Simon Smith, partner in our residential development land team, summarises the key features of the 2019 land market.
There was limited growth in South West house prices in 2019, with average annual growth of 0.5-2% across the region. Growth was restrained by affordability, rising interest rates, political uncertainty and, with respect to higher value properties, SDLT.
Residential commentators and analysts are forecasting five year house price growth in the South West of 10-15% (compounded), with most of that growth forecast to be in years two to three, as the UK’s trading relationship with the EU is expected to become clearer and confidence returns to the market.
Build costs are either matching or outstripping house price growth which has the potential to put downward pressure on land prices. However, current forecasts suggest a welcome slowdown in cost inflation, in the short term, at least.
The emergence of new entrants to the market, in particular housing associations, coupled with demand for different housing tenure models, is sustaining land values for good quality sites, although prices for secondary and tertiary sites are under pressure.
Modern methods of construction, such as modular and panelised construction, continue to evolve, with Homes England in particular, encouraging their use as a means to increase both the rate of housing supply and competition in the market.
The outcome of the 2019 General Election is expected to boost market confidence and despite some current market uncertainties, there is still a shortage of housing in many parts of our region. There is particularly good demand and competition for residential sites in the main cities across the South West and South Wales and also towns in close proximity to a M4/M5 motorway junction.
Demand remains high for strategic land delivering development over the next 3-5 years and beyond, particularly land available through options or promotion agreements.
The rejection of the JSP by the Planning Inspectorate, whilst unfortunate was not unexpected and it remains to be seen whether a truly coordinated approach can be agreed for the delivery of housing and infrastructure across the West of England.
The care and retirement living markets remain very strong, with numerous specialist developers particularly acquisitive for sites in established residential locations. Operators in this sector appear to have avoided proposed legislative changes relating to leasehold ground rents. We are providing development viability advice on a large number of schemes for leading retirement property developers.
Extract from Alder King Market Monitor 2020. View the whole report here.