17th Aug 2023|Land|News|New Homes|

Quarterly Land Blog – Q2 2023

Over the past few months, the land market has experienced a number of changes. From rising build costs to new environmentally friendly measures for new builds – developers and landowners are constantly meeting new challenges. Haven’t been keeping up with what’s happening in the UK land market? Centrick are here to help with our new quarterly land blog! Here are the five areas that you need to know about, how they’ve developed over the last quarter, and what the future holds for the UK land market.

Build Costs Are Rising

It seems as if it is not just house prices and general living costs that are rising – so too are build costs, this will come as no surprise to anyone currently considering building or in build phase. The current UK average build cost ranges from £180 to £300 per square foot, subject to location and specification. However, this upward pricing trajectory is showing no signs of halting, with price predictions showing that these anticipated rises will continue by at least 5% year on year.

These rises in cost are affecting the viability of crucial housing stock, especially in lower value areas. Generally, for a private residential developer the minimum re-sale value must be at least £300 psf to make these increasing costs work on a site and in many areas, we’re seeing significantly higher values than £300 psf, but developers and landowners should take stock of changing demographics in addition to supply and demand factors before selling, buying, or building. As a result of build costs and mixed forecasts there could many sites potentially stuck in limbo as cost rises and market confidence is mixed. Whilst immediate economic changes can impact sale, land, and build costs, they also represent potential opportunities across the market, with distressed sales becoming more likely – however landowners and developers alike should keep a careful eye on future forecasts. With mortgage rates set to decrease and many mortgage providers started to show signs of relaxation developers and landowners looking for potential sites or for potential sales could be looking at brighter economic conditions come 2024/25.

Eco Friendly Measures

There has been a huge shift in focus across multiple property and construction sectors towards achieving Net Zero Carbon Emissions. As a result of this, there have been recent updates in build standards to include new measures to achieve this important goal aligned with The Future Homes Standard which aims to reduce carbon emissions by 75-80% compared to homes built under the current regulations. FHS requirements become mandatory from 2025 but current updates include…

  • Increase to insulation thickness.
  • Solar panels.
  • Electric vehicle charging points.
  • Air source heat systems.

These are to be implemented into any new builds moving forward to help the government reach their target which is to reduce carbon emissions of housing stock by 30% and by 75-80% long term. There has been a grace period up until now, however this has since ended in June 2023. Moving forward, Centrick anticipate that the deliverability of new build properties and other developments to be impacted as developers adjust their build programs to meet these new regulations.

Mixed GDV Caution and Optimism

With the base rate expected to continue to rise until the end of the year the outlook for buyers of new builds is that affordability will certainly be reduced. Ultimately, this will result in fewer in the market. To help assist the impact of this, the government has introduced the ‘First Homes Scheme’ which allows first time buyers to purchase 30 – 50% below market value in order to help people get on to the ladder and energise the housing market.

It’s worth noting that the current government has also launched a long term plan for housing, with goals to deliver both on the housing and levelling up agendas with further reform of planning systems and consultations launched on Permitted Development Rights with a focus on the housing potential of retail opportunities. Notably, and this may be important for landowners in rural or less urban locations, as the PD consultations will look at plans to support “farm diversification and development”.

Over the past 5-10 years, developers have been able to anticipate an increase in sold PSF prices which has helped land values up to now. However, the present-day outlook across the economy and slower growth of the housing market is driving developers to be less optimistic when it comes to these end values.

Outside of base GDV’s we continue to see the growth of BTR both in live developments and planning applications, suggesting that as rental values continue to grow both landowners and developers are looking to BTR as a model which could, particularly in cities and city suburbs continue to drive potential land values.

Cost Of Development Finance

The impact of the base rate does not stop here. Any developer that requires finance is likely having their profit margins squeezed as interest has moved from approximately 5-6% to between 10-12% subject to experience and deposits levels. This has added an element of caution to the market, with profitability challenged in some areas and pressure on milestones to release finance stages.

Moving forward into 2024 cash liquidity will continue to be important and a strong balance sheet will be key. This can put cash buyers and strong liquidity in a strong position, after all, lower or zero borrowing fees will mean that margins are going to be more favourable and therefore reflected in a potential land value.

Planning System Delays

The archaic nature of the planning system is proving extremely difficult and challenging for developers. As many of us will know, this is a result of understaffing and high workload in most areas and the political nature of most decisions. This can result in long lead times for responses and costly appeal processes. The impact of this is already visible, with the HBF noting that 11% fewer properties were granted planning consent in the year up to Q1 2023 when compared to the same period the year prior. Whilst the updated long term housing strategy and consultations may go some way to alleviating these pressures, planning system delays will undoubtedly impact the government’s aims to construct 300,000 new homes every year, with delays to planning being a particularly contentious issue.

In some quarters planning delays are driving rising costs linked with new applications and new layers in planning policies which create additional layers for developers to navigate in the process. As no immediate timeframe for the consultation is forecast, we anticipate that guidance and professional support will be needed to navigate additional planning complexities – from accommodation mix to wider ESG commitments and adherence with local and regional plans essential to smooth planning success. For landowners thinking of selling in this market then it’s well worth while working with a land consultant to achieve outline planning to attract higher potential offers in an ever-changing landscape.

Stay In The Loop With Centrick’s Quarterly Land Blog

For Developers and Landowners looking for support with all aspects of land transactions and support with the process we’re on hand with impartial advice from our local land experts, we recommend talking to a member of the Centrick team. With years of experience in the local land market, we would be happy to help with any of your queries – simply fill out the form below to talk to a member of our team.

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