Are housebuilders holding back on production or are there other factors at play preventing any meaningful close in the gap between supply and demand for new homes?
The recent trading statement from London focused Berkeley Group (BKG) tends to suggest that it’s not the builders that are holding back; it’s the constraints imposed on the sector that are limiting output. In fact, Berkeley has admitted that the situation is so constrained that it cannot make any advance on the step-up in production that the housing sector so badly needs.
Berkeley highlighted a number of unhelpful factors. Home movers continue to be constrained by high transaction costs, while potential non-cash buyers in London are held back by the restriction on mortgage/income multiples. In addition, there has been a crack-down on buy-to-let investors, who previously bought off-plan and provided much needed cash flow, and who are now saddled with additional transaction costs and reduced mortgage interest relief. As if this were not enough, the changing planning environment and the complexity of getting on site after approval is finally granted, all mean that Berkeley is not going to increase production beyond the current business plan levels.
For shareholders, there is reassurance that at least £3.3bn of pre-tax profits will be delivered in the five years leading up to 30 April 2021, while a 56.75p a share dividend will be paid on 23 March, while a further payment will be made in September, the amount being announced in August.
