House price inflation in London may be showing signs of moderating, but housebuilders remain in rude health, especially those who operate predominantly outside London. Bovis Homes (BVS) for example, is expected to boost transaction volumes this year by 30 per cent, with average sale prices up by 10 per cent. This combination has helped to boost operating margins from 14.9 per cent last year to around 17 per cent, while the return on capital employed has jumped from 10.4 per cent to a very respectable 16 per cent. And there is little sign of the stronger trend running out of steam. Forward reservations for completion in 2015 stood at 1,282 at the end of October, a sharp increase from 726 a year earlier.
Persimmon (PSN) is another strong performer operating in the regions outside central London. Its forward reservations are up 12 per cent at £696m, and while private sale reservation rates for the current year are down by 2 per cent, this is set against some tough comparatives - volumes during last year and the first half of this year were boosted strongly by the introduction of the government's Help to Buy scheme. In fact, reservations are still up 45 per cent from 2012. Galliford Try (GFRD) also reported a decline in sales after a very strong performance the previous year, but the housebuilder has an additional string to its bow, with the construction division currently running a £3.1bn order book. This is up sharply from £1.75bn last year following the acquisition of Miller Construction in July.
All housebuilders are experiencing cost inflation, primarily as a result of rising labour shortages and higher raw material costs. However, on a crude measure these make up around half of the sale price. So a 6 per cent rise in costs is covered by a 3 per cent increase in sales prices. Capacity constraints and the still dysfunctional planning regime will continue to limit the rate of expansion, but on a longer-term basis greater use of apprenticeships and imported labour will help to ameliorate the skills shortage. Redrow (RDW) chairman Steve Morgan has been particularly scathing about the planning regime, suggesting that clearing countless unnecessary conditions remains a significant constraint on new outlet openings and growth, while political posturing ahead of the general election is already having a detrimental effect on the time it takes to obtain planning consent.