A number of contributing factors are pushing up land value across the UK. What’s the outlook over the next few years for developers and investors?
The third quarter of this year has seen the value of greenfield land rise by its highest quarterly rate since 2010. The increase was 3.9%, according to new analysis from Savills, while the land value of urban sites grew by 2.2%. On a yearly basis, greenfield site values have rocketed by 7.1%, with value growth across urban sites of 5.7%.
However, the price of land has not seen the same uplift in London. The capital city has seen the opposite trend, with land value generally falling since 2016. In the year to September 2021, the value of residential land decreased by -0.4% in central London and by -1.6% in outer London.
The picture is quite different for office development land, though. Thanks to heightened demand and shrinking available sites, this sector has seen values increase in recent months. Over the past half-year, central London saw office land values go up by 6.2%, and outer London by 1.9%.
What’s pushing up regional land value?
There are a number of current trends influencing the rising land values seen across the regions, according to Savills. Housing activity has hit record highs, along with house price growth, with Nationwide’s index showing a massive 10% house price rise over the past 12 months.
Savills adds: “New homes have been selling well too, with high forward sales and reservation rates, supported by Help to Buy, albeit restricted by the number of homes available.”
There are high levels of competition across every size and type of site right now, says the report. “A net balance of 89% of Savills development agents reported increasing bid levels in Q3 2021 compared to normal levels. As a result of the high level of competition for sites, in many markets, bid values have exceeded guide prices significantly.”
Planning consent causing issues
Housebuilders are willing to consider a wider range of sites due to a lack of availability, Savills adds. This includes big developers looking at smaller sites than they would normally consider, and many also seeking land in different locations.
One major issue the report flags up, which some pinpoint as the major issue preventing housing delivery in the UK right now, is planning.
“Fewer consents, slow planning decision-making, local plan reviews and stalled sites due to nutrient neutrality are all contributing to the shortage of sites,” says Savills. “The number of consents fell by -13% in the year to Q2 2021.”
“In addition, 23% fewer planning decisions were made by the Planning Inspectorate in the year to August 2021 versus the previous year, and it is taking an average of 23.9 weeks for decisions to be made.”
How will it all pan out?
Unless things change drastically with the planning system, it seems this side of the issue may not be resolved quickly. Heightened housing activity post-pandemic will also continue to play a part, pushing up house prices and keeping property transactions relatively high.
According to Savills, the shortages mentioned above will continue to create land value inflation. However, one big roadblock developers are facing right now is high building costs. Data from BCIS shows that costs have risen by 2.7% over the past 12 months. It also predicts this will go up to 6.9% in the year ahead. There is the potential, says the report, that these growing costs could outpace house price growth.
This, along with the end of Help to Buy, “could both put downward pressure on land values in the medium term”.
Savills concludes: “In the longer term, increased build costs required to meet the net zero agenda and environmental mitigation is likely to suppress land value growth.”