Land for homes cost falls in wake of Brexit vote

Caution from builders about effect of EU leave vote on market sees residential land prices in London fall to 2014 levels, with construction costs also a factor

The price of land earmarked for building homes fell between April and the end of June as developers became more cautious about the outlook for the market in the wake of the Brexit vote.

The biggest fall was in prime central London, where the price of residential land was down by 9.4% year-on-year in June, according to figures from property firm Knight Frank.

This took prices to a level last seen in 2014, as the building boom in the capital was getting underway. In June of that year, prime central London land prices were up by 18.9% annually, and the figure had increased to 24% by December 2014.

Knight Frank’s land index looks at the price paid for sites being sold or sold for residential development, many of which will have outline planning permission.

Across England, the firm said the price paid for greenfield development sites was down by 2.3% in the second quarter of the year, and by 3.8% year-on-year. Urban sites dipped by 1.1% in the quarter, but were selling for 9.1% more than in June 2014.

Gráinne Gilmore, head of UK residential research at Knight Frank, said developers had reported that activity continued in the run-up to the EU referendum vote.

“However, some housebuilders and developers are increasing their margins and hurdle rates on greenfield and prime central London land deals,” she said.

“This is in order to allow for increased uncertainty over the future economic landscape as the UK negotiates its way to a new position within the Europe.”

Gilmore said rising construction costs were also a factor “especially in the central London market. Here the cost of construction is altering the viability of some sites and in some cases this has led to a trimming of land costs. Here the cost of construction is altering the viability of some sites and in some cases this has led to a trimming of land costs.”

In early July, figures showed that the construction industry had slumped in the run-up to the EU referendum and Britain’s biggest housebuilder, Barratt Developments, said it was reviewing its building and land-buying programmes.

A number of organisations have reported falling house prices in prime central London, and developers have been offering incentives to encourage buyers to some of the capital’s new build homes.