Edinburgh revealed as number one UK ‘hot spot’ for hotel development

Colliers International’s latest UK Hotels Market Index shows continued year on year growth for the hotel sector, with revenue per available room (RevPAR) increasing by 3.8%; significantly ahead of GDP growth.

The annual report, which is in its third year, paints a positive picture for the hotels sector. Regional markets have continued to catch up to London in terms of their attractiveness to investors and cities such as Hull and Plymouth entered the list of top 10 hot spots for hotel development and acquisition in the UK for the first time in 2017.

Edinburgh topped the Index, moving up four places in 2017 since the previous year with its high position mainly attributed to strong occupancy levels and average daily rate (ADR) growth in 2017, resulting in a four-year upward revenue per available room (RevPAR) trend combined with constrained new supply.

Bath ranks second, moving ten places up, as a result of strong ADR performance, combined with a lower active pipeline, and Belfast came third.

Marc Finney, head of hotels & resorts consulting at Colliers International, said: “Cities such as Bath and Belfast have really upped their game in the last year to make it into the top five, despite failing to feature in the top 10 last year.”

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Build to Sell VS Rent

Click here for your Free Report on Building a Property Deal Pipeline

A three per cent stamp duty surcharge and a change in tax regulation are factors future landlords will have to consider.

Talk to a seasoned landlord and the chances are that they will moan about the good old days before George Osborne added higher stamp duty on second homes and withdrew higher rate tax relief on mortgage and finance interest.

Few experts are predicting a buy-to-let bonanza in 2018. “The changes in taxation and other rising costs of home ownership are not making it easy to be a landlord,” admits Kate Eales, Head of Lettings at Strutt & Parker. But where Eales does expect to see growth is in so-called build to rent (BTR) properties. This is an emerging sub-market within private residential rented stock, designed specifically for renting rather than for sale and typically owned by investors. In fact, Strutt & Parker’s analysts believe that the UK is ‘on the brink of a large-scale commercially developed, owned and operated BTR sector’.

For more traditional landlords, with a portfolio of older properties, this year has been frustrating following recent tax changes. But if profit margins are tight, that does not necessarily mean that the buy-to-let game is not worth considering.

The great thing about the buy-to-let sector is its adaptability. If some landlords fall by the wayside, others learn how to weather the bad times and cash in during the good times. And if the 2016 tax changes were a jolt to the system, there is evidence that the buy-to-let sector has absorbed the shock and is starting, albeit slowly, to bounce back.

“Rental values in prime central London fell by 2.5 per cent in the year to October,” says Tom Bill, Head of London Residential at Knight Frank. “We now expect rental values in London as a whole to move from broadly negative to flat in the near term. It looks as if the large spike in new stock that followed the additional rates of stamp duty introduced in April 2016 has been largely absorbed by the market.”

Another factor keeping rents high enough to attract would-be landlords, is the shortage of supply. Paradoxically, because some landlords were discouraged by the 2016 tax changes and slimmed down their portfolios, the ones who have held their nerve have realised that their properties can still command decent rents with demand remaining strong.

The key thing, as always, in the buy-to-let sector is to research the market properly. Asking rents in the capital fell by 3.2 per cent in the year to June 2017, but rose by 1.7 per cent in England and Wales as a whole, according to Savills figures. ‘‘The rental outlook is strongest in regional cities that attract investors from high value sectors such as professional services, technology and finance,” says Lawrence Bowles, Research Associate at Savills. Cities such as Edinburgh, Bristol, Oxford and Cambridge all seem to tick the right boxes.

You would have to be very clever, or very lucky, to make a killing in the UK buy-to-let sector in the near future. However, property has always been a long game for those prepared to do their research, budget carefully and become hands-on landlords. There are still interesting times ahead for savvy investors.

Keep it simple:how to do your own fire safety assessment online if you're a landlord

Like most landlords, I would do everything possible to keep my tenants safe. However, I can’t say hand on heart that I have complied with all the fire safety regulations that apply to one of my properties — because the regulations themselves are so darned confusing.

