Industry Eye: Warning to landowners who are now hoping for rise in development site values

The tide is turning for the housebuilding industry. More builders are showing signs of a desire to purchase development sites that can provide them with unit sales and cash.

The problem is that many landowners are not prepared to sell, in the hope that land prices will eventually rise back to the levels of 2007.

This is a worrying trend.

Current land price forecasts and strict Government targets for sustainable development mean it looks unlikely that we'll experience such levels for a considerable time.

Savills residential research indicates that property prices in the region will fall by 6.7 per cent during 2010 and rise by 2 per cent in 2011 and 3.8 per cent in 2012.

This indicates an average fall by 0.9 per cent over three years.

There are also a number of potential cost implications of waiting for the 'right time' to sell which should be considered:

The Code for Sustainable Homes

This is national standard for sustainable design and construction of new homes. It aims to reduce carbon emissions and create homes that are more sustainable. The regulations for Sustainable Homes are currently at Code Level 3.

If a land sale was delayed so that the development started in 2013, when the code level changes, then Code Level 4 would need to be priced. This could add an additional 5,000 per dwelling to the overall build cost. To illustrate this, on a 10 acre site of 150 dwellings the cost implication would be 750,000.

Community Infrastructure Levy

This is a new tax on development that will be spent on local and sub-regional infrastructure to support the regeneration of an area. This is likely to have a significant impact upon land values.

Lifetime Homes

This is a national strategy for providing housing in an ageing society. The provision of Lifetime Homes is on hold for the moment, but before the Pre-Budget Statement there was significant momentum behind the plan, so by 2013 it could be expected that this would affect a potential planning application.

The likely additional cost for Lifetime Homes is 6,000 per dwelling and this could further erode the land value on our 150 dwellings example by 900,000.

Finally, design standards are continually increasing. This is difficult to cost, but again it is likely to be significant for house builders.

So on a scheme with 150 dwellings if each factor is taken into account, the minimum reduction in land value could be as much as 1.65m.

If you would like to discuss this in more detail, please contact Simon Douglas or Matthew Jones at Savills Leeds on (0113) 244 0100, e-mail [email protected]

CW 1/5/10