Housebuilders Come Tumbling Down

Posted on Jun 08, 2020. by NTI

George Hammond wrote an article about the recent demise of an alarming number of housebuilders in today's Financial Times (Monday 8 June). He said that they are collapsing at an accelerating rate, threatening the much-needed supply of new homes. In 2019, 368 companies in the sector filed for one insolvency intervention or another, according to data from The Insolvency Service under the Freedom of Information Act. That compares with 207 in 2016, with the number rising each year since.

Those which filed were overwhelmingly small and medium sized enterprises, according to Price Bailey, which obtained the data. The success of the dozen or so listed UK housebuilders in recent years has obscured growing distress in the rest of the sector, according to Paul Pittman of Price Bailey. Developers building up to 100 homes a year account for roughly 10 per cent of new supply, against 40 per cent in 1988. Over the same period the number of small housebuilders registered with the NHBC has dropped from 12,000 to about 2,000.

Already struggling, SME builders have been hard hit by Covid-19 and its attendant crisis mentality. A third of small builders are stuck with newly built homes that lie empty because buyers pulled out of purchases when the country entered lockdown. The top five housebuilders - Barratt, Persimmon, Taylor Wimpey, Bellway and Redrow - had all either closed construction sites or were in the process of shutting them by 27 March. In contrast, while Kier had a 24-hour shutdown of sites and Mace suspended works for two weeks, the five largest contractors - which also includes Balfour Beatty, Morgan Sindall and Laing O'Rourke - have worked to keep as many sites open as possible while observing safe-working guidelines.

Housebuilders and contractors face similar challenges around ensuring safety and two metre distancing on sites, as well as dealing with supply chain disruption. So why has one group pursued blanket shutdowns while the other has not? On first impression, it looks as if one might have acted with extreme caution and the other with greater risk. But this is not the case, according to Construction Products Association economics director Noble Francis.

“It’s nothing to do with risk or caution,” he says. “There’s only really one reason, and it’s financial. Since the social distancing restrictions [were introduced] on 23 March, there is no demand in the housing market as people cannot visit show homes, sales offices or even complete transactions. If there is no demand, there is no financial incentive to build.”

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