Here, encapsulated in 12 acres, are many of the problems inherent in the UK’s housing market – and which explain much of the current nervousness towards the UK’s listed housebuilding industry. The government may have mandated the need for 10,000 homes in this district by 2033, but it won’t be building them – that’s down to private companies and, to a lesser extent, private housing associations. To buy a large plot of land and build 145 homes is a major financial commitment – developers and their financiers need to be sure of a return, and the private market is the best way to do that.
Yet navigating this market is becoming much harder, for several reasons. One, as we saw in the results of Crest Nicholson this week, is that build cost inflation is rising, squeezing housebuilders' profits – and buying yet more development sites will squeeze them further still, at a time when the market is punishing margin weakness. Builders face other costs, too, not least the increasingly aggressive Section 106 demands that local councils are asking of applicants in return for the right to build – the agreement on this site amounts to no fewer than 35 pages, outlining requirements to fund, amongst other things, local schools and doctor’s surgeries and make 40 per cent of the scheme available as affordable housing. It is important that large schemes don’t increase the burden on already overstretched local infrastructure – the main concern of those numerous village residents submitting objections (so-called Nimbyism is yet another hurdle for housebuilding plans). But housebuilders cannot be expected to shoulder them all, if they are to be encouraged to build and plug the housing shortfall we so often hear about.
The final concern is the market itself. There may well be a housing shortfall in London and the south-east, but how many of those needing a new home can afford the prices being asked of them, even with the support of Help to Buy? And how many would buy right now anyway, given the nervousness that the current London pricing malaise may spread? And why, therefore, would a builder buy land to build houses that it might not be able to sell at the right margin? With housebuilders facing such fundamental questions, investors might be wise and do as I do with the old dairy each morning – walk on by.
