Daniel Lewis, Strategic Land Director gives his opinion on land deals in an uncertain world:
As night follows day, the land market is impacted by what is happening in the world around us, so it’s hardly surprising that conversations around Iran, Russia and Ukraine are filtering into discussions across the industry.
Rising fuel prices, increasing build costs, fluctuating land values and a more cautious buyer market are all having an effect. But when speaking with house builders on a daily basis, the response isn’t as clear-cut or as negative as some might assume. The reality is far more mixed, and in many cases the challenges can still be managed with the right approach.
Every site is different, of course, but there are certain things that matter more in the current climate than they perhaps did a few years ago.
One of those is scale and the size of the site on the market. When costs rise across the board, larger sites naturally become more attractive because the numbers work harder. With groundworkers asking for increases, material costs remaining unpredictable and finance more expensive, developers are looking closely at where they can create efficiencies. In simple terms, more homes on a site can help absorb some of those additional costs – simple economies of scale.
Larger sites also offer developers something smaller schemes often cannot, time. On longer-term developments, there is greater opportunity for future house price growth to help offset rising build costs over the life of the project. Smaller sites typically move through the system far quicker, leaving less room for market improvements to rebalance margins if costs continue to rise.
Location is also becoming increasingly important, and we’re seeing a noticeable difference between regions. The Midlands is performing well, with many developers still actively looking for opportunities. Land values are generally more realistic, demand for housing remains solid and there is confidence in many local markets that schemes can still be delivered and profitably. Good transport links, growing employment areas and comparatively affordable house prices all help underpin that confidence throughout the system.
In contrast, parts of the South are proving more difficult. Higher land prices and affordability pressures are making developers far more cautious about what they take on. In some cases, deals that would have looked viable 18 months ago are now being revisited or shelved altogether because the margins have tightened too much.
That doesn’t mean the market has stopped, far from it. What we are seeing is a market that has become more selective. Strong sites in the right areas are still attracting interest, particularly where landowners have realistic expectations and there is a clear opportunity to deliver quality housing.
Ultimately, despite the uncertainty created by global events, the need for new homes has not gone away. The government still has it’s housing targets; developers are still buying, strategic land is still moving and opportunities remain for sites that are in the right location and structured sensibly. The market may be more cautious than before, but good land will always find demand.
At Colecar we get it. We understand the expectations landowners have, at the same time as understanding the increased pressures housebuilders are facing. Our local first approach is seeing results and we continue to feel cautiously optimistic, despite of the world around us.
