Land value growth needed to boost housing delivery
10 August 2012
Average residential development land values are rising slowly but steadily, but transactional activity and price growth remains extremely London and South East centric, latest data from Savills shows.
UK average price moments show a steady rise but hide huge differences in regional performance, with the very best prime locations in and around London now achieving peak prices and competitive bidding.
Refinancing of large listed and regional housebuilders and enhanced profit margins have combined to drive land transactions but Savills has found that 44 per cent of all deals in 2011 were in London and the South East. Housebuilders are also looking to greenfield land opportunities where available, building more family houses and targeting those with equity rather than delivering smaller product into the more challenging first time buyer market.
“This is not only exacerbating the gap between north and south, but also – and more particularly - between prime, high value housing markets and large sites in secondary locations,” says Yolande Barnes, director of Savills research. Sites that are trading in lower value areas are doing so on deferred payment terms or with build licences, reducing risk to the developer and the need for scarce funding.
Listed housebuilders have reported steadily increasing profits over the past two years, particularly in the south east, where house prices have held steady, helping to bolster margins. As a result private housing completions have begun to recover and are tracking in line with developer profits, though completions are still running at half the pre downturn levels.
A recovery in volume house building will be heavily dependent on a recovery in development land values. “But, larger sites remain seriously challenged and measuring value is not at all straightforward,” says Mike Shaw, head of national strategic development at Savills. “Since the peak of the housing market in 2007 the affordable housing elements of any scheme have really lost their value and we are not comparing like with like when assessing land values now versus peak, even in relatively resilient housing markets.”
Shaw cites the example of Cambridge, where land values peaked at £2.5 million per serviced blended acre. Current market values, he believes, would be around £1.8 million, with the loss in value of the affordable housing element accounting for the difference, if not more.
In addition, the impact Community Infrastructure Levy (CIL) on land values is yet to fully realised, as charging schedules are being set. It is imperative that these are set at an appropriate level so as not to stifle new development.
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