Spotlight: UK Development

UK Development
 
New solutions to old problems

4 October 2017, by Savills Research

We need to think differently about the fundamentals of development if the number of new homes is going to increase to meet demand

 

In 2015/16, there was a shortfall of more than 109,000 new homes across England. Of that figure, 86% were needed in parts of the country with the highest housing demand.

Across much of the country, housing supply is almost meeting demand. In places with less stretched housing affordability, there was a shortfall of only 5,000 new homes. But in places where demand is high and affordability is stretched, there was a shortfall of 104,000 homes.

Lack of housing supply in the south east of England has contributed to the divergence of house prices here compared with the rest of the country, making housing unaffordable to many. There are housing challenges across the country, but this is the housing crisis that has captured public attention over recent years. It’s probably the hardest issue to solve and policy has made little progress towards doing so.

As shown in our recent paper, Planning to Solve the Housing Crisis, there isn’t enough land being released for new housing development in the highest-demand areas. This constrained supply stokes fierce competition between developers – driving up land prices. Since volumes are low, prices of new homes can stay high, supporting the inflated land values.

But, if substantially more homes are to be built in the highest-demand areas, they need to be accessible to the mass market. This would drive higher sales rates. However, the average new home in the south of England is not a mass-market product. Only 20% of households in the least affordable areas can afford to buy the average new home. For more than 40% of households to be able to afford a new home in these areas, the property would need to be a maximum of £250,000.

Where large sites are successfully selling high numbers of new homes in less affordable areas, the homes tend to be relatively cheap. Here, the average price per square foot of new homes tends to be at a discount to the average price of homes in the local secondhand market. The pressure to deliver at scale drives the developer towards building for the mass market.

In line with this trend, three of the current highest delivery sites in higher-demand areas, Picket Twenty in Andover, Berryfields in Aylesbury and King’s Reach in Biggleswade, are, on average, priced at a discount of up to 15% from local market pricing per square foot. Each of these sites completed more than 600 new homes for sale in the last three years.

Even in high-demand areas, such as Cambridge and Horsham, the large numbers of new homes being sold are at a discount to the local market (see below).

FIGURE 2

Pricing and delivery In areas with the most-stretched housing affordability, large sites can only be built out quickly when the new homes are priced to be affordable

 
Figure 2

Source: Savills Research using DCLG, HM Land Registry and CACI

For the Housing White Paper to solve the problem of undersupply in the south east, there needs to be substantially more land being released for housing development in the higher-demand areas. Increased supply of land would reduce the level of competition, lower land values, and enable new homes to be sold at levels the mass market can afford.

But the south east is constrained by environmental and landscape designations. Balancing the protection of valued landscapes against the need for more housing is a regional problem and needs a regional, market-led strategy. In addition, there should be consideration of a program of green belt swaps. The Government must provide leadership on these issues if sufficient land is to be found to make a real impact on the housing crisis.

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