Cautious positivity has continued in the development land market over the last quarter, with improving sentiment and more robust appetite for greenfield land. In contrast, urban land values continue to face downward pressures.

Overall, the land market has become slightly more competitive and players are demonstrating greater commitment to land deals. This is evident in activity levels, with the number of sites sold nationally in 2024, 7% above the previous year, but still remaining -19% below the five-year average, according to Savills.

However, there are still notable pressures on developers including moderate build cost inflation, viability challenges, mainly for urban sites, and stagnant economic growth. Land supply remains constrained, fuelling growth in greenfield land values in some areas and consequently, impacting the competitiveness of smaller players. 

Limited growth in greenfield land values, but caution persists

UK greenfield land values have ticked up in recent months, increasing by 0.5% in Q4 2024, in line with the previous quarter, taking total annual growth to 1.2%. Greenfield land values generally have been supported by a positive housing market with stronger-than-expected house price growth. This is particularly the case in the North and Scotland, where land values grew 3.1% and 6.7% in the last year. By contrast, in the South East, greenfield land values fell slightly in 2024 (by -0.7%) due to more suppressed house price growth and sales. National house prices grew by 4.7% in the year to December 2024, marking the third strongest calendar year of the past decade behind 2020 and 2021, according to Nationwide (those in the North and Scotland increased by 5.9% and 4.4%, respectively, whilst those in the South East rose by just 2.3%).

Despite headline land value growth, caution persists, partly as a consequence of short-term economic uncertainty. The rate of inflation for both October and November 2024 increased above the Bank of England’s target, although edged down slightly in December. Interest rates are now expected to stay higher for longer. This caution is also reflected in private sales rates for new homes, which have remained relatively subdued compared to pre-2022 levels, at typically around 0.6 per outlet per week, albeit higher overall rates have been achieved by some builders with the addition of bulk sales.

The introduction of various policy and tax measures in the Autumn Budget, such as the changes to the Building Safety Levy and to national insurance, have all created further cost pressures. Tender prices are forecast to grow by 3.8% in the year to December 2025, slightly exceeding the annual growth of 2.3% for 2024, according to BCIS. Additional costs are expected from the introduction of the Future Homes Standard. However, full details of the requirements are yet to be published, leading to continued uncertainty for developers when bidding for sites.

Turning the dial on land supply?

The shortfall in land supply is a fundamental challenge and is driving strong competition for land, particularly for oven-ready sites. In England, -28% fewer homes were granted planning consent in the twelve months to September 2024, compared to the previous peak in planning consents in 2021, according to the HBF.

Following the confirmation of the revised NPPF in England in December 2024, more landowners are looking to bring sites forward this year. Activity in the land market is expected to increase over the next year, with many parties gearing up to launch sites. 

Persistent pressures on urban land values

Urban land values continue to face downward pressures. Nationally, urban values fell slightly by -0.3% in Q4 2024, taking total annual falls to -0.7%. Although there is still appetite for brownfield sites in many primary locations, there are significant viability challenges in delivering flat-led schemes such as elevated build costs, building safety regulation alongside the higher risk profile of sites. Regionally, these challenges are particularly acute in London, where flats make up the vast majority of new homes, comprising 96% of new supply in 2023–24.

Varied demand for land

Although overall sentiment for land remains positive and the number of bids per site is slowly increasing, there is evidence of some caution in land buying activity. A net balance of 58% of Savills development agents reported positive market sentiment in Q4 2024, compared to 21% the previous year. But deferred payments over longer time periods are more prominent, driven by the need for developers to preserve cashflow.

PLCs remain the most active

The major housebuilders are now firmly back in the land market albeit with varied behaviour. Whilst some are looking to deploy cash and are actively seeking opportunities, others are slightly more cautious around bidding terms, opting for deferred payments. However, for the right site in the right location, the major housebuilders have been able to outbid other parties through offering higher upfront payments. Some have also been increasingly seeking larger sites over 250 homes, reflecting their requirements to build up their pipelines.

The prevalence of partnerships

Partnerships remain prevalent. These include partnerships amongst the PLC housebuilders, contract developers and Housing Associations. In some secondary and tertiary locations with weaker private sales markets, partnership developers are still outbidding private developers despite offering higher proportions of affordable housing.

SMEs face major planning and financial obstacles

In many markets, SMEs are largely absent or uncompetitive as a result of mounting pressures. According to the 2024 FMB house builders’ survey, 76% of SMEs reported the planning system as the biggest constraint on building new homes. Access to finance is another major barrier. With higher borrowing costs and recent turbulence in the bond market, lending conditions are still challenging for SMEs. The absence of appetite from Housing Associations for Section 106 packages has further compounded the ability of SMEs to secure finance.

Ongoing absence of Housing Associations

Appetite from Housing Associations remains thin. As a result, 17,432 Section 106 (S106) affordable homes are stalled, equivalent to 31% of additional affordable housing supply in 2023–24, according to the HBF. 

Consistently strong appetite for strategic land

Parties continue to actively seek strategic land responding to the planning policy changes. In some markets, strategic sites are attracting the strongest demand, with players looking to secure a position on sites, particularly within the green belt. There are examples of more competitive terms being offered on strategic sites, including commitments to submit early planning applications within the next five years as parties feel more confident to take on greater planning risk.

Outlook

Over the course of 2024, greater stability has returned to the land market, but pressures on costs have become more notable. Attention has now firmly turned to the extent to which planning policy changes and the wider government impetus to boost housebuilding bring forward a significant shift in land supply. However, this reform is taking place against a backdrop of muted economic growth and short-term economic uncertainty.

The outlook for the housing market remains positive. Savills forecasts 4% price growth for 2025, although this relies on mortgage rates falling in line with expectations. Transactional activity is also expected to continue to recover, with a particular incentive for first-time buyers to complete ahead of April’s stamp duty changes.

We expect to see a continuation of steady demand for development land, including from the PLC housebuilders looking to increase the number of outlets. Sales rates for new homes have been relatively flat over the course of 2024, and it is difficult to see how they can accelerate beyond current levels without more demand support.

There has been an overwhelmingly positive reception to the changes to the NPPF. We expect to see more activity in the land market, with more landowners looking to bring forward sites. The key question is, at what point do we start to witness a sharp change in the supply pipeline? Based on the published transitional arrangements, the combined total of Local Plan annual targets will only exceed the Government’s delivery target of 300,000 homes from the end of 2029. In some markets, we may see more supply come onto the market quite quickly, but generally, this supply is increasing from a very low base, so it is unlikely to have a considerable impact on development land values in the short to medium term. 

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