Residential land values stabilise as sentiment begins to turn

“Years on from the pandemic, buyers still put a premium on space, and the rise of remote working means demand for city-centre living is not back to where it was.”

That was Knight Frank's Tom Bill this week speaking to the FT after official figures revealed that UK apartment prices fell 0.5% in the year to December, driven by a 3.6% decline in the capital and a 5.9% drop in inner London. Kensington and Chelsea, Westminster, Camden and Hammersmith registered double-digit declines.

Buyers will be hard-pressed to find a better time to invest, given supply is elevated and values are at cycle lows. This year is likely to be sluggish – our forecasts suggest values will remain flat in prime central London – but from 2027 onwards the collapse in construction will begin to bite. That's likely to coincide with a broader market recovery, and growth is likely to gather momentum through to 2030.

Lifting sentiment

Last week, our Residential Development Land Index revealed that land values remained flat through the final quarter of 2025 – annual declines of 5% for urban brownfield and greenfield land, and a 3% decline in prime central London, are likely to mark the bottom of the cycle.

Government borrowing costs stabilised following the November Budget, which paved the way for mortgage rates to ease through January. Soft inflation and jobs data this week have increased the odds that the Bank of England will cut twice this year. The improved outlook for rates that began late last year lifted sentiment among developers and housebuilders, and there have been tentative signs of a recovery in appetite for land emerging through December and January.

Yesterday we published our quarterly survey of small and volume housebuilders. Some 57% of respondents said site visits and reservations declined during the final quarter, compared to less than 10% that registered an increase. A third said there was no change. Buyer sentiment, the short-term outlook for the UK economy and planning delays were cited as the most significant constraints during the quarter. Almost half of respondents reported that land supply was constrained, with many site owners unwilling to transact at price levels that would support development viability.

Reservation volumes

Emergency measures to unlock development announced by the Greater London Authority in October, which include a fast-tracked planning route for sites that provide at least 20% affordable housing on private land, are likely to be ‘largely ineffective’, according to 44% of our respondents. The same proportion said they will help at the margins, without being transformational. A little more than 10% said they would be very effective.

Developers expect the challenges through Q1 to remain largely the same; buyer sentiment, the UK economic outlook, mortgage availability and costs and planning delays were the most common choices. Still, the survey confirms a tentative recovery in sentiment; nearly 30% expect reservation volumes to improve through Q1, 57% expect no change and just 14% expect weaker demand.

This points to a modest uplift in development activity. More than half of respondents expect to start more homes than in the previous quarter, 43% anticipate no change, and fewer than 5% expect to scale back activity. Still, nearly half expect land values to remain static through Q1, while 38% expect further easing. We also asked respondents to rank factors that were most likely to increase their appetite for land and development. More first-time buyer support was the clear priority, followed by interest rate cuts, planning reform and further falls in land values.

Buyer support

The government’s policy agenda has so far been positive, though it has largely focused on supply-side measures. Increases in technical staff at the Building Safety Regulator have started to ease delays in the Gateway 2 process, though it still adds significant uncertainty. Amendments to the Planning and Infrastructure Bill announced in October may limit opposition to residential projects, while larger sites may soon be subject to a new fast-track process.

A decision on the Greater London Authority's consultation on cutting affordable housing thresholds and easing some of London’s many prescriptive design requirements will arrive in the coming months. Some of these changes may help at the margins, but they are unlikely to be enough to enable delivery to meet the government’s targets.
A meaningful increase in delivery will hinge on reducing the risks presented by the planning system, particularly an overhaul of the late-stage review process. And while leading fixed rate mortgages should drop below 3.5% by spring, which will improve affordability at the margins, a targeted buyer support scheme would do much more to unlock development.

In other news...

Miami Waldorf Developer Pitches Second 1,000-Foot Skyscraper (Bloomberg), Marylebone property prices are ‘defying gravity’ (FT), and finally, chef to super-rich: ‘idiotic’ taxes have forced half my customers to flee (Times).