£ per sq ft: A better measure of value

Why is £ per sq ft important?

Historically, average house prices have been the yardstick for gauging property values, but this method can sometimes  be distorted by the make-up of the housing stock in an area. The alternative is the £ per sq ft measure, which is increasingly used by potential buyers, mortgage valuers and developers looking to ascertain whether or not a particular location could be viable for development (See Graph 1).

Analysis of listings data from property search engine Globrix separately identifies values by property type and bedroom numbers. It enables a more accurate identification of average values per sq ft at a Local Authority level.

So what are the differences?

This analysis shows the extent of the disparity between the most and least valuable locations. For instance, in London there are three boroughs (Kensington & Chelsea, City of Westminster and City of London) where average values exceed £1,000 per sq ft, and four boroughs where values average less than a quarter of that figure (Croydon, Havering, Bexley & Barking and Dagenham).

Outside of London the disparity is slightly less severe, with the highest value Local Authorities commanding values roughly two and a half times those of the lowest; whether that be in the South East (Elmbridge, Surrey £405 per sq ft versus Swale, Kent £154 per sq ft), the West Midlands (Stratford upon Avon £250 per sq ft versus Stoke-on-Trent £100 per sq ft) or Yorkshire and the Humber (Harrogate £224 per sq ft versus Hull £93 per sq ft).

What does this tell us about future price growth prospects?

Usually these divergences in value per sq ft reflect the difference between the equity-rich and mortgage-dependent locations. As a result they are a useful indicator of the likely house-price growth that can be expected in an area.

Why is this of relevance to future housing development?

This is useful to housebuilders and developers who are striving to achieve the highest returns possible for new schemes.

With concerns over development viability in areas where values are less than £150 per sq ft, this analysis indicates that just under one-third of all Local Authorities may struggle to support widespread development, especially on brownfield sites with remediation costs or high Section 106 development tariffs.