In the North, while we have seen activity in the urban development land market become more established in Manchester after a period of stagnation, Leeds is now following suit. Recently several central urban development sites have been sold for both private rented and market sale housing in the city. This follows the trend seen in the last cycle where Leeds lagged behind Manchester by approximately two years.

^{Source: Savills Research}

^{(NB Residential development land values used to calculate the index include the provision of affordable housing which has devalued land compared to 2007)}

Areas of price growth

As we predicted in the last issue, land values are rising in areas where demand is high and supply is low.

Scotland has seen strong increases in development land values recently. The pick up in market activity after the referendum last year and the return of strong positive sentiment have pushed greenfield land values in Scotland up by 15.5% and urban development land values up by 26.0% in the year to Q2 2015.

Demand for land has been greatest in and around Scotland’s capital, resulting in the largest increases in development land values over the last year where significant undersupply has sparked a surge in house prices together with increasing competition within the market. However, there are still areas in Scotland outside of the major cities where the demand for development land is not outstripping supply and prices have remained more subdued.

In the South East, the highest value development land market outside London, the continued demand for development land has resulted in above average increases in both greenfield and urban development land values in the region (2.6% and 3.3% respectively for Q2 2015).

Competition for sites is especially strong in areas with good links to the capital especially to the south of London where greenfield development land values have seen recent price increases. The region is popular with local, national and London based developers looking for opportunities outside the capital resulting in numerous bids per site and continued increases in values achieved for development land.

Major urban areas outside London including Birmingham and Manchester have also seen increases in urban development land values, 8% and 5% over the last quarter respectively. This follows the shift in demand from predominantly London to these two more affordable regional cities which are attracting both business occupier demand such as HSBC and national and international property investment.

Source: Savills Research

Price falls in other locations

In locations where housebuilders already have a number of sites, greenfield land values are stable or falling as current demand for land in that area eases; parts of Norfolk, Devon and Cornwall have seen price falls in greenfield development land this quarter.

A positive return

Our survey of Savills agents shows that positive sentiment has returned to the development land market in the last quarter, linked to the continuation and strengthening of pro-housebuilding policies that have followed the election result and continued demand from housebuilders. Positive sentiment for greenfield development land improved the most, increasing from 30% in Q1 to 71% in Q2 2015. Positive sentiment in the urban development land market rose from 50% to 68% over the period. Despite improvement in sentiment, pressures on profit margins, labour and build costs have dampened development land price growth.

Outlook

The best sites continue to attract the most attention

We expect demand for development land to be maintained as housebuilders continue at their current rate of building or expand their output. This is likely to push up development land prices where demand is highest and there is restricted supply of new sites such as parts of the South East and areas surrounding major employment centres including Manchester.

Measures to support housebuilding announced in the summer Budget and in the productivity plan, Fixing the Foundations, that followed, is likely to boost demand for development land further, particularly for brownfield sites. This additional demand for land will lead to higher land values which could choke off volume growth, unless more land comes through the planning system in areas of higher demand.

Key announcements included:

■  Extension of Help to Buy Equity Loan to 2020 (for England)

■  Commitment to get 200,000 Starter Homes built for first-time buyers under the age of 40 by 2020

■  Government allocation of £26m for the Homes and Communities Agency (HCA) to purchase, package and re-sell brownfield sites for Starter Homes

■  A decision not to proceed with the Zero Carbon Allowable Solutions carbon offsetting scheme or the proposed 2016 increase in on-site energy efficiency standards

■  Automatic permission in principle on brownfield sites identified in new “registers of brownfield land suitable for housing in England”

■  2017 deadline for local authorities to put in place Local Plans

■  Compulsory purchase reforms