The residential land forecast

The UK forecast continues to show modest increases in land values with an average 10% increase during the year to July 2007, with this level of increase continuing in the medium term.

Uncertainties in the market at a national level were added to by the clear expectation interest rates would rise (as they subsequently did in August 2006). New development sites remain in short supply, many Local Planning Authorities seeking to increase the number of affordable housing units required and the proposals for a Planning Gain Supplement Tax all remained topical factors.

However the fundamental excess of demand over the supply of UK housing remains a strong underpinning factor.

A feature of the residential land market is the ‘lumpiness’ of changes in value making forecasting somewhat more hazardous than for markets that respond in a more controlled way to changes in the market place. The forecasts need to be taken together with all other market information that is taken into account in any decision making process.

Background information

The forecasts have been provided by Technical Forecasts Limited, an established company that is at the forefront in the development of forecasting techniques for the property sector. The techniques adopted for the original series of forecasts published in the Property Market Report have been undergoing continual development. These new systems are based on Bayesian principles and techniques for finding the best average forecasts, given current market forces.

Data source

The forecasts are based on residential land values which have been prepared by the Valuation Office since 1983. The residential data is based on opinion of value of land in typical locations throughout England assuming the site has a planning permission typical for the location, is ripe for development and has services to the edge of the site.

Methodology

The forecast uses Technical Forecasts' latest methods for forecasting property time series. Radial basis functions have been adopted (a type of neural network) together with information from economic, financial and other property series. The programs select the best economic, financial and property series that give the maximum amount of information to the series. Bayesian statistical methods are then used to give the most probable future course of the Land series, given the past data.

The forecasts are made on the basis of relationships that exist in the past history of the data series along with associated economic and financial data. The methods used Construction Orders, Bank of England base rates, Government data series and also Halifax and Nationwide data series as well as other public and private sources of technical data; over 100 other sources of data were scanned and the relevant patterns extracted in order to inform the forecasting process.

Advanced methods of error reduction in the past time series have also been developed . The training of the models is controlled in such a way as to make sure that only the relevant data patterns are used in the creation of the models, eliminating, or at least minimising, any errors that may exist in the data. In this manner only the most relevant past patterns i.e. those that determine the future, are taken into account.

Application

It is important to remember that future values do not necessarily depend on past performance and mathematical techniques cannot take into account sudden social and political changes or other shocks to the market. All forecasts should be treated with caution and should be used in conjunction with professional opinion but they do provide an analysis of relationships within existing data series and present a degree of objectivity over their subjective equivalents.

Technical information about this forecast and on additional property forecasts is available from:

Technical Forecasts Limited

Castle Court

12a High St

Arundel

West Sussex

BN18 9AB

tel 0845 2 300 456

fax 01903-884680

Email: mandy.bradley@tfl.biz

Web Site www.tfl.biz

www.propertyforecasts.co.uk

Residential building land forecast

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