PLC housebuilders returning

The publicly listed housebuilders (PLCs) are becoming more active in the land market again having been the most cautious about purchasing land in the summer and early autumn.

The largest PLCs; Persimmon, Taylor Wimpey and Barratt, have all recently reported increases in completions (outside London) with higher profits and an awareness of the uncertain political and economic backdrop. They, along with the other PLCs continue to target increased output over the coming years.

The greater supply of consented land and the need to just replenish their pipeline of land means that the PLCs can be selective about the sites they buy. Oven-ready, permissioned land parcels of c.100-150 homes are generally preferred by the PLCs at the moment. Greater due diligence has been required on sites, deferred payment terms have become more common and hurdle rates have been raised to reduce risk.

Regional housebuilders expanding

Regional housebuilders or larger private housebuilders have been able to take advantage of the more selective land buying by the PLC housebuilders. Being privately financed and having more flexibility, they have been able to continue to make bids on sites, paying upfront in many cases.

Regional housebuilders are expanding and need the land to continue to do so. The top 11-50 largest builders are the fastest growing group, increasing the number of completions achieved by 31% in the year to October 2016 according to the NHBC.

Opportunities for SMEs and others

SMEs generally operate on smaller sites (less than 25 homes) than those wanted by the larger housebuilders. They have been able to continue their activity in the land buying market where they have access to finance, which continues to be a constraint.

There have been more SMEs entering the market in places such as Devon and Cornwall and in some cases are looking to work on larger sites of 20 or more units.

Housing Associations have increased their land buying activity. Four times as much land was bought by Housing Associations in 2016 through Savills than in 2015 and L&Q, for example, owned three times as much permissioned land in 2016 than in 2015.

Levels of competition

In areas where there is less intense competition for land, more land owners are engaging with joint venture agreements with developers, to generate higher land value over a longer period. Build licences are often used.

In a similar way to deferred payments, it means that housebuilders don’t have to foot the cost of the land upfront. These areas of less intense competition provide more opportunities for a wider range of developers to enter the market.

^{NB: The indices measure blended residential development land value including the provision of affordable housing}

^{Source: Savills Research}