The property causing me concern is a four-bedroom duplex that was previously let to a group of friends on a single tenancy agreement and is now let to four sharers on individual contracts. It is, therefore, labelled as a house in multiple occupation — an HMO — and as such requires me to take greater fire precautions than if it were let as a single unit.

But what extra fire precautions do I need to take? Obviously I have smoke alarms on both floors, which has been a requirement in all rental properties since October 2015, but I am not sure these are enough both to comply with the law regarding non-licensed HMOs and to give my tenants enough warning in the event of a fire.

I have spent hours trawling the internet for information and poring over official fire safety guidance, but I still can’t work out whether these alarms should be replaced with more expensive mains-operated ones, which avoids the risk of tenants removing or forgetting to replace the batteries.


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Also, do I need special fire doors, fire alarms and special fire-fighting equipment such as sprinklers, or at the very least fire extinguishers on both floors?

Thinking the local authority would be able to help I gave them a call but they referred me to the local fire service, who told me I’d need to pay for a private company to carry out a fire risk assessment. However, all the firms I contacted told me this was neither a necessity nor a legal requirement for my type of property.

Instead, I downloaded my own fire risk assessment form from the internet and, using the accompanying guide, did it myself.

As a result, I’ve decided to err on the side of caution and install interconnected mains-operated alarms. I am also going to install a mains-operated heat alarm in the kitchen, which will be connected to the smoke alarms. In total, this will cost about £600.

I probably ought to provide a fire blanket for the kitchen, which I can get for less than £5 from my local hardware store. I’d been wondering if I should get a fire extinguisher, too, but after reading the official guidance I think this might do more harm than good.

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Far better, I think, to tell tenants to evacuate rather than try to fight a fire. I certainly wouldn’t trust any of those ditsy students to use an extinguisher effectively.

I had also considered fitting a self-closing arm to the kitchen door to try to prevent a fire spreading to the rest of the flat, but apparently these can make a door hard to open, trapping someone inside a blazing room.

During my assessment I spotted that a couple of the tenants had extension leads plugged into other extension leads, which they had loaded with multiple plugs for things such as hairdryers, curling tongs and laptops, all of which they had left on standby.

I emailed them all warning this was a hazard and asked them only to use one extension lead at a time and to turn off appliances when not in use. They will ignore me, but I can only do my best.

I just hope that all this is enough and that at least now I am complying with all the law

Has the Government made Peace with the CIL Review?

For those of you eagerly awaiting an update to our previous Community Infrastructure Levy (CIL) blog, SIT and LIsTen, the Government has - as previously promised - provided its initial recommendations in response to the CIL review in the Autumn Budget. For those not in the above category (CIL anoraks are apparently a niche group), planning obligations and CIL remain a significant consideration in the viability and deliverability of development, and therefore the Government’s stated first Budget objective of supporting more housebuilding.

The independent CIL Group, led by Liz Peace, prepared their report ‘A New Approach to Developer Contributions’ in October 2016 and this was released in February 2017 alongside the Housing White Paper. The Group’s report provided a number of recommendations, with the overarching objective of simplifying the levy, a laudable and welcome aim, but not an easy proposition.

We identified five headlines from the Review report in our February 2017 blog. So to what extent does the Government propose to take these on board?

A ‘new approach’ of ‘Local Infrastructure Tariff’ (LIT), ‘Strategic Infrastructure Tariff’ (SIT) and s106

LIT is not mentioned but the ‘3 tier’ CIL and planning obligation regime is been pursued through the introduction of SIT.

LIT rates linked to house sale prices

CIL indexation is to be linked to house price inflation, rather than CIL rates themselves. Whilst indexation is important – as highlighted by the Wandsworth/ Peabody case – this proposal does not get to the nub of the issue.

The CIL Group’s report recommendation to simplify CIL rates themselves has seemingly not been progressed. In fact the Government appears to want to do the opposite, proposing to consult on charging authorities having greater opportunities to vary CIL rates based on land use changes, so as to ‘better reflect the uplift in value’ - for example, higher CIL rates could be charged for the development of agricultural land for new homes, than say the residential development of industrial land.

Mandatory LIT charged on new development with no reliefs and exemptions

Silence on this proposal, as it currently stands.

