They are looking to secure their development pipeline, creating demand for serviced land in more locations, according to the Savills UK residential development land index.
The property firm points out that the number of good quality sites is limited, leading to competition and small rises in average land values.
Greenfield land values rose by 1.4% in the first quarter of 2013, bringing annual growth to 3%. But the firm added that demand and performance continues to be highly localised.
Savills quotes blended land values, including both market and affordable housing. But they say, the averages mask both the reduction in the value of affordable housing land due to lower levels of public subsidy under recent Government policy and stronger growth in the value of land for market housing.
The top eight listed house builders have reported profit growth of 33% in the most recent year, and the sector has seen further recapitalisation as the City of London looks to invest in the housing market recovery, suggesting a capacity to increase development volumes.
Government funding initiatives are also boosting industry sentiment, helping to ease the mortgage market. Early signs suggest that Help to Buy will do a lot more to stimulate the market and help buyers than previous incentive schemes and Savills estimates that it could increase private sector building by 30%, assuming house builders have the capacity to manage such growth.
‘There are clear signs of more positive industry sentiment and activity. Latest government house building statistics reveal that private starts in England, at 22,200, were 7% higher in the first quarter of this year than in the final three months of 2012,’ said Jim Ward, director of development research at Savills.
‘House builders, having rebuilt their balance sheets, are looking to secure a pipeline in an improving market. However the market is highly localised and values remain very suppressed beyond the pockets where land is trading, but real opportunities exist in many urban markets for developers able to take a long view,’ he explained.
He pointed out that in London, housing shortfall and population projections mean that there is real potential in the outer zones, particularly for new build schemes targeting the under supplied middle market.
Demand for urban land is also increasing as house builders and developers seek alternatives to the limited supply of green field sites. Values rose by 2% in the first three months of 2013, the highest quarterly price growth for two years, taking annual growth to 4.8%.
Across the UK green field land values stand on average 32% below their former highs, with urban land values still less than half their pre-crunch peak. At the extreme, values for green field land are 58% below peak in the North of England, and 73% down for urban land.
Only in London are average values now marginally, just 1%, above their 2007 peak, having grown by 87% since their low of March 2009. Activity is underpinned by investor demand, with development underwritten by forward funding by overseas sales.
In London demand remains hottest in travel zones one and two, though Savills believes the outer zones offer more sites with long-term potential to meet London’s housing shortfall.
The rest of the country is some way off peak. The South East is expected to be the next region to recover to peak values, but Savills forecasts that serviced land values will not return to their former peak before 2016 at the earliest.
