Nationally, the rate of land value growth in 2011 was broadly flat, dipping into negative territory in the final quarter of 2011. Greenfield land values fell by -0.7% in Q4 2011, bringing annual growth to 2.5%. Urban land values saw comparable quarterly falls of -0.5%, with annual growth now at 1.3%.
As conditions in the economy worsen, confidence in the market is weakening. Developers are becoming increasingly cautious ahead of an anticipated dip in house prices, and are building in additional margin on the prices they are willing to pay for land to compensate. On the bright side, land transaction levels in stronger markets are significantly above their lows of 2009.
The Home Builders’ Federation survey of developers’ sales expectations of new homes shows net balance of just 15% of respondents expecting sales to increase in 2012. This correlates with a weakening in land values (See Graph 1).
Localised bright spots
While price growth overall is stagnant, there are some distinct bright spots in the market, with viable, readily developable land in limited supply in many areas.
Broadly, the southern regions still outperform those in the North, but the full picture is more complex than a simple regional one. Housebuilders are targeting their activity, so demand is strong for consented land in high-value regional towns and cities across the whole country.
Housebuilders and developers are all chasing the same buoyant markets, so land prices in such areas are increasing. Aberdeen, for example, where oil industry activity is sustaining surplus household income and demand for new homes, is a strong hotspot.
There is also appetite from some of the larger housebuilders for bigger lot sizes, as they look to secure a medium-term supply pipeline. The supply of good sites of this type however is limited. Under the current planning framework, there are significant constraints on new supply coming forward.
Government initiatives
The Government has announced a host of new initiatives to stimulate housebuilding activity in England, with parallel initiatives in Scotland and Wales. The success of these initiatives will be important in helping to free up the land markets.
Of particular relevance are proposals to allow developers to require local authorities to reconsider section 106 agreements that were agreed in more prosperous markets. This goes to the heart of the constraints on viability that are preventing many larger sites from being developed.
Mortgage Indemnity Guarantees will open up assisted purchase of new-build property to all qualifying purchasers, not only first-time buyers. The aim is to facilitate up to 33,000 new home purchases each year, which could have a positive impact on housebuilding volumes – and may fuel land activity.
For many of the very largest sites, which hold the greatest potential for housing delivery, the level of remediation required renders them unviable. In response, the £500 million Growing Places fund (to be allocated by the end of January 2012) aims to unlock sites within Local Enterprise Partnership areas where delivering infrastructure is a key barrier to new development.
This marks an opportunity for finance-restricted developers who need help in the funding of link roads and other key infrastructure required to unlock these sites.