Small developments only pay LIT and larger/strategic development would be able to negotiate s106 obligations, s106 pooling restrictions removed and potential offset LIT against s106 obligations

Pooling restrictions are to be removed… but only in ‘certain circumstances’ such as in low viability areas, or where significant development is planned on several large sites. The Government claims this will avoid ‘unnecessary complexity’.

However, the absence of the potential to offset LIT against s106 obligation contributions is a major omission. The current disconnect between strategic developments and associated infrastructure delivery seems likely to continue. In recommending offsetting, the CIL Group noted:


A further benefit of the combined LIT/Section 106 approach will be that large developments will be able to address, through the Section 106, not only the funding of the infrastructure but also the delivery of the infrastructure, which has been one of the failings of CIL.

SIT contributing to identified infrastructure projects similar to the current Mayoral CIL

SIT is to be taken forward with consultation on whether this should be used by Combined Authorities and planning point committees to fund both strategic infrastructure (as the Mayoral CIL does for Crossrail in London), and local infrastructure too.

So where does this leave us? Still facing uncertainty arising from ongoing issues with the detailed and technical workings of CIL; more clarity is certainly anticipated when DCLG launches the proposed consultation on taking these headline measures forward – and we hope, further CIL amendments that resolve day-to-day problems inherent in the current rules.

The Government’s measures are seeking to make the CIL regime encapsulate opportunities for land value capture, as evidenced by the proposal for more variance in CIL rates and the commitment to speed up the process of setting and revising CIL. The latter also recognises that the current two stage consultation process and evidence base requirements can present a time and cost barrier to charging authorities putting CIL in place. This particular proposal is to be commended and anything that can make the levy more responsive should be welcomed.

However, those dealing with CIL ‘on the ground’ will no doubt recognise the need for the CIL Regulations themselves to be more transparent, simplified and useable. Introducing greater ‘flexibility’ in terms of CIL rates (and the more extensive evidence base needed to support this) should be alongside streamlining the Regulations and simplifying how they are applied to development projects – a very difficult balance.

‘Fixing our broken housing market’: Housing White Paper

‘Fixing our broken housing market’, DCLG’s Housing White Paper, has been published; it includes a series of consultation questions, with a Build to Rent (BtR) consultation issued alongside (responses to both have to be submitted by 2 May).

Lichfields' review of the White Paper analyses what the Government expects of councils in terms of development management, local plans and neighbourhood plans, and what is expected of private developers.  The review also covers:

Build to Rent: longer tenancies and affordable private rental homes
Small sites, and more support for small and medium-size builders
Statutory plans to include design expectations
More affordable housing tenures and certainty for how starter homes will be taken forward
Continuing ‘defence’ of the Green Belt, with a clearer approach for considering land release
The Government defines its proposals as four steps to achieving the objective of boosting new housing supply, to deliver ‘between 225,000 and 275,000 homes every year’. The steps are:

Planning for the right homes in the right places (principally by using local and neighbourhood plan policies)
Building homes faster (mainly by better linking infrastructure with housing development, more efficient development management and addressing the construction skills shortages)
Diversifying the housing market (focussing on increasing the numbers of small and medium-size builders, promoting more varied forms of tenure and encouraging ‘modern methods of construction’)
Helping people now (by meeting all of the population’s diverse housing needs)
The White Paper broadly succeeds in bringing together all of the strands of England’s complex housing market, then connects them together so as to take a holistic approach to getting more homes built (and brought back into use). Most importantly, it is drafted in such a way that it reduces the risk of a hiatus in housebuilding – the Government should be praised for combining and putting forward its latest and extensive suggested measures in once place, for consultation over the next 3 months.

No new Planning Bill features and instead, the White Paper’s predominantly changed policy directions represent a sensible smoothing of the ‘rough edges’ of a planning system in England that saw nearly 200,000 net housing completions in the last year. This is despite only around one third of planning authorities having a post-National Planning Policy Framework (NPPF) adopted local plan. The planning regime is now seen by Government as being more or less fit for purpose - or at least it will be by the end of the year, once the Neighbourhood Planning Bill is enacted and all of the proposed changes to the NPPF and national Planning Practice Guidance are made.

