Development
Insights Edition 3 • Winter 2024
Development Our national property development capability is built on a foundation of regional specialists, strategically positioned across our extensive network of offices. We are dedicated to helping clients maximise the value of their assets and achieve their financial and strategic objectives. We offer a comprehensive, holistic service that supports clients through every stage of the development process, from inception to completion.
From setbacks to optimism A deep dive into the 2024 residential development sector This year started with a number of major challenges for the housing market, but it is finishing with more positivity. For the first half of 2024, there was a continued decline in housing pipeline approvals, with planning permissions granted 9% down and the number of units approved 12% lower compared to the same period in 2023. Despite these initial setbacks, the prevailing market sentiment is more optimistic following Labour’s landslide victory in the General Election. This has been driven by several key factors including: • Government initiatives: The newly elected Government has pledged to build 1.5 million new homes over the next five years – a promise that has garnered significant public attention. • Favourable mortgage rates: Mortgage rates have decreased from 5.19% before June 2024 to as low as 3.79% for a five-year fixed rate. • Interest rate projections: The Bank of England have reduced interest rates to 4.75%, with further cuts expected potentially reaching 3.5% by 2026. • House price trends: The Halifax House Price Index reported a 0.2% month-on-month increase in house prices for the fourth consecutive month. • RICS forecast: The Royal Institution of Chartered Surveyors (RICS) anticipates a 5% annual rise in house prices in 2025, the strongest growth rate since November 2022. • Inflation and investment: With inflation hovering around 2%, the projected 5% growth in house prices for 2025 presents a highly attractive investment opportunity. However, the current shortage of new land supply poses a significant challenge for developers and housebuilders as they look to secure future pipeline. While land values remain stable, the process of securing land deals is taking longer than it did two years ago.
Scan the QR code to find out more
Major players in the market are adopting varied strategies: some are focusing on margins, improving their competitiveness, while others are selling serviced land parcels on large sites to mitigate risks, release capital, and acquire smaller sites.
Greenfield and Urban Land Values The market is showing tentative signs of improvement. The balance between land supply and housing demand is crucial in determining future land values. Any limitation on land supply will ensure that land values remain resilient. Conversely, if supply increases faster than demand, there will be a corresponding rise in transaction volumes, leading to downward pressure on land prices. The current shortage of greenfield land suggests that short-term values will remain resilient, while viability issues continue to influence urban site values. Although there has been an increase in bid levels for optimally sized sites in primary greenfield areas, this trend is not mirrored in other markets.
Brownfield Sites High-density, flat-led schemes in urban locations face challenges due to higher risk profiles, additional build costs, increased borrowing costs, and lower confidence in the future viability of these sites. Values for urban student accommodation appear to exceed those for Build to Rent and private sale. However, there is continued optimism regarding the future of Build to Rent having a larger share of the development market, but currently, the funding market for this is on the reserved side.
New Build According to Energy Performance Certificate (EPC) data, 229,700 new homes were completed in the 12 months to June 2024, suggesting that the annual supply of new homes continues to hover around 230,000 since the end of 2023. However, some commentators believe that housing completions could fall as low as 160,000 by 2025/26 further restricting supply. For example there are two sets of data that display this deterioration: • Construction output, according to ONS, was recorded as being over 15% lower than in 2019. • According to the National House Building Council (NHBC) in August 2024, annualised starts between Q2 2023 and Q2 2024 fell by 55%. To read this article in full scan or click the QR code.