Wednesday, 8 February 2017

More landbanker LOLZ

From the BBC:

The chairman of one of the UK's top housebuilders, Redrow, has rejected accusations of land hoarding by the industry and called the government's housing White Paper "disappointing".

Steve Morgan said the planning system was the biggest barrier to new houses. The suggestion that housebuilders were sitting on landbanks in order to maximise profits was "completely incorrect", he told Radio 4's Today...

The company reported that completed house sales were up 13% in the six months to December 2016 to 2,459 compared with the same period last year and pre-tax profits were up 35% to £140m...

The planning problem stemmed from difficulties in moving from outline permission - where a council says land is OK for housing - to detailed permission, when the builder can start work.

"This can take normally one year, but up to two years," Mr Morgan said. Redrow has just short of 26,000 plots in its landbank. "At one-third of them, we just can't get on site."

Jolly good, so by his own admission, Redrow have built up five years' supply. They could be building on two-thirds of them = 17,000 homes, but they'd rather drip them onto the market at 5,000 a year. That's their profit maximising level of output, end of. Can't really blame them for playing the game, but at least they could admit it.

The planning process was also inhibiting supply by dissuading smaller builders from doing more.

"It's not so bad for the big builders like us, but small companies face a wall of bureaucracy. If I was starting out today, I could not build up Redrow as I did."

What happens to smaller builders? The Chairman's Statement in Redrow's 2017 interim accounts explains all:

In February 2017 we acquired Radleigh Homes, a regional housebuilder based in Derby. Radleigh Homes completed 188 homes in the year to December 2016 and has a pipeline of over 1,300 plots with planning, and a further 1,200 plots controlled under options in its strategic land pipeline.

Radleigh Homes is an excellent fit given its geographical location and its high quality market position, similar to Redrow. This acquisition will form the basis of a new regional division for the Group: Redrow East Midlands.

In short, smaller developers are even less bothered about building anything, the game is to build up a nice big land bank and then sell out to a major for £££loads. It was a private sale so the amount paid won't be known until somebody trawls through their next set of accounts. As a rough guide, Redrow has a market capitalisation of £1.75 billion* (at today's date) and Radleigh is about one-tenth the size.

* £1.75 billion divided by land bank 25,600 plots = a staggering £68,000 per plot.