Strong demand from housebuilders driving up cost of land and house prices in the Midlands
An increase in the supply of permissioned land has lead to supressed levels of land value growth, according to the quarterly UK residential development land index by Savills.
Greenfield land values grew by 0.8% in Q2 2018 across the UK, bringing annual growth to 2.7%. The strongest quarterly increases recorded were 2.0% in Scotland, 1.5% in the East (includes East Midlands and East of England), and 1.3% in the West (includes West Midlands and South West).
On an annual basis, greenfield land values were up 4.4% in the West and 4.8% in Scotland, with the index noting that the strong growth in land values in the Midlands has been driven by rising demand from housebuilders.
The reason for the muted growth in land values across the UK, however, is due to a sharp rise in granted planning permissions.
In 2017, over 391,000 new homes had planning permission granted, a 21% increase from 2016.
According to the index, demand for land is also being driven by housing associations competing with housebuilders for land as a result of Section 106 requirements.
Strong house price growth is linked to the rise in land values, with Savills reporting that annually prices in the East and West Midlands are up 5.8% and 6.2% respectively, compared to a 3.9% average across England & Wales.
“Land values are currently underpinned by increased demand and a clear political will to maintain high levels of housing delivery, while rising consents and build costs will temper growth potential,” said Savills research analyst Lucy Greenwood.
“The key to boosting housing delivery will lie in unlocking land in locations linked to the strongest housing markets and to those with the most pressing housing need.”