Development land is showing signs of strong recovery, albeit highly localised and focused on small, serviced sites.
Such assets are in increasingly short supply and competition is exerting a very real upward pressure on values. Savills’ development land index saw greenfield land values increase by 2.1% and urban land values by 2.2% in Q1 2011, bringing annual growth to 7.7% and 6.7% respectively.
Anecdotal evidence suggests these averages may understate growth for sites that are the subject of highly competitive bidding. In the context of previous falls, average gains are modest – and the value of most development land types continues to remain stubbornly low – but the growth is clear evidence that developers have adjusted to the new environment of restricted debt finance. Capacity remains highly constrained and focused on small, readily developable sites, rather than bulk and strategic land. Funding remains extremely difficult to obtain, compounding the focus on and competition for smaller development opportunities.
This had led to an acute shortage of well-located land with viable permissions, a situation compounded by a planning hiatus following the abolition of regional spatial strategies last year and the continuing lack of clarity on localism.
These trends are further affected by a divergence in urban land values between the strongest and weakest markets. South-east values have risen 14% since their nadir of June 2009 after falling by 52% from peak, but values in the north are down 71% and continue to fall. Central London values continue to outpace, up 12.5% over the past six months, bolstered by the success of recent central London schemes, with land for residential use now, on average, double that for hotel or office use.
Activity is polarised, highly localised and low volume. Last year housebuilding in England, and probably the UK – fell to its lowest since the introduction of the Town and Country Planning Act 1947. At just over 100,000 new units, the housing stock of England increased by less than 0.5%.
The cumulative shortfall since 2006 is forecast to reach 1.1m homes by 2016 and 1.7 million by 2029, almost 500,000 in London and the south-east alone.
There will be a shortage of developable land unless there is a pick-up in new planning consents, which are now little more than half the levels seen in 2006 and 2007.
The Budget announced measures designed to promote development, and government policy seems to favour higher levels of housebuilding. A new empasis on economic growth through the planning system is good for the market.
The expectation that “the answer to development and growth should wherever possible be ’yes’” should be welcome news to landowners.