You can't have it all

Mark Clare was seven weeks into his job as Barratt’s chief executive when he got a call to tell him that Wilson Bowden was for sale, and therefore that he had the chance to catapult his company into the FTSE 100 and the number two slot in the UK housebuilders’ league. “It certainly was sooner than I thought,” he says. “But then, a lot has happened in the past 12 months.”

Clare’s assessment, delivered with understated authority from the comfort of Barratt’s premises by Oxford Circus tube station on the anniversary of his arrival at Barratt, is on the money. The £2.2bn acquisition of Wilson Bowden, finally sealed in April following a struggle with George Wimpey and HBOS, was only the start of an eventful year for Barratt – and the housing market in general. Since his arrival in the industry from British Gas last year, Clare has presided over the integration of the two businesses against a background of five interest rate rises, the US sub-prime crisis and, now, a global credit crunch that threatens the UK mortgage market.

The financial turmoil last week led the straight-talking Clare to revise Barratt’s volume predictions downwards, despite strong full-year results. But the major difficulty facing the industry, according to Clare, is not simply trouble in the financial markets. The problem is that, while the industry holds its breath to see how long a recovery will take, the government is loading ever more onerous sustainability and affordability targets onto the sector. As he enters his second year at the helm, Clare’s message to ministers is clear: make your minds up, because you can’t have both.

“Clearly, we are now focusing on the marketplace. You can’t ignore five interest rate rises and the current financial turmoil,” Clare says sharply. He is speaking two days after Barratt warned that there would be “downward pressure” on volumes and prices. The City likes this way of talking. One analyst said: “You don’t get histrionics with Clare.”

But while Clare is concerned about the economic outlook (“nobody knows how quickly the market will recover”), he also has confidence in Barratt’s ability to cope with the turmoil. With a quiet assurance, he points out that, historically, Barratt has been good at managing its costs and selling through difficult periods.

This is an opinion shared by the City. Barratt’s share price rose after it announced its results, despite the fact that it reported a 5-10% drop in sales for the week the Northern Rock crisis hit. Tony Williams, an analyst at Building Value, praised Barratt’s candour, and said the company was well placed in a difficult market. He said: “Traditionally Barratt gains market share in a downturn because it ‘sells’ its product.”

The government is saying we need affordable houses and we need to deal with the environment … when you put these together in a market that is less robust than it has been, you have to ask how we square the circle

Clare’s first priority for his second year is to “understand how the market is going to change”, and to take action to protect the company’s margins against economic shocks.

Those safeguards include ensuring that the company’s sales capacity is fully used – Clare says the company is likely to increase its number of outlets this year. He also stresses that costs will be tightly managed, with the benefits from the acquisition of Wilson Bowden expected to be at least £60m in the second full year after the deal. This compares with an initial estimate of £40m. “A lot of work we’ve done on integration in the past few months strengthens our position.”

Clare’s big concern, however, is that even with these assets, housebuilders face the impossible task of coping with a tightening market while struggling to deliver the government’s policy agendas. The target of all new homes being zero-carbon by 2016 requires the costly development of new technologies. At the same time, the government wants 70,000 affordable homes a year by 2010/11, and a total of 240,000 homes each year from 2016 onwards (see table, below). According to Clare, this just doesn’t add up.

“The government is saying we need more houses, we need more affordable houses and we need to deal with the environmental challenges,” he says. “I don’t think you can argue with any of those, but when you put all of these together in a market that is somewhat less robust than it has been, you have to ask how we square the circle.”

I’ve spoken to a number of politicians. I really hope housebuilders can sit down with the government and say ‘how do we do it?’

Intelligent and erudite, Clare is keen to emphasise that he sees both targets as the responsibility of the sector; on the environment side, Barratt has pumped a lot of cash into developing a prototype zero-carbon home. His gripe is that by going for too much, the government may end up with nothing. “Is it affordability at the moment or the environment? On the environment side, the faster you go, the more costs you incur. On top of that, you’ll end up using immature technologies.”

He is angered by the government’s apparent lack of respect for the opinion of industry figures on the issue. “Its approach is to drive the industry to deliver. I’d like to see more co-operation, rather than the uneasy relationship that has existed in the past.”

As the Wilson Bowden acquisition demonstrates, Clare does not sit around and wait for progress. He has approached officials over the issue, which he says is necessary to supplement the reviews under way, such as that by former Crest Nicholson chief executive John Callcutt and the Office of Fair Trading. “I’ve spoken to a number of politicians. I really hope housebuilders can sit down with the government and say ‘how do we do it?’”

Clare says he thinks the government needs to put more money into affordable housing in addition to the £8bn recently announced, but beyond this he freely admits he doesn’t have the answers. “But I do have observations,” he adds, pointedly. These extend beyond central government to a local level, particularly on planning. “Central government wants us to build more houses, shareholders want us to build more houses and first-time buyers want us to build more houses, but there is a fundamental issue with local authorities.”

As well as the much maligned planning constraints, the other pressing issue is the availability of land. This is expected to drive more mergers and acquisitions and – surprisingly given that Wilson Bowden is still being integrated into Barratt – Clare says the company is still looking to buy.

“Any opportunities we look at in the future will be more land-based, and a target may not be a conventional housebuilder,” he says, adding that targets are likely to be small, local organisations. “We’d only look at a larger acquisition if it gave us access to land.”

Despite his bullish talk, Clare is keen to demonstrate that his Barratt is very different from the company it was 15 years ago, when it was criticised for poor design and a lack of interest in the communities with which it operated. He says it would be foolish to ignore community engagement. “We are a retailer, really. We just happen to sell the most expensive product you can buy.”