Housing Supply and Housebuilders

It’s pretty clear that, in terms of share prices, the house building sector has been doing pretty well.  Phil Oakley analyses their performance and prospects here. Taylor Wimpey’s profit margin per plot has been at around 25% for the last eighteen months.  In 2007, it was closer to 12% and after the crash of 2008, they’ve grown steadily – at a faster rate than supply!

Looking at the ‘regime change’ at the Treasury and DCLG and its implications for the housebuilding sector, the FT’s Lex Column certainly isn’t taking the government’s recent pronunciations on increasing supply too seriously.

…boosting supply is difficult, and unlike demand, takes ages to have an effect on prices. The big recent announcement is of £5bn to speed up building on public land and help smaller builders finance new developments. The emphasis is right; the past few decades have seen the gradual disappearance of the small builder. But £3bn of this is not new but already announced by Mr Osborne, and it is hard to direct finance accurately at the kind of supply Britain needs such as on brownfield land, or to using new techniques such as prefabrication.

Re-announcing £3bn of help already unveiled is a sure sign that Mr Hammond’s much vaunted fiscal reset stops short of financing a mass-scale building programme such as took place 50 years ago. It would take one of that scale to dent prices. Those will stay high, interest rates low, and Britain’s established builders relaxed on Budget day.

I was discussing the supply constraints with Chris Cobbold, who knows a lot more than me about this stuff, a while ago.  His broad view is that there are fundamental capacity problems throughout the whole supply chain for housing – the planning system, land supply and value, the financing of housing, the professional and technical skills base of planners and the skills, structures and financing of the housebuilding and construction sector and its own supply chain.   These aren’t things that are likely to change fundamentally in the short term.


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