The summer saw particularly low levels of transactional activity in the development land markets. Average national price increases (greenfield 0.7% and urban 0.4%) are misleading. Only 10% of the sites we monitor saw any increase.
Well-capitalised national and PLC homebuilding companies are buying sites selectively to secure their pipeline. Strongest demand is for viable, consented land. Supply shortages are creating competition and a rising market for such sites, with interest focused on London and the south, which continue to outperform the rest of the country. Sites in the 50-200 unit range are seeing aggressive bidding, in some instances achieving prices in excess of expectations.
The flow of overseas buyers into London residential and the reluctance of domestic owners and renters to move out of the capital are boosting demand for new product. This, plus a scarcity of deliverable sites – particularly in lower-supply central and fringe-central London, means residential land values, which rose by 4.6% in the past six months, are outperforming both London hotel (+4.5%) and office (zero growth) land values. London residential land outperformed mainstream house price growth in the capital, which stood at 2.7% over the same six-month period (see Graph 1).
Government initiatives
The recently published Montague Review focused on the opportunity to deliver new housing by boosting investment in the private rented sector. Flexibility in the planning system, the allocation of public sector land and the relaxation of Section 106 requirements are all recommended to help grow investor interest in the sector.
Recent emphasis on Section 106 flexibility is further evidence that the government intends to make these recommendations a reality. New legislation will be introduced in early 2013 whereby developers can appeal the appropriate authority to assess the viability of Section 106 agreements in light of current economic conditions, and where necessary, set aside the existing Section 106 agreement for a three-year period, in favour of a new one with fewer affordable homes. This is a clear signal of government priorities for growth-oriented development.
These initiatives will aim to address some of the supply and demand-side constraints that are barriers to housing delivery. In the year to mid-2012 new planning permissions fell to their lowest level since Glenigan launched its survey in 2006.
Planning delays are only partly responsible for low delivery levels. Major underlying demand-side constraints, most notably mortgage availability, has put pressure viability and deliverability since 2009 (see Graph 2).
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