Housebuilders have been increasing their development output in the wake of encouraging sales activity, and have ambition to expand further. The listed housebuilders have returned to good shape, the top eight reporting profit growth of 33% in the most recent financial year. All are actively seeking new sites to secure development pipeline, which is increasing demand for serviced land in more locations.

The housebuilding sector has seen further recapitalisation as the City looks to invest in the recovery in the housing market. Cala has been sold to new owners, a joint venture between Legal & General and Patron Capital Partners, while Countryside sold a stake to Oaktree Capital.

In February, Crest Nicholson floated on the stock market – the first initial public offering in the sector since 1996. These new injections of capital will fund new land buying and expansion, and will put upward pressure on prices, particularly as suitable sites remain in short supply. This is in spite of the recent increase in new planning consents.

Market sentiment continues to strengthen and the number of good quality sites are limited, pushing greenfield land values up by 1.4% in Q1 2013. Urban land in the right locations has seen increased demand as housebuilders and developers seek alternatives to restricted numbers of greenfield sites. Urban land values saw growth of 2% in Q1 2013, the highest quarterly price increase for two years.

Nonetheless, greenfield land values stand 32% below their former highs, with urban values still less than half their pre-crunch peak (see Table 1). There is significant variation around these averages, both at the regional and local level, with small consented sites in prime locations selling at above previous prices. Permissioned land in the right locations is in short supply. Our index figures are for the blended value of land, including both market and affordable housing. Recent price movements conceal a reduction in the value of affordable housing land, offsetting stronger growth in the value of land for market housing.

With land values outside the pockets in which it is trading still suppressed, there are opportunities to those in a position to take a long-term view.

Government initiatives

Housebuilders report encouraging increases in sales activity as the mortgage market eases, aided by the Funding for Lending initiative.

In February, a net balance of +51% of homebuilders reported increased visitors to their sites compared to a year earlier, the best year on year visitor balance since January 1994, according to HBF figures. Net reservations also rose strongly, with a balance of +22% of home builders reporting a year on year increase, the fourth successive positive reservations balance, implying improving rates of sale on new build developments. The major housebuilders have all reported improved rates of sale; the top eight cite an average of 0.54 sales per outlet per week in 2012, up from 0.46 in 2011.

Improved activity is being driven by existing home owners with equity, as well as investors and increasing numbers of first time buyers from a low base. According to the CML, lending to first-time buyers was 25% higher than January last year, accounting for 42% of all house purchase loans. The beginnings of a resurgence of first time buyer demand indicates the positive impact that NewBuy and FirstBuy have had on the market.

The recently introduced Help to Buy scheme is poised to make an even bigger impact. The £3.5 billion equity loan scheme offers up to 20% on properties up to £600,000 in value, with the purchaser providing a 5% deposit. Unlike previous schemes, no contribution is required by the developer, and it is open to all owner occupiers, not only first time buyers. We estimate that Help to Buy could increase private sector building by 30% over the life of the scheme.

Taken from
Market in Minutes: UK Residential Development Land