Land shortages and supply chain delays put new homes delivery at risk

The delivery of new homes is at risk because of land shortages and supply chain delays, according to a new report by Knight Frank.

The global property consultancy surveyed nearly 40 of England’s leading volume and SME housebuilders for its quarterly Land Index report.

The firm found that 70% of the respondents described the current supply of land available for development as either ‘limited’ or ‘very limited’, with a third citing planning delays as a growing concern.

However, respondents were divided about whether the government’s zoning plans would increase the supply of land. Under the reforms, councils will use a zoning system to assign ‘growth’, ‘protection’ or ‘renewal’ zones in their local plans.

In total, 40% said they would not, while 30% said they would. Supply chain shortages are also a concern. Supplies of materials and labour have become less resilient in recent months because of a combination of Brexit, Covid-19 and the delivery of HS2. The problem was reported by SMEs and volume housebuilders alike, with 26% of both groups reporting supply shortages of key building materials.

Justin Gaze, Head of Residential Development Land at Knight Frank, said: “Covid-19 quarantine restriction led to logistical bottlenecks around the world. For England’s housing sector, the issue has been exacerbated by high levels of construction activity following the seven-week housing market shutdown last year and the subsequent exceptional demand for housing to meet post Covid-19 needs.”

Overall, 40% of Knight Frank’s respondents said they had been forced to reduce their profit margins in Q2, which have come under pressure as house prices moderate and build costs increase, with supply shortages driving material cost inflation.

Land values

Despite supply chain issues and rising build costs, housebuilders are seeking to replenish their pipelines after scaling back from investing in 2020. The rise in demand for land is in some cases causing prices to increase, particularly greenfield sites as housebuilders are focused on building housing schemes with access to open space.

Greenfield land prices in Q2 have strengthened, rising 8% as housebuilders focused on increasing their pipelines of land. Annually, greenfield values rose 9.1%.

Average land prices in Prime Central London (PCL) were flat on a quarterly basis,but increased by 4.7% across the year.

Values were largely flat across regional cities and Greater London, Knight Frank reporting slower demand and tighter margins against rising build costs. Brownfield land prices were flat on the quarter but up 4.3% compared to a year ago.

Anna Ward, an Associate in the Residential Research team at Knight Frank, said: “Looking forward to Q3, there are a number of factors that could present difficulties for housebuilders. We’ll be carefully watching how the end of the Stamp Duty holiday and the UK’s post-Covid-19 recovery will impact delivery. In addition, material shortages have become a much more significant issue over the last three months; how this plays out next quarter will be important for housebuilder profit margins.”