Will UK development land values stabilise in Q2?

UK housebuilders are back in the market for land after a very subdued period in the wake of September’s mini budget. But ongoing economic uncertainty, elevated build costs and a sales market downturn continue to limit transactional activity and weigh on land prices.

UK greenfield and urban brownfield values fell on average by 3% and 4.6% in the first quarter of this year, taking the annual change to –9.1% and –13.7% respectively, according to Knight Frank’s Q1 Residential Development Land Index. In prime central London, an ongoing lack of sites for sale and a rise in cash buyers supported land values which were flat on a quarterly basis and flat annually.

Values have been under pressure since the fallout from the mini budget in September. Demand is weakest for flat schemes in suburban areas, whereas well located greenfield housing sites in affluent areas are in higher demand.

In prime central London, an ongoing scarcity of sites for sale meant values bucked the national trend and were flat. Developers are cautious on planning risk in the current economic environment and are prioritising consented land deals, of which there are very few available.

Tight land supply was cited by respondents as the second most challenging factor for the sector this quarter, lending some support to values. Overall, our survey of volume and SME housebuilders found that the majority (65%) of respondents expect that land values will hold steady over the next three months to the end of June. Well located sites will remain in demand given the constraints of supply and worsening planning delays, but activity will remain subdued given the ongoing economic uncertainty.

In the current context, housebuilders have to find ways to navigate more challenging circumstances as house prices are easing, while build and labour costs remain high. Our survey found that more than seven in 10 are seeking to delay payments for land to maintain their balance sheets as they grapple with elevated costs and economic uncertainty.

Overall, 73% are looking to defer payments for land, with two thirds seeking to defer over 40% of purchases. In total, 70% of housebuilders are aiming to delay payments over a one-to-three-year time period. The purchase price may be paid in the future in one lump sum or there may be phased payments. You can read more in our Residential Development Land Index here.