Grip of big housebuilders loosens on UK market

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Comprehensive report on state of play of housing market shows surge in growth of smaller companies

The market share of the top 10 housebuilders has decreased for the first time in more than a decade.

The hold of the 10 biggest companies over the private housebuilding sector has risen since 1991, and peaked at 47%. Last year it dropped back to 44%, according to the Private Housebuilding Annual 2005, to be published next week.

Fred Wellings, the annual’s author, said: “The shift is because of an increase in smaller companies. The bull market has brought more companies into the market. At the same time, companies such as George Wimpey and Persimmon have not increased sales.”

The report, which is an analysis of the corporate structure of the housebuilding industry, finds that many companies want to increase housing output, and have stated their intention to do so in their financial statements.

Do companies really mean what they say, or are they just making PR statements?
Fred Wellings

Wellings said: “A legitimate question to ask is, do the companies really mean what they say, or are they just making the PR statements that they think their audience wishes to hear? I think they really mean it. They would not be doing things like opening regional offices if this were only for PR purposes.”

The annual’s listing of the top 100 housebuilders by unit output records little change among the top housebuilders. The number one housebuilder, Barratt, is clearly pulling away from the pack and is managing to significantly increase its output through organic growth. Most of the change has come at the lower end of the table, with the inclusion of a clutch of new names, including Lancashire-based Elite Homes, Scotland’s Muir Homes and Hampshire’s Orchard Homes.

Although the top housebuilders may be struggling to grow unit numbers, their business performance is generally good and trading profit is high. The aggregate profit margin of the 20 largest housebuilders reached 18% in 2004, only one point short of their 1989 peak. Persimmon tops the profit table, at almost £500m.

Companies to watch

Explore Living

Laing O’Rourke’s new housebuilding division has yet to record any sales. The newly formed company is chaired by Paul Healey, the former managing director of Laing Homes and has Karl Pickering, formerly with Barratt, as managing director. The business is initially concentrating on south-east England, but is aiming ultimately to operate nationally. In the annual, Fred Wellings acknowledges Laing O’Rourke’s business acumen, but notes: “The track record of contractors operating speculative housebuilders is not encouraging, Amec and Costain being among the more spectacular examples, and it will be interesting to see what will be the entry strategy that will differentiate Laing O’Rourke in the residential market.”

Gladedale Homes

Gladedale’s acquisition of the 750-unit-a-year Country & Metropolitan in April moved it up to 18 in the housebuilding top 20. Just over a year earlier, the company acquired 910-unit-a-year Bett Homes. Wellings estimates that one more acquisition could propel the company into the top 10.

Heron Land

Although Heron is a land-dealing company rather than a housebuilder, the business rates a mention in the annual because of Heron supremo Gerald Ronson’s unsuccessful bid for Crest Nicholson. Heron’s land development capability produced £27m in sales in 2003 and £12m in trading profits.

Intro Homes

Laing Partnership Homes has been a wholly affordable housing producer since its buyout from Laing just under two years ago. Now the 400-unit-a-year company is venturing into private development, although this is under the Intro brand because the Laing Homes name now belongs to George Wimpey. Intro is marketing its first private residential scheme and has a three-year target of more than 200 private sales a year.

Lend Lease

The largest housebuying deal over the past year by value was Berkeley Homes’ sale of Crosby Homes to Lend Lease for £236m. The move adds a regeneration focus to Lend Lease’s existing expertise in new communities.