Life must be tough for housebuilders these days. Whether you are thinking about how to spend your £58m bonus or mothball a few sites until market conditions improve – it’s decisions, decisions, decisions.
One major housebuilder has decided it cannot build any more homes in the current climate because, among other things, the 4.5 times income multiple on mortgage borrowing has restricted the number of customers coming through. I suppose their solution would be to eliminate the income multiple limits.
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Of course the other solution might be to bring the price of housing down in line with what can be afforded, but that would mean a fall in revenue and a fall in profit. After all when you are making net profits in excess of 30%, it must be pretty addictive. Weaning yourself off the habit must come hard.
It makes you wonder therefore whether this is just part of a tactic to try to blackmail the government into using taxpayers’ money for more Help to Buy – otherwise known as the “housebuilders extensive profit scheme”.
High-risk housebuilding?
Margins of more than 30% are normally the product of get-rich-quick schemes or exceptional high-risk ventures. It is hard to see how housebuilding today is of such high risk that it demands such a premium.
It also leads into the questionable practices around leasehold as well. Why with 30% margins do you want to retain the freehold? Answer: because you can and it makes the profit even greater.
It reminds me of an anecdote recently heard by a provider of senior living, justifying a ground rent because their clients are picky and demanding. “They look under every stone to be sure of what they are buying,” he complained. This perhaps reflects a lifetime of experience of the industry. If this is going to be their last purchase, they want it to be right. Knowledgeable customers are such an inconvenience.
The current All-Party Parliamentary Group for Excellence in the Built Environment is investigating the position of a “new homes ombudsman” specifically to address the lack of consumer protection in the new homes market.
The proposals from the CIOB include exemplary damages over and above the feeble amounts in the current codes and the requirement to buy back defective properties.
They may seem harsh but perhaps the only way to restore a balance between buyer and developer is to incentivise positive behaviour. The publicity on the first forced buyback by a developer would be interesting.
While we all agree that homebuyers need to approach the business of buying a new home with as much scepticism as they can muster, it is hard to retain the scepticism under the assault of the marketing propositions from developers that are geared towards pushing buyers into making less-informed decisions than is good for them.
These include reservation incentives and limited release of properties to generate quick decisions.
Perhaps it is time for the government to put the needs of homebuyers first. After all, homebuyers have the votes. If developers don’t want to build maybe the government should reallocate their land. Decisions, decision, decisions.
Chris Blythe is chief executive of the CIOB
