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Property crisis will re-shape the house building industry in UK

Major land transfer is underway that could change the whole nature of the property industry and the way it does business, claims The Future of Residential Development, a 55 page investigation compiled from interviews with over 50 key figures in development, planning, economics and academia.

It is regarded as the first attempt to provide a comprehensive picture of how the credit crunch and the recession are changing the residential development sector.

In response to their financial difficulties many of the volume builders have put large amounts of their land banks on the market. The buyers are not necessarily companies associated with residential development. Sovereign wealth funds, speculative investors and wealthy individuals are all very visible, the report says.

'This transfer of land, much of which is earmarked for development as part of the government's drive to deliver millions of new homes, could have real implications for the industry,' said Jon Neale, head of development research at Knight Frank.

'Land values have fallen by as much as 70% in some areas, although 30% to 50% falls are more typical. It seems unlikely that they will quickly bounce back to peak levels. Many new investors may choose to hold onto their purchases, waiting for better returns. This could block development and further reduce housing supply,' he explained.

'Others could choose to develop the land themselves in phases, creating value by providing a high quality urban extension or new settlement, using house builders as contractors or planning and marketing consultants rather than selling plots or engaging them as partners,' he added.

'However, investors may have to take a long term view to make a reasonable return so there may be more of an emphasis on quality than in recent years. The current spike of interest in renting may also mean that investors or even developers hold newly built stock to let out, particularly as yields are likely to remain high in the medium term.'

The report also highlights that the public sector is taking an increasing role in the land market. With government agencies and housing associations representing a large chunk of purchasers, they are almost as active as private investors.

'It is highly likely that many larger sites could come into public ownership over the next few years, particularly as land values are so low. There is an opportunity here for government agencies to provide them with infrastructure, preparing sties for development when the market returns to strength. Again, though, it is likely that the public sector will exert greater control over the build-out by retaining a stake in the scheme,' Neale added.

The consequence could be that traditional volume house builders could play a smaller role in the delivery of homes in the future.

The report's conclusion is positive. 'It is wrong to be too pessimistic about the current situation. Indeed, it offers a new opportunity to reshape the industry and the policies that guide it to better cater for Britain's housing needs,' Neale said.