House building land in UK affected by developer sentiment
Greenfield development land prices fell by 0.4% in the third quarter of 2016, meaning they have fallen by 2.6% between April and the end of September and by 3.9% over 12 months.
The index data from real estate firm Knight Frank also shows that in prime central London land prices are down by 10.3% on the year, and are now at around the same levels as June 2014.
Meanwhile, prices for urban brownfield land values remain unchanged and are up 6% on an annual basis, mirroring the outperformance of housing markets in urban centres, including the mid and outer zones of London, where average capital values mean there is a wide pool of demand which is not being matched by supply.
The report says that the declines reflect the increased hurdle rates being put in place by developers and house builders in the face of the uncertainty around Brexit and the potential resulting impact on the UK economy.
In some cases where developers depend on a range of funding, increased demands from lenders are resulting in further squeezes on margins for land prices, it points out.
In central London the change in economic climate coupled with changes to policy around purchases taxes, is leading to developers moving their attention from larger schemes in the centre to those further out.
The report says that in time this could start to weigh on unit numbers being delivered into the market and points out that a recent survey by Lloyds Bank highlighted the uncertainty around Brexit, with more than a third of housebuilders identifying the process of leaving the European Union as the biggest challenge faced by the industry.
However, house builders overall remain optimistic about the outlook for the sector, non-withstanding longer term issues around skills and planning, according to the report which adds that the current dynamics of the land market, especially across the English market for greenfield land, was highlighted by Persimmon, the UK’s third largest house builder by turnover, which recently announced it was easing the rate at which it was acquiring land in the face of current macro political and economic uncertainty around Brexit.
The market is not homogenous however. Land agents report that there is still substantial demand for smaller sites which are well located, especially to those close to cities or towns showing a level of economic outperformance.