The UK’s key housing target at the mercy of wary homebuilders
The UK’s biggest developers are already telling shareholders they won’t get close to achieving it
[LONDON] The UK government has put a target to boost homebuilding at the centre of its growth plans. The companies that will actually deliver those homes are already telling shareholders they won’t get close to achieving it.
The country’s six biggest publicly traded homebuilders – which after a wave of consolidation now account for almost a third of new dwellings each year – have told investors they’re expecting to sell about 65,000 homes in 2025.
While that number is up slightly from the lows of the last two years when higher rates prompted them to pull back sharply, it would still leave the government about 25 per cent short of the 300,000 homes it needs to meet its target of 1.5 million homes over five years if their market share and pace of construction are maintained.
The number, compiled from forward guidance provided in earnings statements this year, would put the UK on track to build about 225,000 homes in 2025, according to calculations by Bloomberg News.
The Office for Budget Responsibility said Wednesday it now expects net additions to housing stock to be 1.3 million through 2030, after upgrading its forecasts and giving a rare endorsement to the growth-boosting potential of Labour’s planning reforms, which it expects to increase GDP by 0.2 per cent through 2030.
Still, that forecast is for all UK homes while Labour’s 1.5 million target applies just to England. This year’s likely shortfall will also add significant pressure on those pending planning reforms to deliver a major boost to volumes in subsequent years if the headline target is to be achieved.
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“From the planning point of view, I will give the government a tick,” Jason Honeyman, chief executive offer at Bellway, said in a telephone interview. But the UK needs “help for first-time buyers” to truly boost homeownership, he said.
Bloomberg’s calculations are based on forward guidance from Barratt Redrow, Bellway, Berkeley Group Holdings, Persimmon, Taylor Wimpey and Vistry Group, which between them accounted for 29 per cent of the average number of units built over the past five years, data compiled by construction monitoring firm Glenigan show.
The homebuilder guidance relates to the number of homes they expect to sell, which closely correlates to the number they build according to a spokesperson for Barratt Redrow, the largest UK residential developer.
That’s because unsold stock weighs heavily on sales prices and profit margins, encouraging the companies to calibrate construction output to the demand they expect each site to be able to sustain. The reporting time frames vary among housebuilders, meaning the calculations are based on rolling forward guidance related to each company’s financial year.
It shows how government ambitions must contend with the realities of a market that’s dominated by a handful of large companies whose main duty is to shareholders who are focused on earnings, not output. The complexity and financial risk of development in the UK, where planning delays can wipe out small companies that need a quick return on capital, has accelerated consolidation among developers.
The share of homes built by Britain’s six largest listed housebuilders has risen about seven percentage points over the past decade, Glenigan’s data show.
The issue is “whether there is the demand to get to the 300,000 annual target in the near-term, given the affordability constraints, particularly for first time buyers, and slower interest rates cuts than previously hoped for,” said Aynsley Lammin, a building and construction analyst at Investec. “That is before even thinking about skills shortages,” he added, referring to the limited number of construction workers available to build homes, a factor the government is attempting to address with additional skills funding.
The UK’s biggest developers slashed their output after interest rates rose sharply in 2022, wary of being left with excess stock that buyers would struggle to afford when faced with higher mortgages. Completions by Persimmon and Taylor Wimpey, two of the largest developers with comparable data over the last decade, fell by more than a third from their 2019 peak when the market was still propped up by government stimulus.
Their sales in each of the last two years have been lower even than 2020 when the coronavirus pandemic brought a temporary halt to construction.
Vistry’s shares tumbled the most in three months on Wednesday after reporting weak home sales since the start of the year. Berkeley Group has warned that the extent and pace of regulatory changes – including a new Building Safety Levy designed to address safety issues laid bare by the 2017 Grenfell fire – are another major impediment to increased supply.
Bellway has reported improvements in its forward order book, but warned that geopolitical uncertainty posed a risk to momentum in the year ahead.
“The wider world is what we keep in mind,” Bellway’s Honeyman said, adding that events in the US and Middle East have an effect on the UK housing market. “Trump can say something miles away and it can have an effect on our share price,” he added. BLOOMBERG
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