2020 Opportunities UK Development Selecting sites using data
knightfrank.com/research UK DEVELOPMENT OPPORTUNITIES 2020 UK DEVELOPMENT OPPORTUNITIES 2020
WHERE SHOULD YOU THE PROCESS BUY LAND? 1 2 3 4 House prices Price to earnings HDT Bimby Areas with higher Higher score for Higher scores Higher scores for The process of buying land can be fraught with uncertainty. Developers house prices narrow ratio of house for areas with access to services are given a price to earnings housing shortage will often favour regions they are familiar with, but comprehensive higher score analysis of a string of data points can tease out differences between neighbouring local authorities that aren’t apparent at first glance.
The backdrop to the 2020 Knight Frank uu They are also areas where housebuilding Methodology Development Opportunities report has has fallen behind government projections Knight Frank is been one of uncertainty. Coronavirus has for housing need in the past three years increasingly using data Each Local Authority (LA) was ranked to produce a final ranking to highlight different opportunities at different price undoubtedly disrupted the market. – locations in need of more homes where and geospatial techniques on a variety of economic and housing some areas where fundamentals suggest points and for developers with different a lack of delivery could underpin pricing Whilst housebuilders are now returning to find the most suitable measures, including pricing and good development opportunities. These aims. However, we aim to highlight for developers hoping to deliver large and bidding for land, margins have places to build houses liveability – which took into account development opportunity areas are not only the local authorities where economics, schemes across several phases. been raised which is affecting what uu factors such as schooling and transport looking at potential price outperformance, planning and agent knowledge signal many are prepared to pay, and site Data in isolation is not enough, however. accessibility. Also examined was the but also market absorption. there are compelling opportunities for They are places where housebuilders are selection is increasingly selective. We’ve balanced the model with local housing supply and demand balance, new development in today’s market. able to maintain healthy profitability, The locations identified are not exhaustive Identifying the right sites, in the right expertise on the availability and as well as input from Knight Frank land while house prices remain within and we recognise that there may be places is key in this new market. In affordability of land, the importance of teams. Each of these scores was weighted reach of local earners. They are local this report, we use a simple model – councils that are open for business and, authorities with superb access to good taking advantage of data and geospatial provisions for future transport upgrades. and outstanding schools on a per capita techniques – to find the most suitable basis. They are local authorities whose Each of these factors has been weighted and sustainable places to build houses; Market update basic services such as doctors surgeries, to broadly suit the business model of the local authorities that could be the bus routes and retail are comprehensively volume housebuilders, though the inputs most active locations for housebuilding and evenly distributed, and internet can be changed to suit developers with Housing transactions across the UK and the fourth quarter could benefit from a economic data, not least the impact the over the coming five years. download speeds are exceptional. various aims. fell by nearly 60% year-on-year in April similar trend. unwinding of the government’s furlough to below 40,000 sales, according to scheme could have on unemployment. However, despite this period of pent- data from HMRC. This is likely to mark up demand coming forward, the future As such, we expect many the low point for transactions, with trajectory of the property market remains housebuilders will retain a fairly cautious a steady increase in recorded sales unclear against a backdrop of mixed approach to acquiring any land. KEY TAKEAWAYS every month since.
Mortgage approvals data meanwhile suggests that the recovery in UK sales volumes Monthly transactions lending has so far been v-shaped. Monthly transactions sale. sale. sale. This reflects a number of factors. sale. sale. sale. 180,000 First, buyer interest has recovered 160,000 quickly, supported by robust levels 140,000 120,000 of mortgage availability at lower 100,000 LTVs. The stamp duty cut has also 80,000 encouraged some buyers to bring 60,000 The government's target Development land prices are Housing market activity has been purchases forward. 40,000 20,000 of delivering 300,000 per moderating, reflecting increased costs robust since the market re-opened As a result, and based on a market 0 annum looks an increasingly as well as a more uncertain outlook for in mid-May and transactions analysis that includes listings data, 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 challenging task the housing market are expected to end the year down we forecast UK property transactions just 15% will fall by 15% this year compared to Source: HMRC 2019. August was unseasonably busy
PAGE 2 PAGE 3 UK DEVELOPMENT OPPORTUNITIES 2020 UK DEVELOPMENT OPPORTUNITIES 2020
1 3
HOUSE HOUSING PRICES DELIVERY Areas with higher house Local authorities where prices are given a higher housing has failed to meet Score. Higher price suggests government assessment for housing in that area has need are given higher scores greater appeal, and provides more revenue within a given development appraisal.
