Confidence in the UK development land market is growing, trending back towards pre-pandemic levels of gradual, if cautious, growth. This follows significant price drops last year, with some locations seeing annual declines exceeding 10%, which reversed much of the gains observed in 2020 and 2021.

Key factors contributing to falling land values in 2023 have started to ease. Debt costs have stabilised, with markets anticipating further reductions over the next year, and annual build-cost inflation has slowed to 2.3% (Q2 2024), as reported by BCIS. Additionally, the market has adjusted to incorporate the increased costs tied to new regulations and requirements, such as nutrient neutrality, biodiversity net gain, and updates under Part L of the building regulations. While some uncertainty remains around the Future Homes Standard, set to launch in 2025, the landscape appears steadier.

The outlook hinges largely on the resilience of the new-build sales market and the capacity of builders to offer diverse tenure options to drive uptake. A notable decline in sales rates over the past 18 months has been a key driver of land price falls, with average sales per outlet per week for PLC housebuilders dropping from 0.8 in March 2022 to 0.3 in Q4 2022. Rates have since improved to around 0.5-0.6, encouraging housebuilders back into the market, albeit with a measured approach to restocking their pipelines.

Some developers are accelerating delivery by incorporating a mix of private and affordable rented homes, which can be absorbed by the market more quickly.

NHBC data reveals that private-for-sale housing starts made up around 65% of all new builds over the past year, down from an average of 78% in the mid-2010s. The government is also advocating for an increase in affordable homes, but expansion beyond current levels may be challenging without substantial boosts in grant funding or strategic partnerships in the next Affordable Homes Programme.

With limited land availability, developers are competing aggressively to secure sites. Over time, it will be interesting to see whether bulk sales or partner-funded units typically priced at a 5-15% discount to open-market value begin to influence land bid values. However, such a shift is likely only if a greater number of developers adopt a partnership-focused, multi-tenure approach.