How Much Is Development Land Worth?

There is no fixed price per acre for development land. Its value depends principally on what can be built, what the completed development will be worth and how much it will cost to deliver. This means a relatively small site in a high-value location can be worth considerably more than a much larger piece of land elsewhere. Planning status, local house prices, access, development costs and site-specific constraints can all make a substantial difference. For most residential development sites, developers work backwards from the value of the completed scheme to establish what they can afford to pay for the land.

How Much Does Development Land Sell For?

Development land can be worth substantially more than agricultural, amenity or garden land, but there is no reliable national price per acre. The important question is not simply how large the site is, but how much viable development it can accommodate. For example, two one-acre sites may have completely different values. One might accommodate several high-value houses with straightforward access and few abnormal costs. Another may have a lower development density, expensive highway works, drainage problems or significant planning obligations. For this reason, headline figures for the value of development land per acre should be treated with caution.

How Do Developers Calculate Land Value?

Developers commonly use a residual land valuation.

In simple terms:

Gross Development Value (GDV)
– Development Costs
– Developer's Profit
= Residual Land Value

The Gross Development Value is the estimated value of all the completed properties.

From this, the developer must allow for costs which can include:

• Construction

• Roads, drainage and landscaping

• Professional and planning fees

• Finance

• Marketing and sales costs

• CIL and Section 106 contributions

• Affordable housing requirements

• Utility connections

• Demolition and site clearance

• Abnormal foundations or ground conditions

• Ecology and Biodiversity Net Gain requirements

• Developer's required profit

The amount remaining after these costs have been deducted gives an indication of what the developer can afford to pay for the land.

A Simple Example

Suppose a site could accommodate four houses which are expected to sell for £500,000 each. The Gross Development Value would therefore be:

4 × £500,000 = £2,000,000

That does not mean the land is worth £2 million. The developer must deduct the cost of constructing the houses, professional fees, finance, roads and infrastructure, planning obligations, selling costs, any abnormal site costs and the profit required to make the project worthwhile. What remains is the residual value attributable to the land. This is why apparently small changes in development costs or anticipated selling prices can have a surprisingly large effect on land value.

How Much Will a Developer Pay for My Land?

A developer will generally pay what their appraisal shows the site can support while still providing an acceptable commercial return, however, this does not mean that every developer will arrive at the same figure. One developer may have lower construction costs. Another may be able to achieve a higher density or believe the finished houses will sell for more. Their finance costs and required profit margins may also differ. Some buyers may already be building nearby or have particular reasons for wanting a site. As a result, two perfectly credible developers can make substantially different offers for the same piece of land.

This is one reason why properly exposing development land to the market can be important. The highest achievable value is not necessarily represented by the first developer's appraisal.

For smaller sites and individual building plots, a self-builder may sometimes pay more than a commercial developer because they are buying a place to build their own home rather than working to a developer's required profit margin.

Is Land Worth More With Planning Permission?

Generally, yes.

Planning permission removes a significant element of uncertainty and establishes what can be built. Land with a suitable residential planning consent will therefore normally be worth considerably more than land without permission, however, obtaining planning permission does not automatically maximise value.

The value of the consent depends on what has actually been approved. A poorly designed scheme, inappropriate housing mix, excessive planning obligations or expensive infrastructure requirements can reduce the amount a developer is able to pay. There are also circumstances where it may be sensible to market land before planning permission has been obtained, particularly where developers are prepared to take on the planning process themselves. The best route depends on the site, its planning prospects and the landowner's objectives.

What Can Reduce Development Land Value?

Anything that increases the cost, time or risk involved in delivering a development can affect land value.

Common examples include:

• Difficult or inadequate access

• Flood risk

• Contaminated land

• Poor ground conditions

• Steeply sloping sites

• Expensive drainage requirements

• Utility diversions or connections

• Protected trees

• Ecology requirements

• Biodiversity Net Gain

• Archaeology

• CIL and Section 106 contributions

• Affordable housing requirements

• Restrictive covenants or title problems

The existence of a constraint does not necessarily mean that land cannot be developed. Developers regularly deal with difficult sites. The important question is usually what the constraint costs to overcome and how that affects the residual land value.

Does the Size of the Site Matter?

Yes, but bigger does not necessarily mean more valuable. Large strategic sites may appeal to national and regional housebuilders, while smaller developers frequently look for schemes of perhaps a handful of houses. Single building plots, garden land and small infill sites can also be particularly attractive to self-builders.

The likely buyer therefore depends partly on the scale and nature of the opportunity. Finding the right type of buyer can be just as important as establishing the theoretical value of the land.

What About Land Without Planning Permission?

Land does not necessarily need planning permission before it has development value. A site may have what is often described as hope value where there is a realistic prospect of development in the future. Its potential will depend on matters such as its location, surrounding development, local planning policy, access, environmental constraints and the local authority's approach to future development. A developer or land promoter may therefore be interested in acquiring, optioning or promoting land before planning permission has been granted. The appropriate strategy can be very different from selling a site which already has consent.

How Can I Find Out What My Development Land Is Worth?

The starting point should be an appraisal of the development opportunity rather than simply applying an average price per acre.

At The Land Bank Partnership, we assess sites by considering factors including:

• Planning status and development potential

• Likely number and type of properties

• Local new-build sales values

• Gross Development Value

• Construction and abnormal costs

• Planning obligations

• Likely developer demand

• The most appropriate type of purchaser

We work with developers, investors and self-build buyers across the UK and have particularly strong experience throughout Bristol, the South West and surrounding counties.

Our initial land appraisals are free and without obligation. You do not need to have planning permission or be ready to sell; sometimes the purpose of an appraisal is simply to understand whether a piece of land is worth investigating further.

If you own land with possible development potential, contact us and we can give you an initial view of the site, its potential value and the most appropriate route to market.