An uptick in new build sales across Scotland is hastening the demand for residential development land. However, against this backdrop of buoyant demand, the supply of consented land is reducing.

The latest figures available show the number of major housing development planning applications in Scotland over the 12 months to March 2023 fell to 97, the lowest in five years, compared to 175 in 2019/20. According to Savills, prolonged decision times for planning consents continue to challenge developers, contributing to an -11% decline in new build completions across all sectors, from 23,693 in 2022 to 20,992 in 2023.

Faisal Choudhry, head of residential research in Scotland at Savills, emphasised the positive impact of rising new build sales on land demand in Market in Minutes: Scotland Residential Development Market.

“The momentum in new build sales rates has restored confidence among land buyers. We’re witnessing a slight upward trend in new development opportunities and more players re-entering the market, translating into increased bids per site.”

Choudhry highlighted the significant constraints impacting the market. He said: “The constrained supply of consented sites, particularly in Edinburgh and Glasgow, is impacting new build completions. Edinburgh saw only four major housing development applications determined in the 12 months to March 2023, leading to a -21% drop in annual completions. Glasgow, despite an 11% rise in major housing planning applications, averaged just 25.2 annual completions per 10,000 population over the past decade, lagging behind surrounding areas.”

Under Scotland’s National Planning Framework 4 (NPF4), a Minimum All-Tenure Housing Land Requirement (MATHLR) must be met over a 10-year period by planning authorities. Both Edinburgh and Glasgow have fallen short of these targets, with completions over the last decade being -40% and -23% respectively below their MATHLR.

Challenges such as planning delays, rising build costs, and new regulations continue to impact the future supply of land and new home production. Under NPF4, development proposals are likely to be supported only if allocated in a Local Development Plan (LDP). Speculative planning applications on unallocated sites, especially for housing, face difficulties in securing permission.

Ben Brough, head of residential development in Scotland, commented: “The scarcity of consented housing sites in the central belt is currently driving land market prices. While sentiment in this sector has been negative following the mini budget, we are now seeing some really competitive headline offers again and a general feeling that house builder margins are reducing to secure available stock.

“In a country that has just declared a national housing crisis we need to see a lot more done at local authority and government level to fast track planning and new Local Development Plans. The drop in completions and new consents is alarming. Both NPF4 and the proposed Housing Bill need to be reconsidered against this backdrop otherwise these statistics will only get worse.”

Choudhry concluded: “The reliance on brownfield sites for new housing under NPF4 marks a significant policy shift, given that most recent developments have been on greenfield land. The high cost of materials and labour, along with new regulations like the New Build Heat Standard, add further complexities. However, the persistent demand/supply imbalance is driving up land values, particularly for greenfield sites in the peripheries of Edinburgh and Glasgow, where we’ve observed notable value increases.”

As Scotland’s housing market continues to improve throughout 2024 with easing mortgage rates, house prices are expected to rise by 4.0% by the end of the year compared to 2023. Accurate pricing remains crucial, given the increased levels of unsold stock and buyer caution. With stable sales rates, major housebuilders are anticipated to increase activity, supporting competition for land. Developer interests are likely to shift towards areas surrounding the main cities and those with intermittent development activity, such as Perthshire and Stirlingshire, amid the evolving NPF4 landscape.

Savills reports a resurgence in market confidence among land buyers across the UK, with a net balance of 64% of its development agents noting positive market sentiment in Q2 2024. This represents a significant increase from the 31% reported in Q2 2023, and this renewed optimism is manifesting in more development opportunities and increased bids per site.