Last month Persimmon, Britain's largest housebuilder, posted profits of £1.1bn for 2018, its highest ever
, investment banking. Now housebuilding is the industry Britons love to hate. Even as many people struggle with high housing costs, housebuilders are cashing in. Last month Persimmon, Britain’s largest, posted profits of £1.1bn for 2018, its highest ever. Across the industry operating margins are twice what they are in America. Dividends have jumped and the firms’ cash piles point to big payouts in the future .
Why are the builders enjoying a purple patch? One explanation is that they are better managed than they once were. Before the financial crisis in 2008-09 many were laden with debt. After the crisis they raised capital and cut costs. Recently Barratt Developments revealed a cunning plan which involved lowering the pitch of its roofs, which should reduce the number of tiles required. Housebuilders are also shifting more units. Last year Britain put up 200,000 dwellings, the most in a decade.
The builders’ juicy profits may also be a consequence of the changing structure of the housing market. In the early 1980s small builders built almost half Britain’s homes. Since then the market has become more concentrated. The minnows’ share has fallen to a tenth, while the whales have boosted theirs. The growing complexity of the planning system is in part to blame. From the 1990s more obligations were placed on developers.
The big builders’ market power expresses itself in different ways. Stories abound of new houses which quickly develop mould and damp. There is also evidence that big builders acquire large plots of land in a local area, then put up houses deliberately slowly in order to maintain the local market price. A recent official review by Sir Oliver Letwin, a ConservativeHousebuilders’ power may find its purest expression in the market for developable land. That market is opaque.
The industry needs new firms to enter the market and compete away excess profits. To enable that, the government could lower barriers to entry. Doling out smaller plots of developable land—something that Transport for London, the capital’s transit authority and a big landowner, is exploring—would help smaller builders. Publishing more data on the land market could make it more efficient.
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