The value of development land for housing in the UK continues to rise, but increases are concentrated in locations still seeing strong house price growth, the latest national analysis shows.
In areas where the underlying residential property market has slowed then development land prices are not rising, according to the report from property adviser Savills.
The report explains that sites that are well-connected or tied to strong employment centres are most in demand. This is reflected in prices being paid for land. The biggest increases are being seen in key towns and cities across the Midlands and Scotland, with Birmingham the standout performer.
London developers continue to seek opportunities beyond the capital, where planning constraints and slowing house price growth are major limiting factors. They are looking to towns in the wider London commuter belt, such as Reading, Luton and Chelmsford, which still have capacity for house price growth. Their key focus is sites for flatted developments within commuter towns, the report adds.
The analysis also reveals that over the first quarter of 2018 greenfield land values rose by an average 0.8%, taking annual growth to 2.1%. But in locations such as Coventry, Solihull and Leamington Spa, land values rose by over 7% in the last year, underpinned by house price rises of 8.5%, 7.6% and 5.1% respectively, well ahead of the 4.1% national average.
Similarly in Scotland, greenfield land values ticked up 2.8% in the 12 months to the end of March 2018, fuelled by house price growth of 5% compared to just 1.7% in Greater London, according to the Savills repeat sales index. It says that this suggests potential for further land value growth, particularly in the undersupplied housing markets of the major cities.
Urban land value growth has also been significant, rising 6.3% over the past 12 months. Birmingham has seen land in some central areas of the city has doubled in value over the past year. Demand for land is being driven by higher density schemes, institutional investment and significant city centre regeneration.
The report also points out that the high speed rail link HS2, the Commonwealth Games and the strength of the private rented sector are key drivers for inward investment into Birmingham and there are seven Build to Rent schemes currently under construction in the city in a sector that has grown fivefold nationally over the past five years.
All this is underpinned by rising demand for housing in a city that is being transformed by investment in infrastructure, and where the population is projected to rise by 150,000 by 2031. Additionally, Savills research forecasts that house prices will rise by 15% over the next five years in the wider region around Birmingham.
The analysis shows that central London residential land values have stabilised over the past six months, but fallen 2% in the year to the end of March and 12% in the past three years, as prime central London house prices have succumbed to higher stamp duty charges, falling 4% in the past year. Developers are factoring 35% of affordable housing on site into their land buying decisions.
Central London office land values fell 1.4% in the past six months and 3% year on year, but are down just 3.9% over the past three years. Although rents have remained stable along with investment yields for the sector, rising build costs are suppressing land values.
By contrast, the value of land for hotel development has risen consistently over the past three years, increasing by 0.5% in the past six months and 5.6% in the past three years. Savills says that the sector has remained resilient in the face of Brexit as the devalued Pound enhanced the attractiveness of London as a tourist destination supporting strong operational performance. As a result, operator and developer confidence has remained relatively robust. Despite this resilience rising build costs are moderating the growth in hotel land values.
Outer London housing land is still attracting demand, despite some developers moving beyond the capital. Sites with consent for around 100 homes are in high demand from house builders and housing associations. Housing association mergers are creating greater demand for larger sites, reducing competition for smaller sites.
The report points out that this could undermine the ambitions of the draft London Plan, which places increased emphasis on housing delivery on smaller sites, anticipating the delivery of 24,600 homes on such sites over the next 10 years. ‘Still, lower competition for such sites is creating opportunities for smaller private developers and housing associations,’ it adds.