Residential development land prices in England muted in first quarter of 2018
The value of greenfield land in England increased by 0.9% in the first quarter of 2018 while urban brownfield land rose 0.4% and development land values in London were unchanged.
This takes annual growth of greenfield land in England to 2.2% and for urban brownfield land to 6.4%, according to the latest residential land development index from real estate firm Knight Frank.
However, land values in central London have fallen by 2.1% year on year and overall the report suggest that uncertainty over the future of Britain’s relationship with the European Union is likely to weigh on future growth in values.
According to Patrick Gower, residential research associate at Knight Frank, house builders are taking an increasingly selective approach when bidding for land as they adjust to perceived risk in the market.
The index report points out that the Help to Buy Equity Loan scheme has continued to contribute to sales rates, though developers are now embarking on projects due to complete after 2021 when the scheme is currently due to end.
So, uncertainty over the future of the policy is likely to be reflected in English greenfield land values in the coming quarters, coupled with house builders factoring into their margins the unclear economic picture ahead.
The report also says that the fundamentals that underpinned demand in the fourth quarter of 2017 remain unchanged. However, high build costs are increasingly limiting what developers are willing to pay for land.
In central London a number of large sites have been put on the market and the report suggests that this should provide a strong indication of the strength of the market, and whether larger developers are re-committing to the area.
The Mayor of London’s policies to increase the number of affordable homes being built on development sites could have an impact going forward, it adds. The policy which allows developers to fast track through the process if they hit a threshold of 35% affordable housing, or 50% on public land, is being digested by the market.
‘The jury is out as to whether this will provide a much need boost to affordable housing in the capital. The spread of prices paid for land sold with planning, compared to land sold without, has widened as developers weigh up risk in a new planning environment. We anticipate prime central London development land values will remain stable moving forward,’ said Gower.
Greenfield development land continues to attract strong interest from the UK’s house builders, according to Dav id Fenton, head of regional land at Knight Frank. ‘We are also witnessing a number of new entrants to this marketplace as the affordable housing operators move into the sector. Connectivity is paramount, access to road and rail networks and a strong local economy are key factors which the house builders are looking for before they commit to a given opportunity,’ he said.