Doing well by doing, er, broadly the same.

The FT Lex Column has a nice piece on Barratt Homes comparing their relative position in 2007 and 2017.  The big picture looks pretty benign.  Gearing levels are currently negligible compared to 2017.  With 80% of their units as houses (compared to c50% in 2007), they’re more focussed on low density schemes.  Such schemes also tend to be less risky.  Not least because they are easier to stop, slow down and change in the event of a downturn compared to large, high density, single building schemes.     I’m a bit puzzled by Lex’s claims on land banks.

It also spends proportionately less on new land and returns a lot more cash to investors. Given that land prices have not kept pace with house prices, and with its low indebtedness, Barratt could easily afford to be more aggressive with land purchases. These days housebuilders tend to view land in the same way that airlines view fuel: a raw material whose significant cost needs to be aligned with near-term selling prices. Land speculation, via long land banks, is out of fashion.

But – they’re still holding about five years of land ‘inventory’ – not much change since 2007.    The land bank tends to record land holdings that have planning permission.  I would like to know more about the so-called strategic land holdings.  They may have shifted towards using options and/or promotion agreements rather than ownership.     Apparently, the biggest constraint on increasing supply is skilled labour.  It’s one of the few times that I haven’t seen the planning system mentioned.  It’s also worth noting that whilst their profits have nearly doubled, dividends have quadrupled and the number of housing completions has barely budged.  Takes some doing.


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