Biggest housebuilder Barratt cuts target just as Labor promises more homes | Business newspaper

The government may need some help outside its control if its housebuilding pledges are to get off to a promising start as new home volumes fall.

One of the few concrete targets set out by the Labor Party in its election manifesto was a promise to “rebuild Britain and create jobs across England, with 1.5 million new homes in the next Parliament”.

Rachel Reeves, the new chancellor, outlined earlier this week how the new government plans to achieve this matching target build 300,000 homes a yeara total not reached since the 1960s.

Mandatory local housing targets – abandoned by Michael Gove, the former equalization, housing and communities secretary, amid pressure from Tory backbenchers – will be restored, while planning restrictions on the development of parts of the green belt will be relaxed. The new government has also made it clear that it “will not be afraid” to overrule local authorities.

It’s all ambitious stuff.

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However, setting targets is very different from actually achieving them – as highlighted in Wednesday morning’s trading update from Barratt Developments.

Britain’s biggest housebuilder by volume and third largest by stock market valuation said today it is likely to build fewer new homes over the next year.

Barratt expects to build between 13,000 and 13,500 homes in the 12 months to June next year, including 600 units from joint ventures. That would represent a drop of up to 7% from the 14,004 homes it completed in the year to the end of June.

And while that 14,004 over the last financial year was at the top end of Barratt’s forecast, that alone was some 18.6% less than the 17,206 homes the company completed in the 12 months to the end of June last year. .

Barratt blamed this on subdued demand from July to September last year – a period during which the Bank of England’s main policy rate rose from 4.5% to the current 5.25%.

The company also said its average selling price fell from £319,600 in the year to the end of June 2023 to £307,000.

There has been little news of Barratt’s planned £2.52bn takeover of Redrow apart from reiterating that the deal will create “an exceptional UK housebuilder”. The takeover is currently under review by the Competition and Markets Authority with a “phase 1” decision dated 8 August.

The statement highlights how difficult it will be to meet the government’s new stretch target – and is in line with recent announcements from elsewhere in the sector.

Taylor Wimpey, Britain’s biggest housebuilder by stock market valuation, said in April it expected to complete between 9,500 and 10,000 new homes this year, excluding joint ventures, down from 10,848 last year and 14,154 in 2022.

Berkeley Group, the UK’s second-biggest player by share market value, declined last month to offer a forecast on how many homes it expects to complete in the current financial year – but delivered 3,521 new homes in the year to the end of April. , down from 4,043 in the previous 12 months.

And Persimmon, the fourth-biggest player by market value, said in April it expected 10,000 to 10,500 homes to be completed this year – a slight increase on the 9,922 completed last year, but still well below the 2022 total of 14,868.

These figures reflect caution on the part of housebuilders over the past 12 months. Barratt made clear today that the slowdown it signaled today reflected “the profile of land acquisition over the past 24 months”.

Meanwhile, Rob Perrins, Berkeley’s chief executive, told analysts last month: “We have not invested in new sites, but we are ready and able to do so once conditions for growth return.”

Persimmon also buys less land. It said in April that it had spent £145m on land in the first three months of the year, a sixth less than the same period last year.

Caution, in other words, abundance.

None of this is to say that the housing sector is not supportive of the new government’s goals. Exactly opposite. Most housebuilders had little time for Mr Gove, not only because of his abandonment of housebuilding targets but also because of how he strong-armed the industry into contributing to post-Grenfell efforts to make building envelopes safer while seemingly letting contractors building materials away. hook.

So Labor – whose election last week sent housebuilding stocks soaring the next morning – will find a willing partner in the industry.

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Barratt made this very clear in his statement today, saying: “We welcome the new Government’s urgency and focus on housebuilding and reforming the planning system as key to unlocking economic growth and addressing the chronic shortage of new homes.

“We look forward to working with the Government and wider stakeholders to tackle supply-side constraints and deliver the new homes of all times that the country needs.”

However, reform planning is only one part of the puzzle. A group of mortgage lenders, including Halifax, Nationwide, Barclays, HSBC and Santander, have started cutting their rates in recent weeks.

However, an interest rate cut by the Bank of England next month would likely further boost the confidence of potential home buyers.