Source: Knight Frank Research, Land Registry Source: Knight Frank Research, MHCLG
2 4 Lower Score
PRICE TO ACCESS TO Higher Score Inconclusive data EARNINGS SERVICES The previous measure is Local authorities with a better tempered by this measure. access to services (see analysis Authorities where the house on page 11) on per capita basis price to earnings ratio is are allocated higher scores narrower are given higher scores, almost inverting the previous map.
Source: Knight Frank Research Source: Knight Frank Research, ONS, Land Registry
PAGE 4 PAGE 5 UK DEVELOPMENTHOUSING HOTSPOTS OPPORTUNITIES 2020 2020 UK DEVELOPMENTHOUSING HOTSPOTS OPPORTUNITIES 2020 2020
THE HOTSPOTS
10.9k 175k 10.8k SQ M NEW ACRES OF PARKS POTENTIAL NEW EMPLOYMENT SPACE AND GREENBELT JOBS
SURREY HEATH TAMESIDE EAST HERTS
Includes extensive areas of greenbelt and The district within close proximity to Manchester A predominantly rural district with rolling woodland, with trains to central London from city centre scored among the highest for house countryside including the five market towns locations including Camberley in less than prices within reach of local earners. The local of Bishop’s Stortford, Buntingford, Hertford, 1 hour and twenty minutes. Surrey Heath authority has more than 330 listen buildings Sawbridgeworth and Ware and the new scored among the lowest of our hotspots in and, when combined, has more good and towns of Stevenage, Harlow and Welwyn the government’s multiple deprivation index outstanding schools than our other hotspots, Garden City are located immediately on the – a measure of various factors including at 81 (71 good, 10 outstanding). The authority East Herts District boundary. East Herts has income, employment, health, education and has been earmarked for 8,850 homes by 2037, more Ofsted rated outstanding schools than crime. The authority is renowned for its parks supported by new train stations at ‘Dewsnap’ our other hotspots at 26. and greenbelt, which covers 10,821 acres of in Dukinfield, and at Gamesley on the border TAMESIDE Developers have built 1,801 homes in the Surrey Heath, or 46.1% of the local authority. with Derbyshire. The new housing will support authority in the past three years, while the more than 175,000 square meters of new government estimates 2,382 were needed CHESTERFIELD employment space at Ashton Moss West. to meet basic requirements for housing need. The authority’s Local Plan suggests 10,800 new jobs will be created in East Herts between 2011 and 2033, equivalent to 491 100K 225 jobs each year. NEW HOMES SQ M NEW STILL NEEDED EMPLOYMENT SPACE
FAREHAM CHESTERFIELD
A coastal area between Portsmouth and In the foothills of the Pennines and known as Southampton with direct trains to London the gateway to the peak district national park, in less than 1 hr 40 minutes and a nearby Chesterfield has a market town locked in by international airport in Southampton. Scores greenbelt. Almost half of Chesterfield local EAST HERTS highly in our access to services per capita authority is open countryside with transport score, and an expansion of the town centre links via the M1 and trains to St Pancras, is underway. Fareham’s local plan has Manchester, Liverpool, Leeds and Sheffield. earmarked a new settlement to the north of House prices remain within reach of local the M27 which would comprise more than earners, though housebuilding has fallen 6,500 homes and almost 100,000 square behind need – 446 homes have been meters of employment space. The authority is SURREY HEATH delivered in the most recent three years, surrounded by attractive countryside, the river while government estimates a minimum of Hamble, the Solent and Portsmouth Harbour. 671 were required to meet housing need. FAREHAM
PAGE 6 PAGE 7 UK DEVELOPMENT OPPORTUNITIES 2020 UK DEVELOPMENT OPPORTUNITIES 2020
STATE OF FLUX CASE STUDIES Developments planned in Knight Frank’s 2020 hotspots
Fareham
