NOTE: Findings and recommendations reflect the views of the researchers at the time of writing and are not necessarily the views of the RTPI
Key takeaways
- Unusually high profits have been made by the volume housebuilders in England since 2014.
- This does not, however, reflect an increase in the quantity of delivery, and housing affordability in England continues to worsen.
- The state’s own policies have enabled this, because the state saw itself as needing to be a passive player in the production of housing, reliant on the structural power of the largest housebuilders to deliver.
- To expand housing supply in a way that meets social and environmental needs, the state should take a larger and more active role in the housebuilding and land market.
In this report the authors discuss their findings that since 2014 the largest housebuilders by volume (Taylor Wimpey, Barratt and Persimmon – the ‘big three’) have consistently attained “supernormal” levels of profitability, with gross profit margins reaching 32% and never falling below 17%.
Key questions that the authors go on to ask include:
- how and why have the big three been so profitable?
- what does this profitability say about the nature of the housebuilding industry, the development land market and the relationship between volume housebuilders and the state?
- what can the state do differently to enable more affordable and sustainable housing to be delivered?
In answering these, the report explains how the state played a vital role, through two interventions which benefitted larger housebuilders over smaller ones:
- Mortgage market support schemes which (likely) inflated their sales prices and allowed them to wind-down their own shared equity schemes.
- Renegotiation of section 106 agreements and the subsequent liberalisation of the planning system.
The authors argue that to increase housing supply in a way that better meets social and environmental needs, the state should recognise its own structural and market power and take a bigger and more proactive role in the housebuilding and land market. While acknowledging barriers as well as opportunities, they go on to discuss different ways that the state could do this, such as:
- more direct delivery by the state of non-market housing e.g. via housing associations or local authorities;
- a more active and expansive role for the state in planning and acquiring large-scale sites and then servicing them for SME and custom builders;
- a more coherent approach to capturing land value uplift, so that more of it can be used to support the delivery of affordable housing and infrastructure.
What our judges thought:
“This report outlines some of the reasons for the chronic lack of housing and the poor quality of new housing, and its evidence should be used to put an end to the reasons for the housing crisis.”
“The relationship between housebuilders, the market, the state and the local planning authorities is of crucial concern to planners. There is contradiction in academic circles regarding the extent to which planning inhibits housebuilding, as well as debate about the availability of land for housing. Through a thorough economic analysis, which takes into account the political power exerted by the big three housebuilders, this report shines a light on the profiteering by the builders which continues unabated and influences government housing policy.”
“A comprehensive report that looks at how large volume housebuilders achieve their profits - there is much here to unpick about their operation, the relationship to and their attitudes toward planning, and more general debates about the state of housing in the UK presently.”
Full reference
Foye, C. & Shepherd, E. (2023) Why have the volume housebuilders been so profitable? The power of volume housebuilders and what this tells us about housing supply, the land market and the state. UK Collaborative Centre for Housebuilding Evidence.
Link to research paper
https://housingevidence.ac.uk/publications/why-have-the-volume-housebuilders-been-so-profitable/