Barratt Developments is the latest homebuilder to report a surge in sales for properties that haven’t even been built yet.
But an interesting breakdown of its numbers shows why Britain still has an affordable housing shortage.
In its latest trading update, Barratt said total forward sales are up by 20.7% to £2.5 billion. And business is so good that it has hired 250 graduates, trainees and apprentices for 2016 to help assist in its growth boom. On top of that, it proposed to shell out a record dividend payment of over £200 million to shareholders.
However, in its regulatory update, Barratt posted a key breakdown of its sales and it shows why it’s difficult to get housebuilders to build a lot more affordable homes for those who need government welfare or are on the lowest income brackets in the country:
What it shows is that Barratts built nearly the same amount of properties in the affordable bracket compared with private homes and yet made a substantially smaller profit. It made just a third in profit in affordable forward sales compared to that from the private home sales.
In a way, for a private company, it makes financial sense to not build as many affordable home because the profit margin is a lot smaller.
The Confederation of British Industry (CBI) warned last year that 240,000 properties need to be built annually, in order to accommodate rising demand across the country. Unfortunately, over the last 14 years, over 200,000 homes have been delivered annually in just four periods.
House building overall has been sliding and dropped to its lowest level since World War II in 2012 due to the repercussions of the global financial crisis.
However, Prime Minister David Cameron promised that over 30 house builders will benefit from the temporary scrapping of costs and levies get get Britain building again.
It seems to be working. The NHBC said in September that house building activity in the UK this year is set to top levels seen in 2014.
“There is good consumer demand for our homes across the country, supported by a positive economic backdrop. With demand outpacing supply, we are committed to helping address the existing undersupply in the market,” said Barratt Developments in its trading update on Wednesday.
“The Government remains focused on enabling additional housebuilding and it continues to seek to increase supply through improving the planning system and implementing its public land release programme. We will continue to support the Government on its Starter Homes Scheme that is aimed at providing 200,000 homes for first time buyers over the next five years. Help to Buy (Equity Loan), which has been confirmed to run until 2020, remains an important scheme for our customers particularly in helping first time buyers into the market.”
But as a number of homebuilders have shown, the average price they sell at aren’t exactly “affordable” for those who are on welfare or the lowest income brackets in Britain.
British homebuilder Taylor Wimpey said in its half-year results that it completed 5,842 homes (excluding joint ventures) across the UK, with a 9.2% increase in total average selling price to £225,000. Persimmon also said that legal completions increased 7% to 6,855 new homes sold with the average selling price increasing by 4% to £194,378.