Blogs analysing specific elements of ‘Fixing our broken housing market’ their implications will be uploaded to other pages of ‘Planning Matters’, so you may wish to consider subscribing.

Flexible funding to meet local needs

Grant funding of affordable housing could be considered an investment where it can deliver long term savings on the housing benefit bill. But in practice, affordable housing grant also fulfils many other roles, including bringing viability to development in lower value areas and improving housing quality.

A more flexible and holistic funding regime – directing funding at issues like stock renewal, infrastructure and unlocking difficult sites – could be a more effective way of solving local problems in the housing market.

Priced out

Our analysis in 'Doing more with less' identifies a large and growing problem: more and more emerging households priced out of the housing market due to low incomes and rising costs. If we assume that all these households will form, how would you go about housing them all, and what would it cost?

Two scenarios are shown below. The first assumes that all of the 100,000 households are housed in hypothetical market rented housing, supported by housing benefit. The second assumes that we build enough social rented housing to accommodate all 100,000 households.

FIGURE 3

Scenarios for housing the 100,000 households in need of sub-market homes

 

Source: EHS, CACI, Land Registry, Rightmove, HCA SDR, 2011 Census, CIH (note that totals may not sum due to rounding)

New generation of social housing

In her party conference speech the Prime Minister announced an extra £2bn of funding over four years, some of which would be available for social rent. But to house 100,000 emerging households in this tenure would need funds of a different magnitude: £7bn each year.

Adopting this scenario would reduce the hypothetical housing benefit for the 100,000 households by £430m per year, with rents more aligned to the low incomes of those excluded from the market. And you get something tangible for your upfront subsidy in the form of new housing assets.

The housing benefit savings generated are much greater in London and the South, where the difference between prevailing levels of social and market rents is largest.

Local solutions for local problems

Grant from affordable housing programmes also helps make development viable in markets where the balance between build costs and sales values would otherwise preclude it. Clearly there are benefits to using grant in this way too.

Major development programmes can often be a good way of boosting the local economy in deprived areas, providing jobs and training, and supporting local supply chains. But it’s hard to make the case for an affordable homes programme where market, Affordable, and social rents overlap.

The Homes and Communities Agency (HCA) is in the process of consolidating its various pots of funding and taking a more active role in delivery. In future, housing associations should have the opportunity to bid for a wider range of funding packages and move away from the current restrictions of grant funding. This could help the sector to address local housing issues more effectively.

Political will

More flexibility would allow funding to be targeted at specific housing problems, with less of a focus on delivering maximum numbers of affordable homes. The political will to move to a more targeted approach seems to be growing.

The Prime Minister’s party conference speech alluded to a shift in government thinking, saying: “In those parts of the country where the need is greatest [the government will] allow homes to be built for social rent”.

A flexible approach would complement wider economic rebalancing policies, helping to remove the perception of poor quality housing options that is often cited as a barrier to relocating workers outside the south east. Treating housing as infrastructure, alongside transport improvements and investment in employment space would mean measuring the overall economic impact of funding or policy interventions against a range of indicators.

Building more homes should be a priority, but so should improving the quality of existing homes. Money spent should be judged on whether it's delivering the right housing solutions in the right places.

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An ambitious Northern stronghold

It’s an exciting time for Manchester. Seemingly immune to the destabilising influence of Brexit negotiations, property demand from Mancunian businesses and residents has grown steadily and looks set to continue on that trajectory. Manchester’s ambition and strong economic outlook were some of the key drivers behind the North West’s strength in our house price forecasts, and investment in HS2 will drive growth in the longer term.

If it is to meet that property demand and retain its competitiveness, Manchester needs to develop more property across all use classes. Here, we consider those uses nearest the top of the local agenda: residential, offices, hotels, and logistics, focusing on the city centre within and around the inner ring road.

 

Gaps in the market

Manchester’s residential pipeline may be large, but it’s not scary – the 7,000 homes identified under construction in the city centre make up just over two years of the city’s need. Those schemes are also being targeted at a range of occupiers, from owner occupiers to young renters to students, which will help the market to absorb this accelerated level of supply. However, we do see potential risk in the concentration of new supply at higher price points, where the depth of resident demand is shallow. Developers may find their homes slow to sell or let if they keep competing to drive the biggest premium.