Welborne comprises a site of 377 hectares with a resolution to grant planning permission, subject to the signing of a section 106, agreement, for 6,000 homes with a vision as a Garden Village for the twenty-first century. Housing policy was once more in a state of flux at the turn of the year, with a new at least. EPC data shows just over Infrastructure and public realm will be delivered by Buckland government proclaiming a shift in strategy to refocus its aims on home ownership. 29,000 certificates were issued for Development. Homes will be delivered via sustainable joint venture new build dwellings between April partnerships with housebuilders. and June, dropping the annual figure he Prime Minister has signalled is beginning to slow, after years of issued for new-build properties in to 217,311. an intent to use housing and substantial growth. England in the year to March 2020, the T Productivity on sites has recovered infrastructure spending as tools to help highest level in decades. We expect The number of additional dwellings significantly, though full capacity drive the country’s economic recovery. net additions data for 2019/20 when built in 2018/19 had climbed to 241,130, isn't expected to be reached by the released will show a further pick up in Planning is a key focus (see page 10), up 9% in a year and up 93% since the end of the year. Getting back up to delivery as a result. with a consultation launched which post-crisis trough in 2012/13, according speed will be no simple task. The aims to reform the planning system to to MHCLG data. However, the coronavirus-induced initial focus of construction has been streamline the planning process and building hiatus earlier this year, and on completing homes on existing Energy Performance Certificate (EPC) accelerate the delivery of new homes. subsequent gradual and phased return sites, so fewer new sites have been data, meanwhile, which has proven to to work, means this is likely to represent started. As a result, the government’s It comes at a time when growth in be a good forward indicator of supply, a peak in delivery, in the medium term target of delivering 300,000 homes a housebuilding levels in England showed more than 255,000 EPCs were year in England looks an increasingly challenging ask. East Herts
This could herald more change and Gilston Park Estate is the largest site within the Harlow & Gilston Garden New housebuilding, England possibly a more favourable policy Town, which was announced in 2017, alongside other Garden Towns at EPC = rolling 12 month total environment for housebuilders, Aylesbury and Taunton. 2018-19 data and particularly whilst alternative annual change It is now awaiting planning permission for up to 8,500 new homes across EPC for new dwellings Net additions providers still do not have the capacity six villages. More than half of the development will be provided as public 300,000 ANNUAL TARGET SET BY GOVERNMENT: 300,000 to meet ambitious housing targets. open space. The development will have strong links to Harlow and the 241,130 But there are also challenges. The project will deliver two new crossings over the River Stort. 250,000 8.50% 2% stamp duty surcharge for non- The development is being promoted by Places for People, the owner of the residents, for example, which comes 2,500 acre site. Places for People are taking a Master Developer approach; into effect from April 2021, will 200,000 Net additions delivering £600m+ of new infrastructure as well as phases of residential of impact housebuilders reliant on all tenures. overseas sales, whilst the First Homes EPCs for new 150,000 dwellings scheme, designed to improve access to home ownership for certain buyer groups and funded by developer 100,000 contributions, could have a knock-on 217,317 impact on viability. 50,000 Development land prices are also moderating. This partly reflects the 0 Annual number of EPCs issued for new increased costs of development, with a 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 dwellings to Q2 2020 sharp rise in the cost of materials and labour in recent years, but also the
Source: Knight Frank Research, MHCLG current more uncertain outlook for the wider UK housing market.
PAGE 8 PAGE 9 UK DEVELOPMENT OPPORTUNITIES 2020 HOUSING HOTSPOTS 2020
WITH CHANGE BUILDING BEAUTIFUL
The Building Better, Building Beautiful Commission recommended COMES OPPORTUNITY a new framework to build “the right development in the right place” combined with a “stewardship” approach to development. Housebuilders are familiar with change. They’ve had ten housing ministers in as
many years alone, not to mention numerous changes to property taxation. Next CHARLIE DUGDALE, DEVELOPMENT PARTNERSHIPS comes an overhaul of the planning system.
