing levels 鈥� may not be the most effective and efficient way to work.

鈥淲hat we鈥檒l see is a new breed of housebuilder that is more like a commercial developer,鈥� says Grace. 鈥淭hey鈥檒l be smaller, with not so many mouths to feed and not so many regions. They will be more project-led, with fewer people driving bigger projects that take longer to put to bed. They might have no more than four or five key directors.鈥�

Grace believes that some will find the transition easier to make than others. 鈥淏erkeley has a very strong leadership,鈥� he points out. 鈥淥ther housebuilders that are more fixed in their ways may struggle to make the turnaround.鈥�

Tony Pidgley, Berkeley Group鈥檚 managing director, has declared that his business is to sell its upmarket housing arm, along with about half of its land holdings. It intends to focus on large-scale urban regeneration schemes, such as its Royal Arsenal development in Woolwich, east London. 鈥淲e could still be doing schemes of 50-60 units, but they are likely to be a lot more than that, and mixed-use,鈥� says Pidgley.

Crest Nicholson has been gradually shifting the emphasis of its company away from luxury country estates like Repton Park, near Chigwell in Essex, to mixed-tenure urban regeneration schemes such as Park Central in Birmingham. As a result of the shift, the company鈥檚 average unit selling price has dropped from 拢239,000 last year to 拢215,000 in its interim results. Chief executive John Callcutt estimates that about 65% of its product is now one, two and three-bedroom homes that are classed as social or affordable. And that figure is set to increase as the company will more than double the volume of affordable unit sales this year. 鈥淎t the moment we are still doing standard development and in that we are a profitable, high-performing housebuilder,鈥� Callcutt says. 鈥淏ut we see the future is urban regeneration. That is where the land supply is going to come from.鈥�

Housebuilders are in two camps: the volume housebuilders and the urban city developers

James Moody, DTZ Residential

But there鈥檚 the rub: at the moment some people, most crucially those in the City, still perceive the production-line process of big housebuilding as more profitable than urban regeneration, although the City welcomed the Berkeley move. 鈥淭he City is only interested in shareholder value,鈥� says Callcutt. 鈥淒evelopers have got to put forward models to the City of how shareholder value can be improved.鈥�

There are also development challenges to urban regeneration. 鈥淵ou are working on more one-off buildings, the structures are more complex and you are doing more apartments,鈥� says Callcutt. 鈥淚 can鈥檛 say we haven鈥檛 had our problems and made mistakes. But we are much better at it now.鈥�

鈥淚t鈥檚 quite hard to become an urban regenerator. I don鈥檛 think many people can follow Berkeley,鈥� says Richard Donnell, director of research at FPDSavills. 鈥淪ites are getting bigger and bigger, and they are not in the hands of the housebuilders but of developers.鈥� Donnell points out that in the capital there are 48 schemes of more than 500 units, and that the average size of those sites is 1500 units (see box). Donnell does however see a sound commercial rationale for Berkeley鈥檚 move: 鈥淩esidential development is becoming polarised between the large strategic sites and the small bread-and-butter sites, and there is a question of how much you can add value to the latter. For larger sites, you can add value by making communities.鈥�

In reality some large urban regeneration schemes have turned out not to be communities, but simply massive concentrations of identikit apartments. To maximise profit, housebuilders tend to develop one type of unit, commonly the two-bed, two-bath apartment. 鈥淭o get planning permission, housebuilders have had to do it [build similar apartments],鈥� says Donnell. 鈥淧lanners are ticking a box in PPG3, but they don鈥檛 understand that that doesn鈥檛 deliver what households want.鈥� Now the property market has slowed down, the capital in particular is heavy with these unsold and highly priced units.

The market slowdown has spurred a number of housebuilders to add more smaller affordable units to their schemes. But what communities need is less identikit housebuilding in general. Urban regeneration is about providing a range of housing in size and tenure, alongside other amenities. Crest Nicholson鈥檚 Park Central is a lesson in how it should be done. This development is remarkable not only because of its mix of tenure, but because the mix of properties in the 1400-unit scheme runs from small apartments to three-bedroom houses.

Other housebuilders have yet to follow Crest Nicholson鈥檚 example. 鈥淭here is a need for more variety of units, and there is a great big market out there for microflats,鈥� says Avril Butt, head of agent King Sturge Residential. It is not only socially desirable, it makes sound business sense says FPDSavills鈥� Donnell: 鈥淥n the bigger sites you need to be selling into three or four different markets to maintain a decent rate of sale.鈥�

If the social arguments have failed so far to persuade most housebuilders of the need for variety, perhaps market demand eventually will.