Builders’ profits go through roof as rivals are shut out
TWO of Britain’s leading housebuilders will this week reveal surging profits, boosted by tight planning rules that have restricted competition from smaller builders trying to enter the market.
Persimmon, the third-largest housebuilder in the UK, is on course for a 20 per cent rise in profits, analysts at Barclays said. And Bovis Homes is set to report profits up by almost 30 per cent, the bank believes, saying that competition for the large housebuilders is drying up.
‘The activities of small builders continue to be stymied by the rigorous demands of the planning regime. It is a myth that the housebuilding sector has no barriers to entry. We believe these barriers are largely planning-related and significant,’ the bank said.
Levels of overall housebuilding have increased in recent years but they remain well below levels seen before the crisis. In 2013-14, 160,000 homes were started compared with 234,000 in 2005-06, according to the Department for Communities and Local Government.
Barclays said Persimmon will post profits of £568 million for 2015, while Bovis is expected to make a £170 million. Bovis reports half-year numbers tomorrow and Persimmon on Tuesday.
Cheap mortgage rates and high consumer confidence are driving up house price rises, according to broker UBS, benefiting the housebuilders.
‘While the debate on rising base rates will undoubtedly return, we expect a gradual rate cycle that can be absorbed in part by banks and increased wages,’ it said. Mortgage rates were pushed down over the past year as competition in the lending market proved fierce. But lenders are beginning to withdraw many of their cheapest offerings as the Bank of England ponders a rise in interest rates.
The Bank is expected to raise interest rates for the first time since 2007 early next year.
While revenues are surging for the housebuilders, they are also facing higher costs because of skills shortages. Construction heads the list of sectors advertising new vacancies for permanent and temporary staff, according to figures from accountancy giant KPMG and the Recruitment and Employment Confederation.
Wages in the sector are growing by as much as 5 per cent annually compared with an average across the UK of 2.8 per cent.
Shares in the big listed housebuilders have grown hugely since the financial crisis.
Those in Persimmon were changing hands at 229p in December 2008 and now stand at 2105p. Bovis shares are up from 314p to close at 1201p on Friday.