New builds racing ahead as prices continue to rise - David Alexander

10th Apr 2024
David J Alexander
New builds racing ahead as prices continue to rise - David Alexander - D. J. Alexander

The increase in the average price of Scottish homes has been extraordinary over the last two to three years. Unlike our counterparts south of the Border Scots have been enjoying a bit of a mini boom in housing with the market rising substantially despite the headwinds of higher interest rates, a cost-of-living crisis, and low economic growth.

New builds have seen a 22 per cent increase in average prices between December 2022 and November 2023.

What is perhaps more surprising, when you look at the latest official data, is that there has been a considerable disparity between the growth in average prices in new builds and existing properties. New builds, albeit on much smaller volumes, have seen a 22 per cent increase in average prices in the period between December 2022 and November 2023 (the latest time for which there is data) increasing by £54,389 from £246,906 to £301,295.

Over the same period the average price of an existing property increased by £3,372 from £180,093 to £183,465 which is a rise of just 1.9 per cent.

This picture is replicated in all four of Scotland’s main cities with double digit percentage increases in new build prices – up 16.4 per cent in Dundee; 15.5 per cent higher in Edinburgh; 11.3 per cent more in Glasgow; and 11.0 per cent in Aberdeen – while the largest increase in existing properties was in Dundee at 3.4 per cent and 3.3 per cent in Edinburgh with Aberdeen and Glasgow prices falling 1.2 per cent and 0.7 per cent respectively.

This difference between new build prices and existing homes is a new phenomenon. In the three years between December 2019 and November 2022 new build prices rose by £51,563 across Scotland which is less than the total increase in the most recent 12-month period. Existing property prices rose by £36,844 over the same period so were similar to the new build rise.

Therefore, the reasons for this may be temporary or may indicate a more substantial underlying shift in the housing market. Cleary a fall of 21.6 per cent in the volume of new build home sales will have played its part in increasing prices but there may be other, more specific, reasons for this uptick.

New builds generally have better design with higher environmental and energy efficiency standards making them cheaper to run than existing homes which makes them more attractive to homebuyers in a time of stretched budgets and concerns over utility costs. The requirement to install much greener heating systems – which are standard in new builds – may have played a part in shifting homebuyers away from the potentially punitive costs of purchasing an existing property which could need tens of thousands spent on installing greener energy sources.

New builds may be in more convenient locations than existing homes at a time when many more people like the idea of easy access to a city coupled with the countryside on your doorstep and new build sites have increasingly been built on the edges of our major cities to exploit this desire among homebuyers.

There have also been external factors within the sector which will have contributed to the rising prices. The last few years have seen rising material and labour costs coupled with more stringent costly energy systems resulting in higher build costs which are passed on to the homebuyer.

There is no doubt that the continued growth of new build sales is critical to the wider property market in Scotland but the lower sales volumes during this 12-month period are concerning. At a time when it has never been as important for more homes to be built in Scotland it is essential that volumes increase both to meet demand and to retain affordability.

David Alexander is CEO of DJ Alexander Scotland Ltd