Demand for Grade A office stock in Manchester is so high that it’s spilling into secondary stock, pushing up rental values there. We are also seeing lower grade office stock eroded by conversion to other uses, leaving affordable office supply as thin as the graphene Manchester invented. This means that while 71% of office demand in Manchester is for stock below £25/sq ft, just 59% of available supply is at this price point. Serviced offices and “light-touch” refurbishment will help bring in more affordably priced stock in the short term. Longer term, we expect to see the core office market expand into areas previously seen as fringe.

Hotel development in Manchester and Salford is finally starting to meet supply, and the pipeline looks strong for the decade ahead – if all the beds in the pipeline are completed, that will equate to a 20% increase in supply by 2020. With supply and demand in balance, we expect revenue per available room to grow less quickly. This will give hotel operators less wriggle room in their margins.

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Market movers

Since the late 1990s, the residential investment market has been almost entirely associated with the buy-to-let investor. Rightly or wrongly, the ills of the UK housing market – most notably the difficulties faced by first-time buyers – have been laid at their door.

The summer budget of 2015 marked the point at which politicians sought to discourage buy-to-let investment through tax policy. And the squeeze continues as mortgage regulation spreads across both small-scale and portfolio landlords. Interest rate rises and progressive cuts in tax relief will limit investor opportunity.

According to UK Finance, the number of buy-to-let mortgages granted for purchasing a property was 75,300 in the year to the end of August 2017 – ˆ47% lower than in the year to March 2016. The growth in the number of outstanding buy-to-let mortgages is lower still, at just 24,800, and there is evidence that some investors are shedding stock as shown in the graph below.

FIGURE 2

Feeling the pinch Low growth in the number of outstanding BTL mortgages suggests stock is being sold

 

Source: Savills Research, UK Finance

Irrespective of the support provided by the Bank of Mum and Dad and Help to Buy, little has changed for the deposit-constrained first-time buyer and the demand for rental stock will continue to grow.

Cash investors, however, remain far more active. The quarterly stamp duty land tax statistics suggest that in the year to September 2017, the additional 3% surcharge was paid on 245,000 purchases.

While some of these will be second home purchases, people buying for other family members or people buying their new home before selling their old one, the majority will have been investment buys.

Looking to 2018 and beyond, the decline of the mortgaged buy-to-let investor will open things up for the growing multifamily or build to rent market, led by the likes of Sigma and institutions such as L&G, M&G, and LaSalle, who have contributed to the delivery of more than 17,000 units so far.

At the end of the third quarter of 2017, our joint research with the British Property Federation showed that there were almost 79,000 such units in the development pipeline, a number that has increased by 40% in just six months. Of these, some 24,000 are under construction in a rapidly evolving sector that has embraced offsite construction and is rapidly changing the nature and range of rental options available to tenants. All of the evidence suggests this will gather pace through 2018.

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Housing market activity should slow 'modestly' as unemployment and mortgage interest rates are expected to remain low, says Nationwide

What’s the latest?

House prices fell by 0.3% in February, knocking £1,350 off the typical property’s value.

The slide, which followed a surprise 0.8% rise in January, left the average UK home costing £210,402, according to Nationwide Building Society.

The dip pushed the annual rate at which house prices are rising to just 2.2%, compared with 3.2% in the 12 months to the end of January.

“Month-to-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months," said Robert Gardner, Nationwide’s chief economist.

Why is this happening?

Richard Sexton, director of e.surv, said that while it was good to see house price inflation rising at a, "more sustainable level, limited supply continues to act as a bottleneck, squeezing potential buyers out of the market".

The drop in prices follows weak activity in the housing market as potential buyers bide their time.

In December, the number of mortgages approved fell to their lowest level for three years, while figures were also subdued for October and November.

The Royal Institute of Chartered Surveyors has also reported that new buyer enquiries have been weak in recent months.

