UK land values continue to grow despite rising building costs

 

Soaring demand for space across the country is keeping UK land values high, with major housebuilders driving the competition. 

A new report by Savills has revealed that the first quarter of 2022 saw yet another period of growth in UK land values, as well as an ongoing dearth of supply caused by a number of issues.

UK greenfield values went up by 1.4% in the first three months of the year, while urban values rose by 1.3%. These upticks brought annual growth to 9.3% and 7.2% respectively. During the same period last year, greenfield values increased by just 0.2%, while urban values rose by 1.2%.

According to the report, rising house prices have supported the increase in the value of land, with owners seeing huge demand from developers. While there is a shortage of stock in the second-hand housing market, demand for new homes will continue to climb.

Holding back rising UK land values

The surging costs of building is one thing that is putting a dampener on further rises in UK land values. Data from BCIS shows that build costs have gone up by 6.5% in the year to Q1 2022, which has certainly been felt deeply across some of the industry.

Limited availability of materials as well as energy cost inflation are both cited as the top driving forces behind price rises.

The Savills report states: “However, any impact of rising build costs on land values is still relatively limited, offset by ongoing house price growth and the imbalance between supply and demand.

“There continues to be a limited supply of land coming through the planning system which has driven intense competition for sites. At a national level, 16% fewer homes were granted consent in the 12 months to Q4 2021 compared to 2019.”

Who’s looking for land?

The most competitive players for land at the moment are major housebuilders, says the report. By contrast, smaller and medium-sized builders are more cautious due to constraints applied by rising costs.

Savills notes: “Many [major housebuilders] still have surplus money to spend and require land to plug gaps in their immediate pipelines given that many sites are already significantly forward sold for FY 2022.”

Housing associations are also snapping up regional land, says Savills, alongside “private and institutional investment seeking single family investment opportunities, supporting private housebuilders, many of which have strong growth aspirations.”

London remains on a plateau

The capital city contains some of the highest land values in the UK, but prices have remained stable over the past six months. On an annual basis, central London values saw 0% change, while outer London experienced a -1.2% fall.

The report states: “Landowner expectations remain high. As residential development in London faces numerous planning and viability challenges, many landowners are either not bringing sites forward or are considering alternative deal structures and competing commercial uses.”

UK land values across the board are seeing a “disconnect” between supply and demand, and the same is being seen in the capital.

Unlike residential values, though, office land values have shot up over the past six months. Central London values have increased by 7.6%, while outer London office values have risen by 4%, marking a distinct recovery after the impact of Covid.

What the future holds

Can UK land values continue to climb? Savills believes that the outlook is positive, although scope for further growth is limited.

Issues that are likely to affect values over the next five years include build cost pressures, new environmental requirements, the Future Homes Standard, and slowing house price growth.

Savills concludes: “The current cost of living crisis with rising energy price inflation will also have a significant impact on build costs, adding to downward pressure on values.”

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UK land values continue to grow despite rising building costs

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