Housebuilding margins squeezed

By Sarah Richardson and Sarah Richardson Sarah Richardson Sarah Richardson2007-10-19T00:00:00+01:00

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Housing tracker 好色先生TV鈥檚 new quarterly analysis shows effect of rising land and materials costs

Margins in the housebuilding sector have fallen by more than 20% over the past two years because of the increasing cost of land and materials, according to research prepared for 好色先生TV.

The report, by consultant BDO Stoy Hayward, shows that the average sector operating margin was 13.6% for the six months to June 2007, compared with 17.2% at the start of 2005. The profit tracker suggests that across the sector housebuilders have not been as successful at passing on increased land, labour and materials costs as is commonly believed.

Taylor Wimpey, the UK鈥檚 largest housebuilder, is among the poorest performers. It had a headline operating margin of 11.7% for the six months to June 2007, well below the sector average. But after its land writedowns in the US and legal provisions, margins were 7.3%.

Richard Kelly, head of construction at BDO Stoy Hayward, said: 鈥淭here鈥檚 an apparent trend towards the sector producing lower returns. Despite the government鈥檚 commitment to increased housing supply, there is undoubted nervousness being expressed from a number of quarters. All the main players are now seeking to get a grip on build costs and overheads to retain margins if volumes and prices fall.鈥�

All the main players are now seeking to get a tighter grip on their overheads
Richard Kelly, BDO Stoy Hayward

The star of the sector is McCarthy & Stone, the privately owned retirement homes specialist, with margins of 28.4% in the year to August 2006, although this was a significant drop from the 39.5% it enjoyed in 2005, when subject to the scrutiny of interim reporting and trading updates.

The contractor Wain Group, which is also privately owned, is also a strong performer, with margins of 27.7% in the year to June 2006. Again, however, the results were poorer than in the previous year, when the Cheshire company generated margins of 32.6%.

Bovis Homes does best among the listed companies, with margins of 22.5% for the six months to June 2007. Nevertheless, this is down on the comparison period to June 2006, when it had margins of 24.1%. Persimmon also performed strongly, with margins of 20.8%.