Smaller developers could benefit if major players stay on the sidelines and land prices decline

Guy Murray, Head of Development Finance

For as long as anyone can remember us Brits have been know for our obsession with property. 

While many of our continental cousins are content with renting, even into retirement, here the dream for most people is to one day own their own home. 

Pick up any weekend newspaper and there will almost certainly be a news story or two - or even an entire section - dedicated the travails of the housing market. 

Perhaps understandably land prices rarely get a mention; after all building your own home is still a minority pursuit in this country and so for most people, land is just something that comes with the house they are buying.

However, there is one particular group of professionals that keeps a very watchful eye on land prices and that group is of course house developers. 

Traditionally housebuilders spent billions of pounds each year buying up land for development but these days they are buying much less of it. 

So far this year Barratt Developments, Persimmon, Taylor Wimpey and Vistry - four of the UK's largest housebuilders - have released they are showing down land investment or, at the very least, becoming more selective. 

They say the reason for this is down to the gloomy outlook for both the economy and housing market. 

Clearly when four of the biggest buyers of land in this country decide is unison to hit the pause button, that will inevitably feed into land prices. 

Research by Savills found that UK greenfield and urban land values fell by 2.2% and 1.6%, respectively in Q4 2022, taking annual growth to 2% and 2.7% - making the largest quarterly fall in land values since Q2 2009 the firm says. 

But would it be a bad thing if land prices continue to fall? Perhaps not.

The price of land in this country has been eye-wateringly expensive for years - this pushes up the cost of development and ultimately the price that buyers must pay to own their own home. 

For me, if the big players are content to sit on the side-lines and land prices soften, that could be a double win for smaller developers and the timing couldn't be better. 

All developers - especially the smaller ones - are struggling with soaring labour and material costs at the moment. 

The net result is that many of the smaller players are finding certain sites unviable simply because they can't make the numbers work.

It may now seem a terribly wise idea to hoover up land with a potential recession and housing market slump on the horizon, but for smaller developers willing to take the plunge, a market where land prices are falling could throw up good opportunities. 

Housing market slumps don't last forever - after all, we are an island nation with a limited amount of development space - so in the long-term those conditions provide a ballast for property prices. 

If you're a smaller developer, now may be the time to strike, while the iron is hot. 

Published in Development Finance Today | July 2023