he BBBBC’s recommendations, combines datasets and searches out areas the long-term gives it the motivation to STUART BAILLIE, HEAD OF PLANNING T and the ‘Planning for the Future’ where high levels of amenity collide with seek long-term value creation: buildings white paper, are highly relevant to our the right affordability metrics and existing that stand the test of time; communities approach to identifying development hot housing shortages. and local economies that thrive over the he Prime Minister has set out as is locally prepared design codes SMEs into the market via a raft of spots. They spoke to geospatial modelling long-term. High levels of local amenity within his stall alongside Homes and and encouraging greater diversity of measures including through an as a means to combine datasets to inform T walkable mixed-use neighbourhoods The BBBBC suggests that the opportunity Communities Minister, Robert Jenrick, design in residential developments. 18 month window of opportunity larger than local decision making. remain the Holy Grail, particularly in lies in the business model, encouraging to reform the planning system. To Concerns will likely be raised about during which schemes of up to 40 A nationwide methodology for identifying a world where living trends have been a stewardship approach. This promises make it less cumbersome, faster, more the prescriptive nature of design or even 50 new homes could be place potential could build on that part permanently affected by the Covid-19 to form development partnerships that transparent and more certain. In codes which may not be conducive exempt from affordable housing of the Beauty In My Back Yard (BIMBY) pandemic. However, modelling the right refocus the profit motive of housebuilders particular, The Government wants to to facilitating innovative design contributions; Surplus public toolkit that identifies the most sustainable place for development cannot realise that towards longer-term outcomes. accelerate the delivery of housing. solutions for constrained sites. sector land to be made available to locations for development (see below). place potential in isolation. SME developers as a priority; and The full report by the BBBBC, along with Debate rages on about how radical and 2) Allocating land as Growth, large scale sites to be parcelled Within ‘UK Development Opportunities’ One of the gems in the BBBBC’s Knight Frank’s supporting research can indeed how deliverable ‘Planning for Renew or Protect – all land to be up between multiple developers we have adopted a top-down approach recommendations was its identification of be found on Gov.uk: https://www.gov. the Future’ actually is. Certainly, Local allocated in Local Plans in one of to increase delivery rates and to to identifying the most interesting Local a stewardship approach to development. uk/government/groups/building-better- Authorities are concerned about the three categories. We expect the diversify design. Authorities to develop in. Our approach A landowner’s rational self-interest in building-beautiful-commission streamlining envisaged, including a classifications to be hotly contested requirement to prepare Local Plans particularly in areas of significant 5) Tall Buildings – with a raft of new within 30 months rather the current conservation / heritage constraint permitted development rights for average of 7 years. or indeed green belt designations upward extension of residential which will see extensive ‘Protect’ premises and redevelopment of However, they are likely to welcome the allocations. Notably there are no new vacant commercial / industrial removal of the ‘Duty to Cooperate’ and proposals for Green Belt review. premises for residential ‘Test of Soundness’. Local Authorities alongside the reference to ‘gentle will also be concerned about seemingly 3) Fast tracking planning – by densification’ of our town centres, removing controls from Planning applying deemed consent the Planning Reforms are seeking Committees and about how they are (equivalent to outline planning to intensify development but do expected to fund the technology and permission) in ‘Growth’ areas; not seem to be predisposed to new skills required to modernise increasing the use of Permission facilitating tall buildings. The and standardise planning processes in Principle for brownfield implication is that proposals should and engage with communities more sites; and, introducing a new conform with locally set definitions meaningfully and earlier in the plan Development Consent Order of height and density and local making process. procedure for substantial residential design coding. It appears likely developments such as urban Further detail is required and it would therefore that a conventional full extensions or new settlements. BEING WITHIN be unwise to judge the reforms at this planning application route will still MORE TOOLS early stage until the consultations have 4) Creating opportunity for SME be required for tall buildings or FOR ASSESSING progressed and the detail has been housebuilders – The Government higher density developments that SITE SUITABILITY further fleshed out. We focus here on has made much of the over reliance don’t tick all of the policy boxes. The BIMBY toolkit overlays distances from amenities to objectively identify the most five key aspects of the Planning Reform on a handful of major housebuilders 400M OF 500M OF 