Greenfield and urban land values

Greenfield development land values across the UK have increased in line with those for urban land this quarter but annual growth remains much stronger for urban development land which has risen from a lower base. Urban land values increased by 1.0% in Q1 2016 (1.5% in Q4 2015) taking annual growth to 6.6%. Greenfield land values also increased by 1.0% in Q1 2016 (0.7% in Q4 2015) bringing annual growth to just 2.5%.

For many areas of the country supply and demand remain in balance, with the number and strength of bids for development sites resulting in relatively stable land values. Much of this growth is accounted for by the strength of the South East market which saw a 2.4% increase in greenfield land value in the last quarter. There were similar increases in other competitive markets outside the South East. Falls in land value were seen in Aberdeen, where there is continued uncertainty and slower sales of new homes due to lower oil prices, and in areas of relatively high land supply such as Telford.

^{NB The indices measure ‘blended residential development land value’, including the provision of affordable housing}

^{Source: Savills Research}

Additional homes SDLT impact

On 1st April, the 3% additional stamp duty payable on the purchase of “additional homes” came into effect, on top of the future restrictions on tax relief on mortgage interest for buy-to-let investors and proposed affordability restrictions on new buy-to-let lending. As a result many buyers have rushed to complete the purchase of properties before the deadline, leading to an upward spike in transactions in March according to HMRC.

In the lead up to the deadline, investors preferred to acquire existing stock rather than off-plan purchase of new stock which would not complete before the deadline. The HBF survey data shows fewer reservations were made by buy-to-let investors on new build homes in January and February this year whilst the number of first time buyers and existing owner-occupiers increased over the same period.

Since 1st April the initial sales evidence is mixed – while in some markets there has been a notable decline in investors purchasing new build homes, in others their appetite remains. We will have to wait longer to discover the full impact of the various changes, in the knowledge that the Bank of England expects its proposed affordability measures to limit the growth in buy-to-let lending over the next two years.

Slowing in the expansion of housebuilding?

The number of homes being built has grown strongly since 2012 but the rate of expansion is showing signs of slowing. 21% more homes were completed in 2015 than in 2014 in England and 6% more homes were started over the same period according to DCLG. However, the number of starts has been relatively stable over the last 18 months and the number of new homes registered with NHBC between January and March 2016 was 9% lower than the same period last year. This slowing in expansion is due to many factors, including market capacity, organisational capacity amongst the larger housebuilders that have driven growth so far, the size of the skilled workforce required to continue the expansion of construction, the time it takes to get from a headline planning consent to an implementable consent and the scarcity of SME housebuilders and new entrants.

However, there is still appetite for increased output demonstrated by the ‘statement of intent’ published by the HBF on behalf of the major housebuilders. Housing associations are also aiming to increase delivery, for example L&Q, The Hyde Group and East Thames, who recently announced their plan to merge,are targeting delivery of 100,000 homes over the next decade. Ministers are determined to find ways of bringing SME developers and new players into the market via surplus public sector land disposal, direct commissioning, custom build and other measures, in order to hit the target of 1 million additional homes during this Parliament.

Further increases in the flow of implementable planning consents in the right places will be required for this to work.

^{Source: DCLG, HBF and Glenigan}

Starter Homes

As discussed in the last issue, there is still much uncertainty over the detail of the forthcoming Starter Homes policy, despite this, we have looked at their potential effect on land value.

Our analysis, detailed in Policy Response: Starter Homes, suggests that where there has been delivery of more than 10-15% traditional affordable housing, delivery of 20% Starter Homes will return approximately the same blended land value, but with no capacity for additional affordable housing (affordable rent and shared ownership).

In areas where there is relatively high delivery of traditional affordable housing (over 30%) however, Starter Homes would be deliverable alongside other affordable housing with a relatively small impact on land values.