The wobbles felt by UK house-builders during last year鈥檚 Covid roller-coaster ride continued to unsettle the sector鈥檚 equilibrium in 2021. Some of the top 20 players are starting to look decidedly queasy as we brace ourselves for 2022.
After a so-so 2019, the sector took a bit of a dive in 2020, with overall revenues among our 20 leading players falling by 8% and pre-tax profits slumping by more than 20%.
This year, it is more of the same. Total revenues are down 鈥� albeit by a relatively insignificant 0.1% from 拢26.7bn to 拢26.6bn 鈥� but pre-tax profits have again fallen, again by almost 21%, from 拢4.2bn to 拢3.4bn.
House-building is a highly profitable business compared with other sectors of the construction industry, but the average profit margin among our selection of top 20 companies has fallen from 16% in 2020 to 12.6% in 2021. In 2019, the average margin was 19%.
There has been a bit of jockeying in the rankings this year, too. Last year, Taylor Wimpey pushed Barratt off its perch (where it had been for at least the past five years) at the top of the table. This year, Barratt has retaken possession of the top spot and Taylor Wimpey is down to number four.
Barratt is justifiably satisfied with its performance in the 12 months to June 2021. Turnover was up nearly 41% from 拢3.4bn to 拢4.8bn and pre-tax profit rose to 拢812m from 拢492m in 2020 鈥� an increase of 65%.
鈥淲e have made huge progress in our recovery from the impact of Covid-19,鈥� said chairman John Allan. 鈥淲e delivered 17,243 high quality new homes鈥n 2021, 36.8% ahead of last year and almost back to the 17,856 homes we completed in 2019,鈥� he added.
Also looking good is Bellway, up one place to number three on our table this year. Bellway鈥檚 results are for the 12 months to December 2020 and pretty encouraging considering the upheavals last year. It also increased turnover by about 40%, from 拢2.2bn to 拢3.1bn, and pre-tax profit more than doubled, from 拢236.7m to 拢479m.
Persimmon, also reporting results for 2020, held onto its number two position despite a 9% drop in revenues (from 拢3.6bn to 拢3.3bn) and a 25% fall in pre-tax profit. Persimmon has consistently delivered the biggest profits of all the top 20 house-builders in our annual review 鈥� last year it registered just over 拢1bn in pre-tax profit 鈥� but this year that figure has fallen back to 拢784m and Persimmon鈥檚 profit is only the second-largest after Barratt鈥檚.
Probably the best-known beneficiary of Persimmon鈥檚 ability to turn a profit is the company鈥檚 former chief executive, Jeff Fairburn, who in November 2018 was forced out amid a deluge of bad publicity surrounding his 拢75m bonus.
But it seems you just can鈥檛 keep a good man down. Fairburn is back, this time popping up at the helm of Chesterfield-based Avant Homes. Berkeley DeVeer, a small Wetherby builder that Fairburn bought into in January 2020 acquired Avant Homes Group in April 2021 with backing from a hedge fund.
Avant was once known as Gladedale and had been owned by private equity firm Alchemy since 2014. In April, following his acquisition of the business, Fairburn said: 鈥淎vant Homes is a fantastic business with a strong proportion and a compelling track record of growth.鈥� This appears to be borne out by the company鈥檚 latest results.
In the 12 months to April 2021, Avant turned-over 拢505m, up 13% from 拢446m the previous year. Pre-tax profit almost tripled from 拢16.7m in 2019/20 to 拢43.9 this year.
Another notable change of ownership this past year was the acquisition of Kier Living by Terra Firma, the private equity firm owned by British financier Guy Hands.
Kier鈥檚 house-building business turned over 拢55.2m in the year to June 2020, down 53% on the previous year (拢118m). It also made a pre-tax loss of 拢89.4m on top of 2019鈥檚 loss of 拢6.5m. The business just makes it onto our table of top 20 house-builders this year.
The Kier board put the house-building business up for sale in mid-2019 in a bid to reduce debt. It was first reported in December 2019 that Guy Hands was bidding for it but the sale was paused in spring 2020 due to the coronavirus outbreak.
Terra Firma finally bought the business, for a reported 拢110m, in May. Kier Homes has now been rebranded as Tilia Homes.
But enough of the good news 鈥� while some companies can point to good solid financial results, the overall picture is not so healthy. Twelve of this year鈥檚 20 biggest house-builders saw turnover decline in their most recent results. Seven saw their profit figures fall and four made a pre-tax loss.
One of the worst-hit was McCarthy & Stone, whose latest figures are for the year to October 2020. McCarthy & Stone specialises exclusively in building and managing retirement housing. It was hit particularly badly by the pandemic, with the high average age of its buyers seemingly making them more reluctant to return to the market after restrictions were eased in May.
Revenue for the year to October fell 73%, from 拢725m to just 拢197m. The company made a pre-tax loss of 拢153m, compared to a profit of 拢43m the previous year. In November, the company said that the second wave of the pandemic was again depressing sales.
In January 2021, McCarthy & Stone was bought out for 拢647m by US private equity group Lone Star (which also owns property developer Quintain).
That same month the government announced that it was introducing legislation to stop the abuse of inflationary ground rents on most new homes 鈥� bad news for retirement house-builders like McCarthy & Stone, who rely on ground rent charges to offset the high running cost of developments, which typically include a large amount of communal space.
The UK鈥檚 house-building industry has long been the target of criticism for its willingness to make big profits while apparently unable to deliver enough new homes to meet the nation鈥檚 needs. That criticism is unlikely to go away any time soon.
The Covid-19 pandemic hit the house-building sector harder than most and the number of completions has fallen substantially. In 2019 approximately 240,000 new homes were built in the UK; in 2020 this fell to around 200,000.
Savills, the estate agent, estimated that only around 180,000 homes will be built in 2021 and that the volume of houses being built will not return to pre-pandemic levels until 2026. Even then, the number will still be 20% less than the government鈥檚 target of 300,000 houses a year.
And it is not just Covid that is to blame. According to Savills, the number of houses being built was already decreasing when the pandemic hit in March 2020.
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