Housing land buyers look north

18 October 2017

National and regional housebuilders are expanding and diversifying their operations, with some moving into new regions to take advantage of house price growth in the midlands and north of the country, as house price growth slows in London and the south east. 

As a result, residential land values are rising in the UK regional markets, but continuing to soften in central London, according to the latest Savills residential land index.

UK urban land values outside London continued to rise steadily (+0.7%) over the third quarter of 2017, taking annual growth to 4.7 per cent, ahead of house price growth, which the Savills repeat sales index puts at 3.9 per cent. 

“Manchester and Birmingham continue to outperform the UK average and are now joined by smaller locations such as Luton, Coventry and Chelmsford in seeing double digit annual price growth for urban land,” says Lucy Greenwood, Savills research analyst.  “This quarter’s indices are further evidence of growing demand for land in London’s outer commuter belt and beyond, with increased caution in the capital.”

Growing housebuilder confidence and appetite for larger sites is reflected in the rate at which greenfield land values have begun to rise.  In the third quarter of this year, they rose by 1.1 per cent in the third quarter, as much as in the first six months of the year, taking annual growth to 2.2 per cent. 

National housebuilders including Barratt, Persimmon, Crest Nicholson and Miller, plus regional housebuilders such as Wain Homes in the Bristol area and Story Homes in the Manchester area, have either opened or are planning to open offices in new regions.  For some, this means reopening offices in areas where they closed operations post global financial crisis, while others are branching into new territory to diversify and mitigate against regional fluctuations in house prices and demand.

This expansion has been facilitated by rising numbers of new homes completions. There was a 56 per cent increase in the delivery of market homes for sale by developers in the three years to the end of 2016 and the 2016/17 new homes total for England is expected to hit 210,000.  Planning consents are also up by 11% per cent in the year to June 2017 (321,982 consents). 

Additionally, the Government’s recent announcement that a further £10 billion will be invested into the Help to Buy equity loan scheme, is expected to translate into greater confidence in buying land for building out to 2021.

In its paper, On track to solving the housing crisis?, published earlier this month, Savills calls for much more land to be brought forward to reduce competition for land in high demand areas.  This would impact land values but allow developers to build in volume, at prices the mass market can afford, thus enabling large sites to be built out quickly.  However, this would also limit the capacity for sales proceeds to fund infrastructure and affordable housing via section 106 and CIL contributions, so would require policy flexibility.

The central London story:

While land values have risen at a UK level, they have continued to fall across central London, following the pattern of house price growth in the capital’s prime central housing market.  The value of land for housing fell by 2.0 per cent in the past six months,  in line with -2.1 per cent falls in prime London house prices in the same period.   

A succession of stamp duty and other tax increases have left house prices in these high value markets down by a total of 15 per cent from their 2014 peak, albeit they now appear to be finding a level.  Residential land values have fallen by around 12 per cent over the same period. 

In August 2017, the London Mayor’s Affordable Housing and Viability Supplementary Guidance (SPG) was adopted.  “So far this is does not appear to be affecting land values for consented sites in the capital, though it will add to buyer caution,” says Greenwood.  “The rate of absorption of new build stock and the availability and cost of labour will be key determinants of future land values.”

Office land values in central London fell by 1.6 per cent in the last six months, taking annual falls to 3.3 per cent.  The three key factors impacting values are rising build costs, Brexit related occupational risk, and the fact that debt finance for development is increasingly difficult.

However, developments where at least half of the floorspace is pre-let are going ahead, and there is more confidence in areas without a strong focus on finance of EU related occupiers.

 
 

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Lucy Greenwood

Lucy Greenwood

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Residential Research and Consultancy

Savills Margaret Street

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Savills Margaret Street

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