London: The upcoming EU referendum and the adaptation to having a new Mayor will add some uncertainty over the next six months, but with the number of new homes completed in London continuing to fall significantly behind targets, the need for more homes in the city remains. We estimate that there is an annual shortfall of housing of 27,500 with greatest need for homes priced below £450psf (see Savills Spotlight on London Mixed-Use Development). Building in the outer boroughs is more likely to service demand in the price bands with the greatest shortfall.

UK wide: Over the next five years we expect the average value of greenfield development land in the UK to increase at rates just above that of house prices. This assumes that the same market conditions prevail and greenfield land values retain the same relationship with house prices as they have done over the last five years.

On a regional basis, using this same assumption, we expect greenfield development land values in the South East to outperform house prices more significantly in the next five years. Greenfield land values increased by 39% in the last five years compared to 29% for house prices. Applying this relationship to our forecast for house prices to increase by 22% over the next five years would suggest that greenfield land values in the South East will increase by 30% over the same period. This, in general, is a high demand market with higher house prices and more constrained supply than other parts of the country.

By contrast, we expect other markets to see land values increase more slowly than house prices over the next five years. However, the more competitive markets where there has been stronger land value growth than house price growth (such as Edinburgh, Solihull and York) are likely to buck their regional trends.