However, the picture across the country is varied and is becoming relatively polarised between higher value markets of stronger demand, generally in the South East, and the rest of the country.
Slower land value growth in an increasingly polarised land market.
Relatively stable values
Development land values across the UK have remained stable or increased only slightly in the last three to six months. Greenfield land values increased by 0.5% in Q1 2015 (0.6% in Q4 2014) bringing annual growth to 5.8%. Growth in urban land values, replicating their previous quarter performance, increased by 1.6% in Q1 2015 with annual growth at 9.0% exceeding that of greenfield land. Residential development land values in London remained stable over the six months to March 2015 following a period of strong growth.
The UK as a whole has experienced increased construction costs and the scarcity of bricklayers and joiners has increasingly become a problem. In some parts of the UK there have been fewer bids per site due to the selectivity of housebuilders. These factors have prevented land values from rising significantly.
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FIGURE 1UK development land values
Source: Savills Research
Strong sentiment for London land
Residential development land values in London remained stable over the last six months after very strong increases in values in 2013 and 2014 (25.8% growth in the year to March 2014).
Sentiment for London residential land remains strong, particularly in areas with good transport links or planned infrastructure improvement and sites continue to attract a high number of bids. However, increasing construction costs, the introduction of CIL in some boroughs and election uncertainty have kept residential development land values from increasing.
The growth in hotel and office development land values in London has lagged behind residential since the start of the recovery in 2009. However, in the last six months values for hotel and office land continue to grow while land values for residential stand still. Development land values for hotels and offices in the capital increased by 3.8% and 4.4% over the six months to March 2015 compared to 0% for residential development land.
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FIGURE 2Change in London development land values
Source: Savills Research
Scottish urban land catch up
Scotland stands out as experiencing strong increases in urban development land values which rose by 6.9% in the quarter. This follows the bounce-back in greenfield land values last quarter after the referendum in September 2014. Both urban and greenfield land values had relatively low growth leading up to that point. Urban land values in Edinburgh and Glasgow have been at the forefront of this growth and now stand at double that of their 2008-09 lows, approximately three quarters of their 2007-08 peak.
High value markets
The South East (and Cambridge) has the highest value land market where sites, according to our survey of agents, receive the greatest number of bids. Development land values in this area are the highest in the country, in many cases above their 2007-08 peak values.
Whilst many of the major housebuilders already have a strong presence in the South East, others such as Redrow, Countryside and CALA plan to expand their operations in this higher value region.
In places where land availability is very constrained and there is strong competition for the sites that do come to the market, values are pushed up. Oxford and Sevenoaks, high demand locations with strong links to London where growth is constrained by Green Belt land and development land prices have exceeded their former peak.
In high value markets where land has been brought forward, values have increased to a lesser extent. Cambridge is a highly sought after commuter location with a strong local economy, which by comparison has had more land brought forward for development, some of which is released from the Green Belt. Land values are currently just below their former peak. The increase in affordable home provision and the larger volume of supply of development land has prevented land values from being pushed still higher.
Beyond the South East, especially in secondary locations, there has been subdued competition from housebuilders. Fewer bids per site, creating a lower level of competition, has meant land prices remain well below their former peak.
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FIGURE 3Change in greenfield development land values in selected markets
Source: Savills Research
The size of site matters
Sites of c.100 units with planning permission remain popular with most regional and large housebuilders. However, there is increasingly more demand for stand-alone sites of this type than for one of several parcels on a multi outlet site.
Whilst a site or parcel of c.100 units can be served by a single outlet, the advantage of the stand-alone site is the lack of competition from other housebuilders with a similar product. In contrast, a development on a multi outlet site will be competition with the other housebuilders on the wider development. If the type and specification of homes on these different parcels is similar, there will be direct competition and house prices and sales rates will be lower as a result.
Future for land prices
As housebuilders continue at their current rate of building or expand their output, demand for development land will continue. However, this demand is more polarised in the current cycle than in previous times, with a stronger focus on the South East. Land values are likely to increase in high demand markets where there is limited supply of development land. In order to prevent land values in the South East increasing further in the future, more development land needs to be brought forward.