Historically low interest rates, favourable land bank tax structures, the “Help To Buy” scheme (now in its 8th year), stamp duty holidays, a blind spot to the ongoing scandal of leasehold unfairness, Rishi Sunak’s £7.1bn National Homebuilding Fund…House builders seem to enjoy support above and beyond any other market.
From the 1992 housing price crash, through Gordon Brown’s pension raid and subsequent “Buy To Let” boom, the 2008 financial crash and now the coronavirus, the house building industry has faced it’s share of ups and downs over the decades. However, no other industry seems to get such direct and indirect support.
HM Government don’t offer to cover 20% of the initial payments when you buy a new car. They don’t offer a tax holiday if you purchase a new TV. Your broadband provider can’t charge you exorbitant, hidden fees for arbitrary things that you weren’t aware of, without a serious rebuke from regulators.
Which begs the question, “Why have consecutive UK governments offered so much support to a house building market that, if properly regulated, is profitable on its own and has such pent-up demand?”
According to analysts Plimsoll, up to year end 2019, average profit margins were around 8%. With that in mind, why the need for continuation of expensive, government schemes supporting the market? Other politically charged industries, such as fishing and car manufacturing, exist on much slimmer margins yet enjoy far less direct and indirect support. Successful British export industries such as aerospace, defence systems and other hi-tech sectors thrive without direct government subsidy.
Of course, the case for the state to encourage house building is clear as demand outstrips supply consistently. But are these support schemes helping? Acute shortages in highly populous areas have locked out entire generations and driven prices through the roof. The as recently as 2007. The , or 1.5 times the average annual wage. Average house prices are around 4.5 times average earnings.
Who are these support schemes really benefitting? Based on the above, it is hard to argue it is the consumer. If anything, they are exacerbating the issues.
Even amid this killer pandemic, demand for houses remains remarkably high, which calls into question the need for the recent stamp duty holiday. House prices have soared since the end of the first lockdown as people race to take advantage of the tax break. But was it necessary? Demand to move grew after the first lockdown, despite millions facing almost certain redundancies, as people reassessed their housing requirements and the move towards remote working.
Recent excesses in the house building market are well documented. In 2018, Persimmon’s profit per house had almost tripled, £2.2 billion was returned to shareholders and CEO Jeff Fairburn was paid a bonus of £76m to much consternation. If a private company can offer those level of rewards to stakeholders and shareholders, does the government need to spend taxpayer’s money supporting already high demand in the market?
Plimsoll’s latest assessment of the UK’s leading House Builders shows a market with robust, pre-virus trends in growth, profitability and value including:
- More than half the UK’s House Builders were growing in the trading year prior to the pandemic
- 133 companies grew at more than 10% in that same trading period
- 1 in 3 companies were rated as Strong by Plimsoll – our highest financial stability rating
- Half of all House Building companies have seen their value increase
Even amid the darkest days of 2020, property groups have increasingly reinstated dividends despite the hit that has decimated other industries. Without government support, market forces and a more capitalist supply side model would allow the market to set a fair price for the product offered, encourage innovative solutions to Britain’s housing shortage, weed out poor quality practices and finally put the consumer at the heart of the market, just like every other sector.
In these austere times should the government stop throwing billions of pounds from the public purse into supporting the housing market and allow market forces to make it work for the taxpayer?
For more information on Plimsoll’s latest analysis of the UK House Builders market, visit www.plimsoll.co.uk