The housing crisis in the UK continues to be a pressing issue, with many struggling to afford homes. A report, published in 2023, titled “Why have the volume housebuilders been so profitable?“, by UK Collaborative Centre for Housing Evidence, sheds light on the practices of the three largest housebuilders – Taylor Wimpey, Barratt Developments, and Persimmon – highlighting how their profit-driven strategies have exacerbated the housing shortage and increased the cost of buying a home.
Key Findings:
- Focus on Profit Over Volume:
Since the Global Financial Crisis (GFC), the big three housebuilders have shifted their strategy from increasing the number of homes built to maximising profit margins. This focus on profitability has led to gross profit margins between 17% and 32%, far above the industry norm. However, this has come at the expense of building more homes, contributing to the persistent housing shortage. - Market Control and Supply Limitation:
These housebuilders have significant control over the housing market, often strategically limiting the supply of new homes to keep prices high. By doing so, they ensure continued demand for their developments, allowing them to sell homes at higher prices and maintain their profitability. - Government Support and Policy:
The state has inadvertently reinforced this profit-driven approach through policies and support schemes such as Help to Buy, which have increased demand without ensuring a corresponding increase in supply. This has allowed housebuilders to capitalise on government incentives, driving up house prices further and putting homeownership out of reach for many. - Impact on Housing Affordability:
The combination of limited housing supply and increased prices has made it increasingly difficult for first-time buyers and low-income families to enter the housing market. The report highlights that the big three’s approach has significantly contributed to the affordability crisis, with average house prices continuing to rise faster than wages. - Policy Recommendations:
To address these issues, the report suggests that policymakers need to re-evaluate the relationship with volume housebuilders and implement measures that ensure increased housing supply. This includes stricter regulations to prevent land banking, incentivising the construction of affordable housing, allowing local councils to build homes, and reducing the influence of large housebuilders on planning policies.
The profit-driven approach of the UK’s largest housebuilders has had a detrimental impact on the housing market. By prioritising high profit margins over the volume of homes built, these companies have exacerbated the housing shortage and driven up the cost of buying a home. Addressing this issue requires a concerted effort from policymakers to implement regulations and incentives that promote a more balanced and fair housing market.
So, the next time you hear someone blaming the housing crisis on immigration or the planning system, share a link to this article with them. The truth is that property developers are the ones who benefit the most from the shortage of housing in the UK, as they control both demand and supply to maintain their profitability.
Reducing the cost of building houses: A vital step towards solving the housing crisis
First dropped: | Last modified: June 11, 2024
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UK Housing Shortage and Housebuilder Profits: Recent Articles
#Title: Housing shortage: UK needs more than one million new homes, report warns
Link: https://www.theguardian.com/business/2023/nov/22/housing-shortage-uk-needs-more-than-one-million-new-homes-report-warns
Source: The Guardian
Description: A report by the National Infrastructure Commission warns that the UK needs to build more than 1 million new homes by 2035 to meet demand and address the housing shortage.
Relevance: This article highlights the scale of the UK housing shortage, which is a key driver of high house prices and a major concern for many people in the country.
Date Published: 22nd November 2023
#Title: Housebuilders urged to build more affordable homes as demand outstrips supply
Link: https://www.bbc.co.uk/news/business-63690404
Source: BBC News
Description: The government is calling on housebuilders to build more affordable homes to address the growing housing crisis. Data from the Office for National Statistics shows that the number of new homes being built is not keeping pace with demand, leading to a significant shortage.
Relevance: This article discusses how the lack of affordable housing is contributing to the housing shortage, in line with the Mothcloud article.
Date Published: 10th November 2023
#Title: UK house prices fall for first time in a year as mortgage rates rise
Link: https://www.theguardian.com/business/2023/nov/17/uk-house-prices-fall-mortgage-rates-rise
Source: The Guardian
Description: UK house prices fell for the first time in a year in October, according to data from the Office for National Statistics. The average price of a home fell by 0.9%, the first monthly decline since October 2022.
Relevance: Although house prices are declining, the Mothcloud article argues that this doesn't address the underlying issue of insufficient housing supply.
Date Published: 17th November 2023
#Title: How to solve the housing crisis: a practical guide from experts
Link: https://www.vox.com/2023/11/4/23730057/housing-crisis-affordable-housing-solutions-experts
Source: Vox
Description: This article explores a range of solutions to the housing crisis, including building more affordable housing, investing in public transportation, and reforming zoning laws.
Relevance: The Vox article provides a broader perspective on potential solutions to the housing shortage, while the Mothcloud article specifically critiques the role of profit-driven housebuilders.
Date Published: 4th November 2023
#Title: Housing market in crisis as demand outpaces supply
Link: https://www.ft.com/content/37e635b6-7c0f-4076-9555-7570855be63a
Source: Financial Times
Description: This article examines the various factors contributing to the UK housing shortage, highlighting the gap between demand and supply, rising construction costs, and the impact on affordability.
Relevance: The FT article provides an in-depth analysis of the housing market dynamics, aligning with the Mothcloud article's analysis of the profit motives of housebuilders.
Date Published: 2nd November 2023