Big housebuilders’ profit margins soar

Profitability at the UK’s largest housebuilders has increased at more than twice the rate of new housing output, shows new research by Sheffield Hallam University.

A new report, released today, reveals the scale of housing developers’ profits, with fresh analyses of the financial records of the nine biggest housebuilders between 2010 and 2015 finding some startling results.

The nine biggest housing developers, who build almost half of all new housing, increased their housing output by 33% from 2012-15. At the same time, revenue grew at more than twice this rate, increasing to 76%, with profit before tax rising by a staggering 200% in this period.

The research also showed that end of year profits for the biggest five firms - post-taxation, impairments and exceptional items are taken into account - increased from £372m in 2010 to more than £2bn by 2015, which is an increase of just over 480%.

Furthermore, dividend payments to shareholders in 2015 by these firms amounted to 43% of yearly profits, raising questions about the levels of reinvestment in housing production taking place.

The Secretary of State for Communities and Local Government, Sajid Javid, recently committed to “breaking the stranglehold” of the housing developers, whilst calling on them to release some of their land banks.

Javid, who recently claimed housing was his “number one priority”, is expected to deliver a government white paper next month laying out his plans to tackle the current housing crisis.

Professor Cole, who wrote the report alongside researcher Tom Archer, said: "We welcome the recent shift in focus by the Government towards housing supply, firstly in ensuring this issue has now been forcefully raised in public discourse, but also in proposing some interventions which could encourage greater diversity in the housebuilding sector.

"However, our research suggests that reliance on the private sector alone is not enough: unless there is also a major upscaling in housebuilding by local authorities, housing associations and other non-profit organisations, the crisis in housing supply will continue.”

But whilst encouraged by the government’s recent attention to this issue, the new report - Profits before Volume?, argues that there is scope for much more to be done.

Professor Cole continued: “This could involve measures over the use of reserves, rent policy, land supply, borrowing restrictions and moving the balance of housing subsidy away from demand and towards supply.

“We also support the recent calls by a wide range of economists and the CBI to the government to borrow more for sustainable infrastructural investment, including housing, at this juncture in the economic cycle.”