Build cost challenges have become the undeniable undertone of every land and development conversation I have these days. What started as a gentle wave of increases in January 2021 grew into a tsunami of core item price explosions, as we have all seen. Very dramatic language, but as we all know, these hikes can have drastic effect on real land values, as played out below.

Last month, at our Land Boardroom meeting attended by independent land sourcers, we focused on financial appraisals as the session for our various land sourcing partners. Why? Because so many private landowners, and seemingly formal land agents, still haven’t fully grasped the effect build costs are having on land values. Someone needs to educate them.

The Department for Business, Energy and Industrial Strategy states construction material costs from January 2021 to January 2022 were up 19% for new housing. The room agreed wholeheartedly that the grave news about commercial build costs hadn’t quite squeezed in alongside constant mainstream news about house price growth, which landowners still often see as direct growth in the price of land. Oh, and if they’ve seen stories about future declines, then that’s just rumours of course.

I shared with our wider land sourcing partners a recent industry survey of 40 SME developers, showing that £180 - £210/sq ft was identified as their average new build rate for a basic product. In our Real Developers Boardroom meeting two weeks prior, the room indicated that a £220/sq ft build cost was an absolute minimum for a quality, mid-market family home.

On the opposite side of the coin, we had a very experienced private portfolio landowner send us their own appraisal for a site they wanted us to help sell off-market, showing the assumed build cost of £160/sq ft on average. This quoted rate, was almost exactly the 19% increase seen from January 2021 to 2022.