No crisis signs for housebuilders

Barratt joined a gaggle of stock-market-listed companies updating shareholders in recent weeks on current trading. Britain’s biggest housebuilder by volume confirmed it was on track to complete up to 18,250 homes – up 6% on a prior year fuelled by a catch-up after 2020’s lockdowns and the stamp duty holiday. The FTSE 100 group maintained its medium-term goal of selling 20,000 a year and reassured investors that the outlook for the financial year to June was “in line with the board’s previous expectations”.

The standout metric for me was the private sales rate of 0.93 reservations by buyers per site per week, up from 0.83 at the same point a year ago and above the sector’s long-term norm of about 0.7. This was “way beyond [what] we would have anticipated even six or nine months ago”, chief executive David Thomas enthused in a conference call with analysts.

Pricing is up 7% on the previous year, ahead of build cost inflation at around 6%, meaning that the group expects the impact on margins “to be broadly neutral or positive” for the second half of 2022. Rising volumes, prices and margins running into the following year suggest the 5% profit growth expected by the market for the year to June 2023 might be somewhat on the light side.

Other housebuilders were equally sanguine, toeing what seemed to be a party line that profits would be in line with expectations (anything more bullish might attract the scrutiny of levelling-up secretary Michael Gove, who sees the biggest groups as a ‘magic money tree’ for recladding tower blocks, most of which they didn’t build).

Persimmon, the richest company in the sector, continues to deliver volume growth for the full year to December 2022 of around 4% to 7%, “with resilient, industry-leading margins”. The industry’s erstwhile bête noire for media and politicians alike stressed its burnished credentials under new management: finally achieving a buyer satisfaction score of five (out of five, for the avoidance of doubt), up from two in 2008.

This does not seem to have staunched the rout in housebuilders’ shares, with some, Barratt included, trading at or below the net value of their land, based on the price they paid for it, rather than the presumably higher sums they could command for it now. But that’s another story.

Buoyant demand

The strength of demand and prices seems to have wrong-footed many economists: month after month, the likes of Nationwide, Halifax and RICS have reported, with scantly suppressed incredulity, buoyant data, accompanied by increasingly pointed warnings that economic headwinds will eventually tame

the market.

Someone’s yet to tell homebuyers. Yes, the economy is under pressure, but the likelihood is that this is not shared evenly. Unedifyingly, cost-of-living pressures will disproportionately hit consumers who have little hope of mounting the housing ladder. Many middle-income households who are already on it, frankly, have had a good pandemic – earning the same, but saving on commuting, foreign holidays and the like. They have the added wiggle room of gym and Netflix subscriptions they can temporarily park.

“We’re seeing a widening gulf between the haves and have-nots in the housing market,” one of the most astute housing economists confided over a fittingly restrained curry. This has not escaped the attention of Gove, who partly blamed the falling rate of home ownership for the Conservatives’ poor showing in the local elections.

His Levelling Up and Regeneration Bill, due to have been announced in this week’s Queen’s Speech would boost the supply of homes. Measures would include empowering residents to decide on local ‘design codes’, in a bid to reduce resistance to new homes.

Good luck Michael: you can empower locals till you’re blue in the face, but for the ‘have-nots’, it’s lack of money that’s holding them back; for now, housebuilders are doing pretty well out of the ‘haves’, thank you very much.

Alastair Stewart is an equities analyst and consultant