Top 150 Contractors & Housebuilders 2024: Searching for silver linings in gloomy year for housebuilders

Last month, the UK experienced an unusual weather phenomenon known as “anticyclonic gloom”. A period of high pressure locked large parts of the country into a seemingly unending period of fog and drizzle and general greyness, with the worst-affected village recording just 12 minutes of sunshine in 11 days.

While this was an aberration worthy of note for most people in the country, the housebuilding sector could be forgiven for thinking it was business as usual, operating as it has been for so long under gloomy clouds of its own. 

If last year’s top 50 housebuilder rankings showed the calm before the storm of Kwasi Kwarteng’s mini-Budget, this year’s table paints a picture of the long malaise that followed it. The headline takeaway from Housing Today’s 2024 ranking of the UK’s biggest commercial housebuilders is weak revenue and even weaker profit. 

But what are the further trends behind the numbers? Has anyone defied the poor market? And what do the prospects for next year look like?

Vistry bucks the trend among top housebuilders, but can it last?

Only one of the top 20 housebuilders (ranked by revenue from housebuilding activities) saw its profit increase in the latest figures. Vistry saw its operating profit increase 8% from £451m to £488m. Only fifth-placed Berkeley recorded higher profit at £498m, though this was down 4%. Vistry was also the only one of the top five builders to increase its revenue from housebulding, which was up 48% from £2.73bn to £4.04bn. (Note all turnover figures cited in this article are from housebuilding activities only.)

>>See also: Top 150 Housebuilders and Contractors 2024: the full table

It comes on the back of Vistry’s purchase of rival Countryside at the end of 2022 and subsequent pivot towards a partnerships housing model, which requires at least half of the units on every site to be pre-purchased by partners such as housing associations. More than three-quarters of its completions in the first half of this year were partner-funded. This strategy was based on the principle that while partnerships deliver a lower margin, they also require less capital tie-up and provide consistent returns through the property cycle.

Read without the benefit of hindsight, Vistry’s figures, which cover the year to the end of December 2023, seem to vindicate the strategy. However, subsequent developments have taken the sheen off the housebuilder.

At the start of October it revealed that “understated” build costs in its southern division would hit profitability to the tune of £115m over the three years to December 2026. This was followed by the revelation, a month later, that it had uncovered a further £50m in costs over the same period.

“Doubling down on that strategy did pay off initially, so they were able to start to release capital, more capital return to shareholders, and obviously grow faster because they needed less capital,” says Aynsley Lammin, equity research analyst at Investec.

“But then the kind of issues they’ve had with all the cost overruns have completely hammered the share price so it has been de-rated,” he says, noting that the company’s profitability for the year will ultimately come down when it corrects them in its next set of results.

Vistry has blamed “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture” in its southern division for its recent difficulties, which it claims stretch back a number of years. While it is unclear whether its recent travails have anything to do with its partnerships approach, they may have weakened appetites among rivals considering the same path.

“I think a lot of the other major housebuilders are tempted to maybe do a bit more bulk sale, but [are] not going to get drawn fully into establishing partnerships model,” says Clyde Lewis, deputy head of research at Peel Hunt.

“I think they want to see the model being proved, and clearly the recent profit warning has arguably vindicated some of that caution.”

Alastair Stewart, construction and property analyst at Progressive Equity Research, is more confident about Vistry’s prospects, saying: “I think they will grow and [that] it’s all on track.”

“I think Homes England are really desperate to get new schemes under way and Vistry are working on a whole load of new projects which I’m sure will be fed into the market over the next two or three months,” he says, adding that inflation and the hit to national insurance contributions will “slightly erode their margins, but not by a lot”. 

Lewis agrees that the government’s focus on affordable housing will be “helpful” to Vistry, but notes that its prospects could change if more competitors push into the partnerships space or if the government changes tack.

Investec’s Lammin says it will take “at least 12 to 18 months to really rebuild confidence and gain credibility” but that it is “probably too early to say that the model is the wrong kind of strategy to pursue”.

Whether Vistry has any chance of knocking Barratt off the top perch is another open question. This year it was just £126m away from doing so, but Barratt’s merger with Redrow will surely put clear water between the two once more. Combined, the two housebuilders would have recorded a turnover figure of £6.3bn for this survey, compared with Vistry’s £4.04bn.

Biggest risers and fallers in ‘tough year’ for builders 

The rest of the top housebuilders had years to forget, although there was relatively little movement up or down the table. Taylor Wimpey, ranked third down from second, saw operating profit drop 49% and revenue drop 16%. Persimmon, down to fourth from third, recorded a 27% fall in revenue and a 52% fall in profit.

Berkeley rose from sixth to fifth, by virtue of experiencing more modest declines in turnover (-3%) and profit (-4%), while Bellway dropped from fourth to sixth after a 30% drop in turnover – the biggest drop in the top 10 – and a 58% drop in profit.

Redrow, Bloor and Cala all had comparatively stable years in terms of turnover and all retained their rankings, although Cala nonetheless saw operating profit drop 35%

Across the entire top 50, six firms recorded losses – McCarthy Stone, London Square, Fairview (Holdings), Telford Homes, Robertson Residential and Stonebond – compared with just four last year. London Square had one of the toughest years in terms of profitability, going from a £30.7m profit to a £13.4m loss.

