Friday, 6 October 2017

UK Housebuilders Completions and Productivity

In this blogpost I hope to provide evidence and data to show that the UK's top housebuilders as churning out houses as fast as they can, rather than holding back to preserve profit margins.

The Biggest Housebuilders

The UK's largest housebuilders in terms of completions, that is houses built in the years ending March 2016 and March 2017 are as follows:-

Barratt Development Plc17,319 17,395
Persimmon Plc15,171 15,588
Taylor Wimpey Plc13,808 14,112
Bellway Plc8,721 9,644
Redrow Plc4,716 4,918
Bovis Home Group Plc3,977 3,755
The Berkeley Group Holdings Plc3,776 3,905
Galliford Try Plc (Linden)3,078 3,296
Crest Nicholson Plc2,870
Quadrant Construction2,510 2,552
Bloor Homes Limited2,443
Avant1,210 1,636
Nottinghill Housing1,170 1,151
Guinness Partnership908

These figures are taken from the Annual Reports of each of the companies. The government's Department of Communities and Local Authorities records that the total number of home completions for 2016 was 139,840 and for 2017 it was approximately 153,000.

Therefore the top 20 largest housebuilders account for between 50% and 70% of all completions in the UK.

Past Decade Performance

By looking at previous Annual Reports we can build up a picture of year on year performance, since 2004, including the 2008 credit crunch.

The data is sparser the further back we go because I am lazy and cannot spend so much time looking for historic company reports.

A few observations:-

  • We can see that most of the companies have returned to approximately the 2008 levels.
  • 2007 and 2008 seem to be exceptional years rather than the result of steady year on year increases.

The year on year increase since 2008 is on average for all the companies 10% each year, however, there is some degree of bumpiness

Cost of Building

From studying the Annual Reports we can estimate the cost of building a house. If the total revenue for a company is X and the operational profit is Y, then X minus Y is the total cost of all the labour and materials and equipment. This ignores any admin expenses, back office overheads and interest on loans. By dividing total costs by the number of completions, we get an approximate cost per house.

For the top 14 companies the cost per house is as follows (using most recent data)

Cost per House
Barratt Development Plc£221,385.46
Persimmon Plc£155,902.71
Taylor Wimpey Plc£210,884.99
Bellway Plc£181,325.18
Redrow Plc£248,338.26
Bovis Home Group Plc£226,326.38
The Berkeley Group Holdings Plc£456,773.37
Galliford Try Plc (Linden)£232,736.65
Crest Nicholson Plc£276,376.31
Quadrant Construction£126,895.77
Bloor Homes Limited£249,662.71

We can see that the range is from £126,000 for Quadrant Construction to £456,000 for Berkeley. However, the average cost per home is around £222,800 (this is for 61% of the homes built).

We can speculate that these companies aren't trying to get build as efficiently as possible because their profit margins will easily cover expenses, and so it would be possible to build houses by far cheaper means, but this is literally the majority of the market accounted for.