Residential Land Market Update – The outlook for 2025
Billy Poulter, is a partner in national law firm Clarke Willmott’s Housebuilder division, and is based in the Manchester office. Billy specialises in residential development for UK housebuilders. Below, Billy has given some insight into the residential land market and provided some thoughts on the outlook for 2025.
Market Conditions
The government has set itself a target of delivering 1.5 million homes in this office, which is somewhat ambitious. The aim is to deliver 370,000 new homes in England every year. A big promise to fulfil!
We’ve seen quite a lot of uncertainty in the market over the past few years owing to some tough economic conditions in the post-covid world. There has been rising inflation, hikes in interest rates from the Bank of England and mortgage rates increasing at record pace. With the higher borrowing costs for our clients’ end users (particularly in 2022-2023), this naturally led to a decrease in the demand for housing and ultimately less buying activity amongst UK housebuilders. Savills data published towards the end of last year reported that land sales in Q3 2024 were 21% below the previous three years. The uncertainty and economic conditions has certainly caused a tough playing field in the land market and inevitably had an impact on UK housebuilders.
But what is the outlook for 2025 and beyond? Are we well on course to deliver at the pace the government strives for, or are the economic woes and other factors affecting the residential land market set to continue?
Our view is that it is not all doom and gloom and we remain cautiously optimistic for 2025. When there has been a degree of economic uncertainty as we’ve seen in recent years, inevitably it will take time for the market to bounce back and for housebuilders to regain the right levels of confidence to buy land at the fast pace we’ve seen in the past.
Demand
Looking at data published in the Zoopla House Price Index towards the end of 2024, Zoopla reported a surge in buyer demand in the housing market. This seems to correlate with a recent reduction in mortgage rates and mortgage rates appear to have now stabilised resulting in more market certainty. Whilst the information is based on the sales market as a whole (rather than new build sales), the increase in sales demand will be good news for our housebuilder clients as they can see the market reacting well to slightly better economic conditions. Zoopla are also reporting that affordability remains a constraint on buying pressure, which could keep price inflation in check. We therefore don’t expect to see a big hike in house prices and land values in 2025. With the cost of mortgage debt stabilising and with buyers becoming familiar with a new norm, we hope to see housebuilder buying activity increase in 2025 and beyond.
Planning
Planning delays are still causing some challenging market conditions. According to a Savills report, 31% fewer homes were granted planning permission in the 12 months prior to June 2024. It is no surprise to the industry that there is a need to ease the red tape around planning and we have seen the government, towards the end of 2024, pledge to shake-up the planning rules through the introduction of building targets for English Councils. The government is certainly making the right noises to improve the planning system, but implementing the changes to see meaningful change will take time. It remains to be seen whether we’ll witness significant changes to the planning system in 2025 and beyond.
Build Costs
Another major issue facing our housebuilder clients in recent years is the rise in build costs. In 2022 and 2023, housebuilders saw a hike in build costs, reaching over 10% in 2022. At the time, this was coupled with other tough economic circumstances, namely rising interest rates, mortgage rates and inflation generally. The annual growth rate towards the end of 2024 was circa 2%, which we believe has improved sentiment somewhat, although the increases seen in 2022 to 2023 will have at that point already had a significant impact on housebuilders. The BCIS expects building materials to rise by circa 15% in the next five years.
Paving the way for Partnerships
One particular model that appears to have stood out in an uncertain and tough market is the Countryside/Vistry Partnership model (Countryside are part of the Vistry group). Considering the market conditions, Vistry has continued to acquire land at pace. Vistry aim to secure development partners (Registered Providers and PRS Operators) at an early stage of a land transaction and generally 50% of sites are sold to partners at the same time that Vistry acquires the land. This not only offers cash flow benefits in selling half of the site on day one, but it also brings additional affordable housing to the market in excess of obligatory section 106 policy affordable units. The multi-tenure approach to all sites seems to have been an attractive model in an uncertain economic world. There has also been a big drive for affordability in recent years, so the delivery of more affordable units in the market is a positive sign.
Looking forward, we may see other competitors trying to emulate this model which seems to be working well for Vistry.
Made for housebuilding
One of the highlights of 2024 was the announcement of a new private-public housebuilding entity called the Made Partnership, which is made up of Barratt (one of the UK’s largest developers), Homes England (a public body who plays a big part in delivering the government’s housing agenda) and Lloyd’s Banking Group. Made Partnership will act as a master developer for multiple large-scale residential-led developments ranging from 1,000 to 10,000 homes. It is hoped that the Made Partnership will not only deliver housing numbers, but also create thriving communities and boost economic growth. With Barratt’s development expertise and Homes England’s ability to access land and unlock sites for development, this looks to be a step in the right direction to help the government achieve its building targets. We look forward to seeing some schemes come forward in the not-too-distant future.
Speak to our expert
To speak to Billy Poulter or another member of our commercial property team please get in touch online.
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