To a large degree, it is difficult to point the finger at the housebuilders themselves, though. Peel Hunt’s Lewis sums it up succinctly: “It’s been a tough year; it’s been a slog economically”

Lammin at Investec blames this poor profitability on three pressure: weak order books carried into this year, cost inflation carried over from 2023, and low house price inflation over the past year. “So you’ve essentially had those three factors at play, and they’ve squeezed margins and profits for this year,” he says.

“The bottom line was we’d had a cumulative effect of the cost-of-living crisis,” says Stewart at Progressive Equity Research. He says the legacy of the Liz Truss mini-Budget had some impact, but adds that she had “become a great scapegoat” for weak performances.

The annual report of many a housebuilder over the past year and a half has laid some of the blame for its travails at the former prime minister’s door, but Stewart is unconvinced.

“She was in and out very quickly – in the lifetime of a lettuce, infamously – and much or most of the damage done by that was quickly patched up by Jeremy Hunt,” he says. 

“The market actually started picking up, recovering a bit in February, March and April of 2023, but then it was just that the rising base rates, every month basically, just took a huge amount of steam out of the market.”

But even this explanation presents housebuilders largely as victims of forces outside their own control. “It’s nothing much to do with the housebuilders if there’s less money sloshing around in the economy,” he says.

Despite the tough year, there were a few standout performers. Across the rankings 17 firms saw their revenue increase and seven saw operating profit increase. Just five saw both metrics rise: Vistry, Story Homes, Mount Anvil, Chartway and Castle Green.

Hill Holdings recorded an impressive 60% increase in turnover to £1.15bn, which saw it jump from 13th to 10th in the rankings, although its profit still fell 19%. Abbey Developments had the biggest increase in turnover (up 69% from £175m to £296m) and the biggest jump up the table (from 37th to 19th), although it also saw its profit cut. Galliard, which jumped from 40th to 27th, and Weston, which rose from 29th to 20th, were the other big risers.

Reeves’ Budget adds to builders’ pain – but can the government turn a corner? 

Those with later reporting periods may have experienced some impact from political uncertainty, despite hopes that a new government would put the chaos of the last few years behind it. 

Lewis and Stewart agree that things had been starting to improve in early 2024. “Then there was a bit of a slowdown before the election, as is often the case,” recalls Stewart, adding that the government began by saying “thoroughly sensible things”.

Lewis says there was a “probably six to eight week period where things were improving and then we run into Budget uncertainty”, the result of which did little to boost the mood. 

“I think Rachel Reeves [is] a lot more to blame than perhaps Liz Truss, frankly,” says Stewart, labelling it an “inflationary Budget […] that resulted in mortgage rates going up again after they’d been steadily falling for a while”.

He also says the government’s rhetoric around the economy “just made people feel miserable”, denting the housing market. “People only buy houses when they are feeling good about life. It is a very, very sentiment driven market.”

Lammin takes a slightly more muted view, arguing that the recent dip in expectations was not “all down to the Budget”, citing the impact of the US elections and subsequent fear about the inflationary impact of tariffs. “So it’s been a combination of things, but the Budget didn’t help,” he says.

Labour will be hoping that its plans for supply-side reform of the planning system could help boost the mood among housebuilders. “Bringing that forward and getting that in place for the whole industry to benefit from will be a big positive,” says Lammin.

However, the analyst is sceptical that there will be anything much coming on the demand side, for instance new supports for first-time buyers. “I don’t think you’re going to get that next year,” he says.

“So it’s really about them managing the economy sensibly around inflation expectations and making sure that interest rates continue to fall and that they don’t do anything crazy to impact the bond market and the swap rates.”

Light at the end of the tunnel? 

Pre-Budget speculation about consecutive interest rate cuts in November and December has been laid to rest, according to Stewart, meaning mortgage affordability will remain a challenge into next year.

“The general gradient of expected rate reductions is still downwards, but it is downwards more shallowly,” he says. “I think the market will pick up again, but it will take some time to really start moving.”

Lewis at Peel Hunt sets out a similarly gloomy picture for the first half of next year, predicting “hard yards for the sector”. He says there has been little incentive for boldness, with build cost inflation, stable house prices and a lack of distress selling of land “to encourage [housebuilders] to go and buy more and get that process going [because] there are no super margins to be made from those sorts of purchases.

“Hopefully, we start to see a couple of interest rate cuts which make mortgages and affordability a little bit more attractive,” he says. “But I think for now anyway, that seems to be pushed out a little bit.”

Lammin is a little sunnier, however, noting the lower cost inflation going into next year. “There’s some inflationary pressure coming back into the system, but it still looks pretty moderate as we go into next year, and you’re going to have higher volumes as site numbers improve,” he says. “So if sales rates hold up, I think you’ll probably get volumes actually up maybe 4% or 5%. [It’s] not the 6%-8% people were expecting a few months ago, but it’s still increasing volume, which will be a positive on overhead recovery.” However, he admits that “muted” house price inflation will drag recovery back for the time being. 

There are also perilous unknowns. “A big driver will be what swap rates do,” says Lammin. “If everybody continues to worry about inflationary pressure, and you start to see yields going up and fears around government spending and inflation, [and] obviously the employer’s NIC is impacting that, then that would be more negative.” At the moment, though, he says swap rates for three and five years are settling at around 4%, which he says is “probably okay” going into next year.

Overall, this has been a year to forget for most housebuilders, and even outliers like Vistry are now beginning to wobble. There are reasons for cautious optimism going into next year, but much will depend on whether the government is able to convince people of its economic bona fides.