Residential Land Values in Inner London

All over the UK, we see variances in residential land sale. For inner London, we see uncertainty pertaining to the residential market. Therefore, trying to determine a firm value is challenging. We do know that across London, the amount of sales has been limited even though it is clear demand is high. Keep in mind that when it comes to the smaller sites, demand is the greatest but unfortunately, the requirement to provide affordable housing is nonexistent.

In Kensington and Chelsea there is no sales evidence for bare sites. Whilst the market in second hand property is still falling generally, demand for any bare site coming onto the market in Chelsea is still such that the price per hectare will be maintained due to the scarcity factor for such prime sites. There is a large-scale flat redevelopment nearing completion in W8. Although demand for property is not as strong as one to two years ago, it is not considered there has yet been an impact upon residential land values in the area.

For Southwark and Lambeth regions, residential land sales have slowed down over the past several months. In fact, in addition to fewer land sales, most of the major transactions have been to builders for the public sector. One of the major factors is affordable housing, a factor by which private developers were able to accommodate during times when the market was climbing.

Now that we see a more static market and even predictions of a decline, more and more developers are backing off due to financial risk concerns associated with purchasing sites only to have to offer the public low cost units. For the developer, this would mean profit loss, something they are simply not willing to take.

Even for Wandsworth, developers are being extremely cautious. For one thing, sales have been limited. For the sites that have been sold, most are small infill plots, consisting of just 0.1 hectare. What is see, is a stabilisation of the second hand market, which has resulted in prices falling. Experts believe this same trend is going to follow the residential land market. The only exception would be river frontage or other prominent land sites, which would still sell for a high price.

For major developers, large schemes would draw them in but when it comes to affordable housing, as well as the degree of available funding, most final sales are site specific and hard to translate to other sites. Look at Paddington and Maida Vale for instance, sales of sites are not evident. In general, these areas within inner London have slowed down specific to the residential market. Then, for the sites in these areas that would be for sale, we are looking at Brownfield.

Another challenge for Paddington and Maida Vale is that developers are showing concern about both risk and cost that goes along with cleaning up and decontaminating the Brownfield sites. Other challenges involve the infrastructure and relocation of existing occupations or uses to the Brownfield sites. Obviously, buyers and developers both are more interested in Greenfield sites than they are Brownfield sites. Even so, a drop in value for Brownfield sites is not evident and in fact, with a limited supply for Brownfield sites, value remains level.

If you head over to the region of Hammersmith, we see virtually no sales specific to bare sites that would be used for development. While the value of second hand property is declining, overall land values are not being affected by this, partly because of bare land in this borough. For Newham, Islington, Tower Hamlets, and Hackney, the past 12 months has seen an emphasis on pressures by the central and local government, which has pushed higher densities for residential land, thereby increasing values for development land.

The trend we see is that Inner City Boroughs rarely dismiss schemes based on density grounds, especial when the key worker or affordable housing is something within reach and land use would have social benefit. In addition, when you find a flourishing housing market along with densities that are more than the normal standard for the UDP, a strong residential land market is created.

The challenge is that these factors are starting to become unbalanced, which means developers are unsure how receipts and growing building costs would be affected. Chances are that the level of inbuilt risk and profit potential could be increased. In fact, these possibilities are now being seen by the reduced number of sales instead of a decline specific to residential land values. What we see is an increasing presence of mix-up schemes, which could be from the requirements of both developers and planners spreading out the risk.

In addition, with former Hospital and Local Authority land now being disposed of, this type of mix-up scheme is being promoted. However, this often means including land with a social benefit such as health or education, which may or may not be under Section 106. Overall, a number of geographical factors are influencing all of these inner London locations. While we see some residential land sales going up, some going down, and some remaining level, the overall picture is that the residential land market is stable.

- James M

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