Over 8 in 10 housebuilders report land shortages

Global property consultancy Knight Frank has launched its quarterly UK housebuilder survey and land index. Canvassing 40 volume and SME housebuilders across the country, the survey provides a snapshot of industry sentiment.

In Knight Frank’s latest survey, responses suggest housebuilders are growing increasingly concerned over build cost hikes and land shortages. Two fifths (40%) of respondents said they believed ‘build cost inflation’ and ‘supply chain disruption’ would have the biggest impact on the sector in Q2 2022, while more than a quarter said planning delays were a key issue.

Over eight in 10 (85%) of respondents reported that land availability was either limited or very limited in Q1 – up from just 70% at the time of the last survey.

Against this backdrop, almost half (47%) of respondents are expecting land prices to rise in Q3 2022.

Justin Gaze, Head of Residential Development Land at Knight Frank said: “At present land continues to sell at a premium as a result of limited supply. However going forwards, it’s likely that land prices will come under pressure as demand for housing cools and build costs increase. Higher mortgage rates and a cost-of-living crisis means we expect UK house price growth to slow later this year.”

Knight Frank’s survey also found that 62% of housebuilders believe the rising price of goods and services is weighing on house buyer sentiment the most, with 18% suggesting affordability of monthly mortgage repayments specifically were impacting buyers the most.

On the supply side, increased construction costs and supply chain disruption are key issues across the country, but are particularly pertinent in areas where price growth has been weaker, such as London.

The survey found that build costs created adverse knock-on effects for almost all respondents; 44% reported a ‘significant impact’ to business in Q1 2022, while nearly half reported a ‘moderate impact’.

Justin Gaze added: “This environment is likely to cause housing delivery rates to slow in the near future.”

For the first time since the survey began at the beginning of 2021, a greater proportion of respondents expected new starts to fall, rather than rise. This marks a shift in sentiment compared to the previous four surveys, where generally respondents were optimistic about new starts.

An increase in competition from logistics players is also exacerbating the land supply issue and constraining the build out rates of new homes. Residential developers are being outbid on several sites, even those with planning permission in place for housing. Overall, our survey found that over half (56%) of respondents are seeing more competition for land from other use classes, such as logistics.

Anna Ward, Senior Research Analyst at Knight Frank who undertook the research, commented: “Housebuilders have largely been able to offset the increase in build costs due to the pace of house price inflation. The strong sales market led to a surge in land transactions up to the end of Q1 this year. Knight Frank saw a 55% increase in land transactions in the 2021-22 financial year compared to the previous year. A lack of availability of land is expected to support land market values in the short term.”

According to Knight Frank’s latest land index, which is published in conjunction with the housebuilder survey, average Price Central London (PCL) development land prices were up 2.5% on a quarterly and annual basis at the end of Q1 2022. It is the first time PCL land prices have risen since Q3 2020.

Previously, PCL prices remained flat on a quarterly basis amid subdued demand for central London sales in the absence of an international market. “A relaxing of travel restrictions, a stronger PCL sales market and limited availability of land – particularly for larger development sites – has contributed to this quarter’s increase,” explained Anna Ward.

Elsewhere, brownfield land prices rose 0.4% in Q1 and were up 3.3% compared to a year ago. Greenfield land prices strengthened between January and March 2022 by 5%, while annually greenfield land values rose 22.8%.