After months of speculation, measures to support London house building will be consulted on in the coming weeks.
Alongside the delayed budget, the talk of measures has effectively resulted in a cessation of market activity across the Greater London area.
“Survive to 2025”? Barely.
“Revive in 2026”. The new hope.
Land, baby, land
Everything starts with land and viability. Without it, no homes get built, and the sector capacity shrinks.
The current imperfect system of land sales relies primarily on private land owners picking their time to sell when it suits them.
There is limited opportunity in the public land market. For housing, it has threadbare viability as there has been no land value from the 50pc 2016 threshold. A drop to 35%? Try again. Shouldn’t it also be lower when we have established 35% of nothing is nothing?
Next generation
My worry is sector capacity. It’s now shrinking for every month of delay as tomorrow’s builders choose alternative career paths.
Thinking back to when I was entering London surveying in the early 2000s, I thought the office sector was the only way to go. You had inspiring buildings such as Gherkin, Heron Tower, The Shard. Going into an office was, after all, novel when you were 22. By accident however, I landed in “Res Dev”, the poorer, unloved cousin, and found far more purpose, complexity and challenge (although that’s all relative now).
Bright young surveyors now? They’re heading for logistics, data centres, offices — anywhere non-political and growing. No one wants to spend years working on unviable appraisals, unable to see the red line plans turn into actual people’s homes.
Consultation, again…
The consultation period for the emergency measures will freeze the land market which is in an already perilous state. Uncertainty is the enemy of investment.
Land owners have zero incentive to sell, and the viability mandated “20% over EUV” is not enough for many of them to put land into housing development. It’s also well known that the viability system has been bent out of shape to suit political outcomes. Landowners do other things with their sites and investors have run to the hills.
What’s working and what’s not
For the past year the only development land being sold was to Lidl, hotels and to Alternative living developers. Not that that’s easy. We at Urban Sketch are busy helping people solve for complexity. There is a market, but it is not scaleable.
Outside the last remaining housebuilders with London divisions, I don’t know a single private developer with a C3 build to sell strategy. Even the PLCs have various BTR programmes under way. Needs must, if you have to exit then BTR is a sensible tactic but it isn’t what they would have wanted.
Review mechanisms remain, meaning equity will still choose alternative options, as we have highlighted before[WG1] . Those that think they work should check how many have paid out and speak to any land agent who has been tasked to sell a site with one or a funding agent tasked to capitalise one.
Morale among the remaining land agents is low. Transactions are rarer still. Brain drain is real. Experienced professionals have left London Resi Land, for pastures new – Bristol, Manchester, the Middle East, single family housing. Many of these would have made the natural move “developer side”, no longer.
The reality check
With all the additional taxes introduced over the years, the affordable % has been the only pressure release after land value. But this is London, and there are alternative uses, or AUVs as they are termed in viability testing. Yet these are not recognised in the viability assessment parallel universe for residential land. This is ridiculous for a city which has 3-4 competing uses for every site and it playing its part in choking of potential housing land supply.
Does the potential of the headline measure – 20% affordable and a 50% CIL relief – change anything? On the margins, for some sites, maybe. But for the vast majority, no, and it certainly won’t attract meaningful capital back into our city. Recent decisions illustrate this:
- Barking BTR tower: 16% affordable (all DMR at 74–80%)
- Berkeley Beckton (3,000 homes): 6%
- Berkeley Peckham (867 homes, appeal pending): 12%
Example 1 – Real life land owners
We recently looked at a site where the land owner was offered 15m in 2016. £150k per plot is punchy, hence it didn’t progress. Today at 35pc, less homes/more staircases, it’s a negative land value, way below EUV.
At 20pc afforable, barely a positive LV. A great site for coliving (and housing numbers!) but with the early/late stage review threat only a hotelier will buy it, for much more, without planning, and with no Build Safety Act Gateway shenanigans.
Even if you can make a site like this stack on the new potential thresholds, is Fast Track even “Fast”? Average mid-sized brownfield in London now taking 5-6 years from purchase to Gateway 3. So fast is actually a bit less slow, especially compared to getting planning and building a logistics warehouse in Park Royal in three. Can you imagine explaining review mechanisms to an industrial agent? (Sorry).
Example 2 – Real life alternative uses.
A private residential developer recently secured planning for a mid-sized scheme in an affluent (£750psf) North London neighbourhood. Viab tested at 18% (all intermediate). What would have been the home for 100 people, has been sold without planning for and to a self-storage operator. Yes, self storage is worth more than residential land in many locations.
Why these thresholds?
I query the modelling analysis behind the 20pc threshold, especially as the whole point is to move the needle, not from deep freeze to fridge temperature, but to room temperature.
If the numbers don’t work in Example 1 & 2, they won’t work in Barking, Meridian Water or Old Oak. The lower and mid market in London will remain sub zero. Yet this is where the land reservoirs are.
There’s also no sales or RP market to even divest. Moreover, the numbers won’t stack when you layer over the economic outlook for the next 3-4 years.
Cost inflation is predicted to outflank sales and rents, with the Renters Rights Bill dampening inflation. Even with upbeat assumptions on sales values and more importantly sales rates, alternative uses will trump residential residual land values every time. Alternative uses are no longer the alternative , they are the new norm.
The sooner the viability guidance catches up and stops hurting housing supply, the better it is for housing delivery and ensuring the sector doesn’t shrink to extinction.