The slowdown is also consistent with recent signs of softening in the household sector, with retail sales relatively weak over the Christmas period and into the new year, while consumer confidence indicators suggests the squeeze on household incomes is continuing to take its toll.

The overall situation suggests consumers are adopting a ‘wait and see’ approach and avoiding making major purchases, such as a house.

Who does it affect?

The cautious mood among consumers is exacerbating the current shortage of properties for sale, as it is deterring existing homeowners from trading up the housing ladder, making it harder for first-time buyers to find a suitable home.

But other data suggests there continues to be significant regional variations, with market activity higher in areas where house price growth has been less strong and affordability is not as stretched.

It is also important not to read too much into just one month’s figures, as there does tend to be volatility on a month-to-month basis.

Nicholas Finn, executive director of Garrington Property Finders, said January's jump in prices, "turned out to be a blip rather than a turning point, and the market is settling back into its pattern of modest growth. But for all the sluggishness of price rises, this is far from a frozen market. Realistically priced homes are finding buyers quickly."

Sounds interesting. Tell me more.

Going forward, Nationwide said the performance of the housing market would be determined by developments in the wider economy and changes to interest rates, as well as any developments relating to Brexit.

It expects subdued economic activity and the ongoing squeeze on household budgets to exert a modest drag on both house price growth and market activity.

But it added that housing activity was likely to slow modestly, due to ongoing high levels of employment and mortgage interest rates that were likely to remain low by historical standards.

At the same time, the lack of homes on the market would act as a support for prices.

Overall it expects property values to remain broadly flat, with a marginal gain of just 1% over the course of 2018.

Top 3 takeaways

• House prices fell by 0.3% in February, knocking £1,350 off the typical property’s value
• The slide, which followed a surprise 0.8% rise in January, left the average UK home costing £210,402
• The dip pushed annual house price inflation down to 2.2%, compared with 3.2% in the 12 months to the end of January

UK residential development land

UK residential development land

25 January 2018, words by Savills Research

Land values are growing faster than average in the North and Scotland, while housing associations are increasingly competitive in their land buying with strategic land becoming popular

■ Land values are growing faster than average in the North, where we forecast higher than average house prices in the next five years. Investment by Homes England is supporting development in this region, helping to increase the number of developers in the market to meet local housing need.

 

■ Housebuilders have enjoyed a relatively benign land market recently, thanks to limited competition and a growing number of consents being delivered. Unless land supply continues to grow, this is likely to change as more developers, including housing associations, are now competing for sites.

■ Major housebuilders are replacing land they have built out, sourcing more permissioned land from their own strategic pipelines, focusing on controlled growth. This has resulted in slow growth of greenfield land values (1.7% annual growth).

■ Medium-sized housebuilders are buying larger sites, increasing from an average of 72 plots per site in 2016 to 87 plots per site in 2017. Housing associations have become more competitive in the market, refining their payment options.

■ Strategic land is a focus for a range of developers and investors. In the last year, Savills was involved in the sale of several strategic land portfolios, totalling 60,000 plots. The major housebuilders are buying more of this longer-term land.

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Manchester leads the way

In the past year, urban land values in Manchester rose 24%, compared with 4% for the UK as a whole. Strong house price growth in this relatively affordable market has supported the increase.

House prices in Manchester rose by 8.6% in the 12 months to October 2017, more than double the national average of 4.2%. The market has been gaining momentum with greater belief in the future for the city as development continues.

There have been more land buyers bidding for sites, including housing associations who are bidding competitively on sites which were previously only of interest to the PLCs.

 

Source: Savills Research | Notes: *12 months to December 2017. **12 months to October 2017

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Majors continue measured approach

Major housebuilders are replacing land they have built out, sourcing more permissioned land from their own strategic pipelines while focusing on controlled growth of completions. More consents and relatively low numbers of developers compared with before the global financial crisis, means the land market remains relatively benign.

In the year to June 2017, 16% more consents were granted in England compared with the previous year. However, there are fewer developers, with only 53% of the number of builders currently registered with the National House Building Council (NHBC) compared with the average between 1995 and 2007.

As a result, greenfield land values remain relatively flat. Values rose 0.1% in the last quarter of 2017, taking annual growth to 1.7% – in line with 2016 growth of 1.8%.

