UK home development market seeing more smaller builders and Build to Rent

The UK residential land market has been dominated by the major house builders since 2009, but the past year has seen a significant rise in the number of smaller firms, new research shows.

Small and medium sized house builders and housing associations are also building more homes, supported by Government funds and more accessible finance, according to latest analysis from property adviser, Savills.

Build to Rent developers and investors are also increasingly active in the market, particularly in key regional cities and the price of land in leading regional cities is being driven up, the research also shows.

Overall some 16,000 Build to Rent homes are now complete in the UK, with 21,000 under construction, according to Savills and the British Property Foundation, boosting the appetite for land.

Price growth averaged 1% in the second quarter of 2017 and 4% annually and greenfield land values have all but stabilised, up 0.2% on a quarterly basis and 1% year on year.

Last quarter, Savills reported that interest from both international developers and Build to Rent developers was leading to strong land price growth in Birmingham, Manchester and Glasgow.

Bristol is now emerging as the next target for investment activity from international and London based developers and those looking for Build to Rent opportunities. The report suggests that the city’s strong and growing economy is fuelling house price growth, up 14% in the year to the end of April, according to Savills analysis of Land Registry figures, but this is yet to trigger a significant uptick in land values.

Land for housing in Bristol has regained its pre downturn value, but there has been no significant uptick over the last year. While demand and house prices are up, land values are for now held back by increased build costs.

Small house builders almost doubled their land buying with growth of 89% in the last 12 months, while medium sized firms acquired 22% more sites, according to sales data from Savills.

The report explains that the Government backed Home Building Fund, launched in October 2016 and more accessible finance deals such as Go-Develop which offers 100% joint venture land and build funding, are supporting those with little equity on smaller sites. Medium sized builders have also benefitted from easier access to bank and private finance.

This is translating into more new homes being built across the UK. For example, medium sized house builders Fairview and Gleeson increased delivery by 76% and 20% respectively over the past year.

Traditionally, the focus of medium sized house builders has been sites for 50 to100 homes, but they are now increasingly able to target sites for 100 to 250 homes, territory dominated by the major house builders over recent years.

Housing associations are also more active. In a recent Savills survey of over 100 chief executives and senior board members of housing associations some 72% rated accessing development land a major factor holding back their housing delivery ambitions.

Only 35% of all housing associations currently have investment in strategic land, yet only half of these have capacity for more than 100 homes. But the ambition to acquire more land is clear with 13% of housing associations with no current interest in strategic land planning to change that within the year and 51% within the next five years.

‘The rise of strong regional cities and the growing mismatch of supply and demand in many of those cities, is boosting demand for land for housing and, in turn, urban land values,’ said Lucy Greenwood, Savills residential development research analyst.

‘Urban land values were slow to recover post downturn, but the strength of demand from an increasingly wide range and number of developers in cities means that the average value of urban land is now rising faster than greenfield land. Higher levels of greenfield land supply in many areas allows buyers to be more selective, meaning there is less upwards pressure on values,’ she added.