Land supply is one of the greatest barriers to housing delivery as available land is being quickly absorbed in most locations, according to a new report from international real estate adviser, Savills.
Green field land values grew an average 7.5% across the UK in the year to the end of March 2014, with urban values up 6.4% over the same period. The resurgent housing market pushed green field land values up by 11.2% in the South East, followed by the West of England at 6.8%.
In key commuter and prime regional urban locations such as Crawley, Leamington Spa, Oxford, Sevenoaks and St Albans, green field values are now above their former 2007 highs and the report says that there are now early signs of improved land market conditions outside the highest value towns.
Bolstered by Help to Buy and improving new homes sales rates, Manchester, Leeds and Birmingham are now seeing land price growth as house builders and developers look to secure their land pipeline.
The North of England recorded the strongest growth in the first quarter, albeit from a low Green field values rose 8.1% but remain 53% below peak, while urban land values rose 5% but remain 69% off peak. Higher value markets such as Durham and York continue to outperform, although cities such as Leeds are beginning to benefit from a wider recovery.
Central London residential land continues to show the strongest growth, rising 15.2% in the six months to March 2014 as land values play catch up with house price growth in the capital. During the same period, the Savills prime central London house price index recorded growth of 6.8% while land for office use grew 4.4% and land for hotel use just 2.5%.
Across London residential land values are coming back into line with house prices. Values rose by 25.8% in the year to the end of March, against prime London residential price rises of 13.1%. An acute supply demand imbalance means that London residential land values are now 27% above their 2007 peak, compared to prime London residential values at plus 36.2%.
‘The strong recovery in the London housing market is leading to competition for a limited pool of suitable opportunities in the land market from a wide range of domestic and foreign players,’ said Susan Emmett, Savills residential research director.
‘Market conditions are driving land value growth, making the search for sites to deliver lower value homes ever more difficult,’ she explained.
Savills research estimates that London now needs to delivery 50,000 new homes a year for the next five years without accounting for any backlog. The firm says that 57% of this requirement is for homes costing no more than £450 per square foot, in line with what Londoners can afford to pay.
An increase in sales rate and sites coming forward for development over the past six months means that an average of just under 35,000 new homes a year are set to be built over the next five years, up from an estimated 28,000 units a year ago.
This is good news, but Savills says that the shape of the development pipeline does not match the shape of demand. A shortfall of 15,000 homes a year will remain, increasingly concentrated in the more affordable tiers of the market, beyond zones 1 and 2.