An interesting read from Savills’ Residential Development Land Update (Savills UK | Market in Minutes: Residential Development Land – Q1 2025).
I’ve shared my thoughts on this below:
- Sentiment – Savills are reporting “cautiously positive” sentiment in the market with continued growth in transactions and house prices. US Trump trade tariffs are however still causing some concerns in the market, resulting in economic uncertainty. On one hand, this could potentially put buyers off purchasing homes until the economic situation becomes more certain. On the other hand, the economic uncertainty may result in decreased interest and mortgage rates to stimulate activity. This could in fact move the land market forward if rates fall lower than what we’ve seen in the past few years. It is too early to assess the impact at the moment, but watch this space!
- What is affecting housebuilders/developers – Savills are reporting continuing cost pressure, particularly around build cost inflation and viability. Housebuilders have also been concerned about the new Building Safety Levy, which the Home Builders Federation (HBF) have referred to as an “anti-development tax”. This will come into force in August 2026 and is essentially a tax on all new homes. The additional cost burden will impact how much developers can pay for land. HBF’s concern (which I also share) is that we risk fewer homes being built as a result.
- Affordable/Section 106 Opportunities – There does not appear to be much appetite in the market at the moment for section 106 deals. RPs/Housing Associations have come under financial pressures, including dealing with regulatory changes around building safety and higher cost of debt (amongst other things). An additional £2 billion of grant funding has recently been announced in the current Affordable Homes Programme, but as Savills suggest, this is unlikely to be enough to “turn the dial”. Some local authorities are awake to the issue and have introduced more flexibility including cascade mechanisms in section 106 agreements, alternative partnering structures and using commuted sums. In my view, we need more local authorities to be alive to this issue and offer more flexibility in section 106 agreements so that delivery on sites is not delayed.
In the last six months, the development land market had started to return to a pattern of steady value growth for greenfield land, characteristic of the period before Covid-19. However, the current level of economic uncertainty will impact confidence in the land market, as buyers will be tempted to delay deals until the impact of the trade tariffs on the UK economy becomes clearer.