Top housebuilders’ profits now back to pre-crash levels

[Darren]

http://www.thebureauinvestigates.com/2014/12/28/top-housebuilders-profits-now-back-to-pre-crash-levels/


December 28, 2014 by Nick Mathiason
Published in: All Stories, The Housing Crisis
shutterstock_215081665


Affordable housing numbers now at eight year low (Image: Shutterstock)


Britain’s ten biggest housebuilders will this year make profits of more 
than the £2bn for the first time since the high water-mark of the last 
credit-fuelled property boom.


The surge in profits comes despite the number of affordable homes built 
in England falling to an eight-year low.


Analysis by the Bureau of Investigative Journalism shows that the 
country’s biggest builders, who between them control enough land to 
create 480,000 homes, will make pre-tax profits of over £2.1bn in 2014  
a 34% jump on last year.


The total is based on reported and projected profits for firms including 
Persimmon, Taylor Wimpey, and Barratt, many of which have seen sales 
boosted by the government’s popular Help to Buy financial support schemes.


The return to pre-crash profits of the UK’s housebuilding sectors comes 
as government figures project 42,710 affordable homes will be built in 
England in the year to April  the lowest number since 2006 and a 26% 
fall since 2010.


“At a time when the country faces a housing crisis and with homelessness 
having risen significantly in recent years, we desperately need 
developers to provide more affordable homes,” said Jon Sparkes, chief 
executive of homeless campaign group, Crisis.


But Steve Turner of the Home Builders Federation whose members account 

for 80% of houses built in England and Wales, said: “The industry was 
devastated in the financial crash, profits initially fell very steeply, 
or disappeared into losses, and many companies disappeared. Only now are 
profits returning to pre-crash levels allowing companies to rebuild, 
restructure and replace lost capacity.”


Financial viability


But the contrast between developers’ profits and affordable housing 
figures has begun to focus attention on an opaque part of the planning 
system, known as financial viability. The process is widely used by 
house builders to, perfectly legally, reduce the number of affordable 
homes they deliver to below local authority targets.


Over half England’s affordable homes are generated by private 
development through what is known as the Section 106 system, in which 
tests of financial viability are key.


Financial viability assessments form the basis of negotiations with 
local authorities when developers want to reduce the number of low cost 
homes below local authority affordable housing targets. Targets 
typically range between 25% and 40% of the total number of homes in a 
scheme and are set according to local housing need.


The assessment works by combining all the costs linked to a housing 
development including a 20% margin for the developer but excluding the 
land price. These costs are then subtracted from a scheme’s projected 
sales revenue based on current values.


If the resulting total is not much higher than its current use value, 
the scheme is likely to be considered unviable by developers who will 
then argue affordable homes must be cut. This means assumptions on sales 
and costs are crucial.


Bureau research has found that:


     the process is shrouded in secrecy with many developers regularly 
refusing to disclose to the public the assessments on which their 
figures are based.
     councils rarely employ external experts to scrutinise 
housebuilders’ figures contained in developers’ financial viability 
submissions which risks local authorities unnecessarily reducing the 
amount of affordable homes in housing projects;
     sales projection figures used in viability assessments are based at 
the time a scheme receives planning consent which often means councils 
fail to benefit from the significant profits made by developers as house 
prices rise.


Housing campaign groups warn that with 1.4 million households on council 
waiting lists  a 34% rise since 1997 and 85,000 children living in 
temporary accommodation  equivalent to more than the entire population 

of the Hertfordshire town of Stevenage, the government now has to put 
pressure on builders to meet affordable housing targets.


Fewer affordable homes


Joanna Kennedy, chief executive of housing and welfare campaign group, 

Z2K, said: “We are seeing fewer affordable homes built than at any point 
in the past decade at the same time as big developers see their profits 
rocket.  If Whitehall genuinely wants to tackle the housing crisis they 
should be supporting boroughs in challenging developers’ questionable 
viability assessments, instead of undermining council’s efforts to 
secure planning gain through section 106.”


Shelter’s director of policy and campaigns, Roger Harding said: 
“Planning laws were watered down a couple of years ago because it was 
argued that existing regulations were hampering developers by making 
house-building unprofitable. This led to the power of councils to 
negotiate with developers being weakened, with the result that up and 
down the country developments are being approved that don’t meet the 
local need for affordable homes.


“With house-building now back in the black, it’s time to strengthen the 
hands of councils once more so that developers live up to their duty to 
build affordable homes alongside ones for private sale.”


“It is for local authorities to agree an appropriate level of 
contribution to affordable housing with developers,” a Department for 
Communities and Local Government spokesman said. “Our guidance is clear 
that changes in costs and property value should be considered in longer 
term developments, and councils should use appropriate methods and 
expertise, whether in-house or external, to determine these.”


First-time buyers


Earlier this month, David Cameron confirmed plans to offer up to 100,000 
new homes to first-time-buyers under the age of 40 at a discount of 20% 
if the Tories win the next election.


Hilary Benn, Shadow Secretary of State for Communities and Local 
Government, told the Bureau that Labour will make viability assessments 
figures available to the public if it wins power.


“We need an “open-book” approach to negotiating site specific viability 
so that communities can see how assessments are being made. And we need 
an arbitration service between communities and developers,” he said.


A version of this story appeared in the Guardian


To read the full report of the Bureau’s year long investigation into the 
affordable housing delivery system, please follow this link > 
https://tbij.creatavist.com/viability