From setbacks to optimism
A deep dive into the 2024 residential development sector
This year started with a number of major challenges for the housing market, but it is finishing with more positivity.
For the first half of 2024, there was a continued decline in housing pipeline approvals, with planning permissions granted 9% down and the number of units approved 12% lower compared to the same period in 2023.
Despite these initial setbacks, the prevailing market sentiment is more optimistic following Labour’s landslide victory in the General Election.
This has been driven by several key factors including:
• Government initiatives: The newly elected Government has pledged to build 1.5 million new homes over the next five years – a promise that has garnered significant public attention.
• Favourable mortgage rates: Mortgage rates have decreased from 5.19% before June 2024 to as low as 3.79% for a five-year fixed rate.
• Interest rate projections: The Bank of England have reduced interest rates to 4.75%, with further cuts expected potentially reaching 3.5% by 2026.
• House price trends: The Halifax House Price Index reported a 0.2% month-on-month increase in house prices for the fourth consecutive month.
• RICS forecast: The Royal Institution of Chartered Surveyors (RICS) anticipates a 5% annual rise in house prices in 2025, the strongest growth rate since November 2022.
• Inflation and investment: With inflation hovering around 2%, the projected 5% growth in house prices for 2025 presents a highly attractive investment opportunity. However, the current shortage of new land supply poses a significant challenge for developers and housebuilders as they look to secure future pipeline.
While land values remain stable, the process of securing land deals is taking longer than it did two years ago.
Major players in the market are adopting varied strategies: some are focusing on margins, improving their competitiveness, while others are selling serviced land parcels on large sites to mitigate risks, release capital, and acquire smaller sites.
Greenfield and Urban Land Values
The market is showing tentative signs of improvement. The balance between land supply and housing demand is crucial in determining future land values. Any limitation on land supply will ensure that land values remain resilient. Conversely, if supply increases faster than demand, there will be a corresponding rise in transaction volumes, leading to downward pressure on land prices.
The current shortage of greenfield land suggests that short-term values will remain resilient, while viability issues continue to influence urban site values. Although there has been an increase in bid levels for optimally sized sites in primary greenfield areas, this trend is not mirrored in other markets.
Brownfield Sites
High-density, flat-led schemes in urban locations face challenges due to higher risk profiles, additional build costs, increased borrowing costs, and lower confidence in the future viability of these sites. Values for urban student accommodation appear to exceed those for Build to Rent and private sale. However, there is continued optimism regarding the future of Build to Rent having a larger share of the development market, but currently, the funding market for this is on the reserved side.
New Build
According to Energy Performance Certificate (EPC) data, 229,700 new homes were completed in the 12 months to June 2024, suggesting that the annual supply of new homes continues to hover around 230,000 since the end of 2023.
However, some commentators believe that housing completions could fall as low as 160,000 by 2025/26 further restricting supply.
For example there are two sets of data that display this deterioration:
• Construction output, according to ONS, was recorded as being over 15% lower than in 2019.
• According to the National House Building Council (NHBC) in August 2024, annualised starts between Q2 2023 and Q2 2024 fell by 55%.
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Biodiversity Net Gain (BNG) Insights
Ten months after the introduction of mandatory Biodiversity Net Gain (BNG) for planning applications across England, our natural capital experts have observed a rise in BNG and habitat offsetting activities. Here are some key points to consider during the development process:
• BNG is complex and should be understood early in the development process
• Optimising the redline boundary is crucial to streamline the planning process and manage costs associated with achieving BNG
• Net Gain Plan submission and approval can significantly delay the process of discharging a consent
• Careful consideration is needed to determine the best approach for achieving BNG. Is onsite mitigation suitable and desirable? If offsetting, where and by whom will it be provided? There is no one-size-fits-all solution, and costs and long-term liabilities must be carefully evaluated
• Supply of offset units is growing, but there are still relatively few fully registered units with inconsistent provision across planning authorities
• Trading rules – not all offset units are equal. Understand the specific type of units required, their availability and pricing. Watercourse units, in particular, will be challenging
• Inconsistency among Local Planning Authority approaches and charges related to BNG remains an issue
• Small sites face additional challenges due to limited unit availability and disproportionately high costs for partial or small numbers of units
Our natural capital experts, Tom Beeley and Christy Wells have first-hand experience in helping clients navigate the BNG process, advising on habitat offsetting and supporting the acquisition of habitat units. If you need assistance with BNG or offsetting please get in touch.
Birmingham: A city of opportunities
It’s been 12 months since we opened our new office at 15 Colmore Row, right in the heart of Birmingham. Over the past few years, Birmingham, the UK’s second city, has faced significant challenges, including the Council issuing a section 114 notice, effectively declaring itself bankrupt.
Despite these hurdles, Birmingham and the wider West Midlands region have demonstrated remarkable resilience. As proud members of the Greater Birmingham Chambers of Commerce, we are excited to share insights from their latest Birmingham Economic Review, which highlights the region’s potential and opportunities:
High Speed 2 (HS2)
The construction of HS2 is progressing well, with new funding allocated for tunnelling between Old Oak Common and London Euston. This will enhance the connection between Birmingham Curzon Street and central London.
Devolution
The West Midlands Combined Authority has secured over £1.5 billion to drive economic growth in the region. This deal includes greater retention powers over business rates, increased flexibility for brownfield regeneration, funding to deliver affordable housing quickly, and additional resources for retrofitting housing.
christy.wells@fishergerman.co.uk 01234 827110
Investment Zones
The West Midlands Investment Zone will focus on three key sites: Birmingham Knowledge Quarter, Coventry & Warwick Giga Park, and Wolverhampton Green Innovation Corridor. These zones are expected to generate £5.5 billion in growth and create 30,000 jobs across the West Midlands over the next decade.
Maximising Foreign Direct Investment (FDI)
In 2023-24, the West Midlands achieved the joint highest number of FDI projects outside of London, creating 7,581 new jobs –the highest of any UK region outside of London.
For more detailed insights, you can view the summary or full report here.
Feel free to reach out to a member of our Development team for your free assessment:
426 0834
236011
0121 426 0888
01530 567465
Tom
Christy Wells
