UK Construction Recovery Hindered by Bloating Land Costs

Rising land prices is adding to the bloating costs burden facing Britain's house builders and threatens to disrupt their recovery.

Knight Frank, a property market research firm, said the value of land suitable for residential development in England and Wales shot up 7.3% across the year to March 2014.

It is a sharp upturn in residential house building that is powering the wider construction recovery.

This is off the back of a healing housing market, where schemes to boost mortgage lending by making loans cheaper to access have lifted demand and pushed up house prices.

Builders are chasing profits from the higher house prices. This is pushing up demand – and so the price – for land.

"As the demand for land increases, supply remains constrained, particularly 'oven ready' sites with planning permission. This has helped underpin prices," said Grainne Gilmore, head of UK residential research at Knight Frank.

"Additionally, the more buoyant market has cut average sales times, thereby reducing the cost of capital on schemes and allowing more room for land price growth."

Builders have seen their costs rise as their speedy recovery from the post-financial crisis collapse in output puts pressure on limited supplies. A shortage of materials and labour has driven up the prices of both.