The land market therefore remains benign, with land value growth remaining below house price growth on average.

The major housebuilders have been able to buy land at or above their hurdle rates. In its annual report, Bellway stated: “We will continue to acquire land which meets or exceeds our acquisition criteria”. Meanwhile, in its latest trading update, Barratt said: “The land market remains favourable and we have secured attractive land opportunities which exceed our minimum hurdle rates.”

Some 25% of Barratt’s completions in the last year have been on land from their strategic pipeline. Savills sold 8% more plots year on year to the major housebuilders between 2013 and 2017, reflecting the measured growth in land buying.

Most of the major housebuilders are planning for controlled growth in completions. Completions by eight of the PLC housebuilders (those with published data for 2017) increased by 6.1% on average between 2016 and 2017, in line with growth over the previous two years.

FIGURE 1

Recovery rate Land values have grown more slowly than house prices since the global financial crisis

 

Source: Savills Research, Nationwide | Note: Land values exclude London

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Look north for greenfield growth

Over the last 12 months, greenfield land values in Scotland and the north of England have grown faster than the national average, increasing by 4.2% and 2.7% respectively, compared with 1.7% for the UK.

House prices in these regions are more affordable and we forecast them to grow by 17-18% over the next five years, compared with 14% for the UK.

Investment by Homes England (formally HCA) has supported developments across the country. According to Savills agents, investment in sites in the North has helped grow confidence in the development market.

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Diversity drives competition

Savills agents are seeing more developers becoming active in the land market.

There is competition for sites across the market from medium-sized housebuilders, developers and housing associations, supporting land values and pushing them up in some areas.

Medium-sized housebuilders bought 54% more plots through Savills in 2017 than in 2015 (10% more than 2016), mostly through larger than average site sizes.

The median site size bought by medium-sized housebuilders through Savills increased from 72 plots in 2016 to 87 plots in 2017. This reflects their continued growth supported by better availability of finance.

London developers have been moving beyond the capital, supporting or pushing up urban land values in markets such as Woking, Guildford and Chelmsford.

These developers tend to be building apartment blocks targeted at people working in London who are looking for more affordable homes outside the city.

Across the UK, urban development land values increased by 0.5% in Q4 2017, with annual growth of 4.0%, more than double the growth in greenfield land values.

Larger housing associations are becoming more active in the Oxfordshire-Buckinghamshire area, along with other SME housebuilders. This area is particularly attractive for several key reasons: its connectivity to London and other strong employment markets; its location beyond the London green belt; and government support for strategic development in the Oxford-Cambridge corridor.

To maintain relatively benign land market conditions with additional developers, more consents will be needed.

FIGURE 2

Urban generation Urban land value growth continues to outperform greenfield land, albeit from a lower base

 

Source: Savills Research

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Strategic focus

Strategic land is being sought by a range of developers and investors. In the last year, Savills was involved with the sale of several strategic land portfolios, totalling 60,000 plots.

Among the major housebuilders, Bellway acquired 9.5% more strategic plots in 2017 than 2016, while the value of Crest’s strategic land increased by 16.5% between 2016 and 2017.

Acquiring strategic land continues to be a key strategy. Barratt plans to continue to build 25% of its homes on land sourced from its strategic pipeline while Linden aims to get to similar levels by 2021. Relying more on strategic land allows the major housebuilders to retain greater control over their land pipelines and maintain margins, albeit there is planning risk involved.

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Government support

In the Autumn Budget, the Chancellor announced new measures for supporting housebuilding to reach delivery levels of 300,000 homes per year in England.

A focus of the Government’s plan is the Oxford-Milton Keynes-Cambridge corridor. If the area is to maximise its economic potential, up to one million homes will need to be built in the corridor by 2050.

It is likely that at least one of the new garden towns proposed in the Budget will be within this corridor to support such growth. The Government has also agreed a housing deal with Oxfordshire to target delivering 100,000 homes in the county by 2031 in return for a package of support for infrastructure and economic growth.

Much of the land around Oxford is already being promoted, and landowners will be seeking development partners in due course.

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