500M OF 800M OF 2KM OF A We will be tracking the reforms with and the potential implications for delivering the majority of new sustainable location for new residential A BUS STOP A RETAIL SITE A PRIMARY A MEDICAL SECONDARY great interest in the coming months. developments. The most sustainable SCHOOL FACILITY SCHOOL housing delivery. homes in England. They see this as More change is afoot. locations are those that offer access to stifling creativity and contributing 1) A push for better quality the most amenities. In this prototype From here the analysis can eliminate areas already developed and protected areas to to supply issues. The White Paper design is writ large in the White geospatial analysis we scored according objectively score the best locations for development. and associated planning reforms Paper. A fast track for ‘beautiful’ to proximity to each of the following. seek to entice new and existing For more information, contact Knight Frank’s geospatial team. development proposals is proposed
PAGE 10 PAGE 11 Please get in touch with us
Residential Development
Justin Gaze Head of Residential Development Land Residential Research +44 20 7861 5407 Oliver Knight [email protected] Recent Publications Partner Charlie Dugdale +44 20 7861 5134 Partner, Land Agency and Consultancy [email protected]
- 8 .6 % - 6 . 2 % - 6 .0 % AVERAGE GREENFIELD DEVELOPMENT URBAN BROWNFIELD LAND VALUES PCL DEVELOPMENT LAND VALUES FELL Assessing the landscape for new homes, LAND PRICES FELL 6% IN Q2, TAKING FELL 6% IN Q2, RESULTING IN AN 6% IN Q2, WHILE PRICES ALSO FELL 6% THE ANNUAL DECLINE TO -8.6% ANNUAL FALL OF 6.2% ON AN ANNUAL BASIS planning and development +44 20 7861 5411 Residential London
Development knightfrank.com/research Residential knightfrank.com/research Land Index [email protected] Geospatial Research, Q2 2020
Despite a fall in development land values in the second quarter, there are signs that housebuilding Development is picking up
H1 2020 The interruption caused by Covid-19 ended which are going ahead generally doing of pent-up demand coming forward since what was a strong start to the year in terms so with payments being deferred or with the UK re-opened the housing market in of both land deals and sentiment. As such, Covid-19 clauses inserted into contracts. May, many buyers are waiting for a solid we see the potential for a sharp rebound in Many new sites which had been quarter of residential sales data before land values should the wider property and planned to launch for sale have also been acquiring land. economic market recovery be sustained, held back keeping already low supply A similar situation occurred in the particularly if supply levels remain at or levels minimal. Consequently, there is a bit aftermath of the EU Referendum, with near current low levels. of an impasse in the market. average PCL development land prices However, the immediate impact of the Interest has been strongest for falling by 6.9% in Q2 2016, and -9.4% on Stuart Baillie Ian McGuiness pandemic has been a drop in land values, strategic or conditional land sites which an annual basis, before rising to -1% in according to our index. include an income-producing element. Q3 of that year. In prime central London, average There is also evidence of developers of The economic uncertainty has residential development land prices fell alternative-use classes, such as build- already inevitably had a knock-on effect 6%, the first quarterly decline since Q1 to-rent and senior living, looking to on house prices, which fell 1.4% on a 2019. Average values were also down capitalise on reduced competition. monthly basis in June and 0.1% annually, 6% on an annual basis, following a static At the same time, some housebuilders according to Nationwide. period that came after years of very strong and developers are increasing their profit But there are also positive signals growth, meaning the index has returned margins to reflect increased uncertainty in the market. Agents are not reporting Head of Planning Head of Geospatial to 2013 levels. as the UK works on rebuilding its economy much distress among landowners, for Greenfield development land prices in the aftermath of Covid-19. This is also example, which would lead to more fell by 6% between April and the end of feeding into land prices. Despite a period substantial price discounts. June, taking the annual fall to 8.6%. Urban brownfield land prices also Fig 1. Residential development land prices fell 6% during the quarter, and by 6.2% Index rebased 100 = Sep 2011 (Urban Brownfield = Dec 2014) year-on-year. A quarterly fall in land values reflects Prime Central London Urban Brownfield English Greenfield 150 the fact that vendors wanting to sell in 140 the current market are likely to need 130 +44 20 7861 1355 +44 20 7861 5201 120 to accept a discount – Taylor Wimpey 110 has reported seeing opportunities from 100 previously ongoing deals which have 90 80 failed to complete and new opportunities, Jun-17 Sep-11 Jun-12 Jun-13 Jun-15 Jun-19 Jun-16 Jun-14 including land portfolios, at lower prices. Jun-18 Jun-20 Transactional activity over the course Source: Knight Frank Research of the quarter has been limited, with deals Development – H1 2020 – H1 2020 Development London Residential Residential London Q2 2020 Land Index Residential [email protected] [email protected]
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