What Types of UK Land Can Be Used for Residential Housing Development?

Continued attention from the media and from Government about the shortage of housing leaves many scratching their heads. Why aren’t there more houses? And with so much foreign money coming into the UK to buy luxury homes and businesses, why isn’t anyone investing in middle class housing?

In fact, those investments are rising. Government schemes to help working people to take their first step onto the property ladder have enabled more people to get more mortgage loans since 2013. Homebuilders and real asset portfolio investors have consequently increased activity.

But there is a lag between demand and supply, due in no small part to the complex and diverse nature of residential real estate development. There are all types of land found throughout England and Wales that may appear to be good for building, but a closer look reveals why some sites would work and others would not. Consider four types of UK investment land and how they vary:

1.Urban-Suburban/Extant building demolition/preservation – Land that is closer to city centres will always be more valuable. But of course this means the cost to purchase will be higher, quite likely diminishing the profits to be realised from a resale (even after site assembly improvements). Further complicating matters might be the existence of structures that do not fit the development plan, such as multi-storey buildings that would be expensive to demolish or buildings of historical value and thus given heritage protection that precludes feasible repurposing.

2.Agricultural/Existing infrastructure or lack thereof – Farmland is by far the least expensive property on which to build (after planning authority change of use is approved). But it quite likely will lack for infrastructure of all kinds – roads, utilities, schools and hospitals. The real asset funds that underwrite the development might need to allocate a greater budget to this than an alternative property.

3.Agricultural/Relative proximity to employment – The whole of the UK is driving toward increasing the housing stock to accommodate as many as one million households that currently are sharing homes with extended families and friends. And while the central Government has tasked the local councils to write up plans for how they can add to their housing inventory, it makes no sense to build where people will be far removed from jobs. It would be better for site selection to be based on where employment is growing.

4.Brownfield/Cost of remediation – It is generally agreed that an ideal scenario for building would be in cities where land stands vacant due to abandoned industrial and commercial enterprise. The advantages often include access to urban amenities (public transportation, shopping, schools, etc.), established utilities (especially water, electric and wastewater) and perhaps development tax incentives. Not all these factors are always there, however. But even if they were, there may still be site contamination remediation and building demolition costs (exception: when an industrial-purpose building can be repurposed to residences). Remediation of toxic contamination in particular can be significantly expensive in materials, labour and time.

As should be clear, all sites are different and as such they need to be evaluated individually by astute specialists such as experienced property fund managers. For the individual investor, consultation with an independent financial advisor can yield important insight into the appropriateness of such an investment in that individual’s portfolio.