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Despite rising build costs and the end of help to Buy, demand for land is expected to remain high from both housebuilders and housing associations
Summary
- There is strong appetite from the major housebuilders for immediate and strategic land, as they look to maintain steady growth in the medium term and replenish land pipelines following high levels of completions over the last 18 months
- SME developers are becoming more active, in part due to increased access to finance. However, build cost rises are affecting these developers more that the majors
- The latest Affordable Homes Programme has enabled housing associations to expand their land led development pipeline
The major PLC housebuilders have been very proactive in their land buying over the last 18 months. The total number of plots of immediate and strategic land bought by the major housebuilders was at its lowest in four years due to initial uncertainty at the start of the coronavirus pandemic. But in 2021, the appetite to replenish land banks after a strong year of completions was notable. All but one of the listed housebuilders have reported an increased number of plots in their immediate land pipeline in 2021 compared with 2020. The average increase in the size of their land pipelines was 6.6% and a similar increase has been seen in reported strategic landbanks.
Taylor Wimpey was the most active in the immediate land market, buying 6,800 plots, an increase of 89% on 2020. Barratt, the largest housebuilder in the country, had the greatest number of plots to replenish after completing 17,243 homes in 2021 and has acquired 8,600 new plots.
The competitiveness of the immediate land market has also encouraged most of the major housebuilders to convert more land from their strategic pipeline. In the last year, Bellway gained permission on 10,900 plots, up from 7,760 in 2020 and 9,795 in 2019. Taylor Wimpey more than doubled their plots converted from strategic land in 2021 to 9,000 from 4,000 in 2020, and Persimmon converted 3,000 more plots in 2021 than in 2020. The continued focus on bringing strategic land forward and retaining it rather than selling is indicative of the highly competitive immediate land market, and major housebuilders’ desire to secure a clear land pipeline.
Barratt’s acquisition of land promoter Gladman in January 2022 is a clear indication of the strength of the land market as they have gained the potential to access a large landbank at a time when the likelihood is that the supply of land will become more constrained.
The Government still holds the ambition of delivering 300,000 new homes per year in England, which would be a 22% increase against current delivery levels
Emily Williams, Director, Residential Research
Appetite for land is likely to remain high over the next five years. The Government still holds the ambition of delivering 300,000 new homes per year in England, which would be a 22% increase against current delivery levels. Most of the major developers state in their annual reports that they are aiming for controlled growth of completions of 2–5% per year in the medium term. Combined with recent high levels of completions to meet the upcoming Help to Buy deadline (up 14% between 2020 and 2021) there will be significant appetite for strategic and immediate land to replenish and expand development pipelines.
Beyond the major housebuilders?
Since 2008, the top 15 UK housebuilders share of all housing completions has risen, peaking at 49% in 2016. Between 2007 and 2020 the number of SME housebuilders registered with NHBC declined by over 60%. Strict lending criteria after the global financial crisis (GFC) meant many smaller developers could not access competitive finance and were unable to successfully compete for land.
Recent government policy has aimed to reverse this trend; a key conclusion of the 2018 Letwin Review was that the homogeneity of development was the key barrier to increasing housing delivery. Homes England has focused on supporting smaller developers. The £3 billion Home Building Fund was launched in 2017 to offer flexible funding to developers who could not otherwise access lending, and in 2018 further support was offered with the launch of a £1 billion loan financing fund.
As a consequence of this support, smaller developers are beginning to gain a larger share in the market. The top 15 housebuilders share of completions has fallen each year since 2018, reaching 41% in 2020. SMEs are now able to compete more effectively in the land market than in the years immediately following the GFC, although Savills land agents are now reporting that rising build costs are leading these businesses to become more cautious, and focus on core areas.
However, the revival of SMEs has not been uniform across the country. While in some locations there are a variety of buyers in the market, the map below shows that in parts of the Midlands and the North East, over 70% of development site capacity is controlled by the major housebuilders, and 60–70% in much of the South East. Many of these markets would benefit from a greater diversity of developers to boost delivery, and SMEs should be part of this solution. Delivering more smaller sites through the planning system will be a key to enabling smaller developers to become more active players in the land market.
According to Inside Housing’s 2021 survey of the 50 largest housing associations, development ambitions are growing. The five-year pipeline for the sector is 234,600 homes, an 18% increase from the ambitions recorded in the previous year. However, housing associations reported that they have secured the land for less than half of this number of homes, so will have to be proactive in the land market if this goal is to be met.
Previously, housing associations have struggled to develop a land-led development pipeline, as grant funding programmes were too short term for large-scale investment in land. However, the £11.5 billion Affordable Homes Programme 2021-26 is expected to fund the delivery of 180,000 homes over the next five years. It is the largest annual investment in affordable homes since the 2008–2011 National Affordable Housing Programme. The bulk of the funding is being allocated through Strategic Partnerships. This provides longer-term, more flexible funding, and should give housing associations confidence to build up a long-term pipeline.