The Housing Crisis

Builders make billions as housing crisis escalates

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Housing chief executive Tony Berkeley with Boris Johnson in London in 2011

Britain’s biggest housebuilding firms and their executives have pocketed billions of pounds as the country’s housing crisis escalates and affordable homes targets are missed.

The four most powerful companies – Persimmon, Taylor Wimpey, Barratt and Berkeley Group – are making so much money they are planning to give £6.6bn extra in dividends to shareholders by 2021, the Bureau has found. Meanwhile the number of affordable homes built fell to a 24-year low this year. Housebuilders routinely argue that affordable housing targets are financially unviable.

House prices have risen five times more than average wages in the last five years, making it impossible for many people to buy their own homes. Those prices have translated into handsome profits for the industry – the four biggest firms together made more than £2bn in pre-tax profits last year.

Our calculations also show that just eight directors working for major housebuilders together earned £230m in the last five years. Two housing executives – Tony Pidgley and Rob Perrins who run industry giant Berkeley – have received £141m from their pay packets and the cashing in of shares since 2011.

Housing shortage deepens

MPs and campaigners have accused major housebuilders of deliberately keeping housing supply low as they sit on land banks, in order to drive up prices. The four big firms built 50,000 houses between them in the last year but are holding on to 450,000 empty building plots.

Britain has a major housing shortage. The government last year set a target of one million new homes to be built by 2020 – 200,000 houses a year – but industry experts say that will still not be enough. The cross-party House of Lords Economic Affairs Committee said in July last year that 300,000 new homes a year were required to meet demand.

Low supply and high demand means housebuilding firms are able to charge substantial mark-ups on homes they sell – in some cases making an average profit of £127,000 per house, our analysis found.

Related: Affordable housing: What is it and just how affordable is it? A Bureau guide

“These astronomical sums show why only a fool would imagine the big volume house builders can be relied upon to work in the national interest to tackle Britain’s housing crisis,” said Joanna Kennedy, chief executive of housing legal advice centre Z2K.

“While most of these companies argue against meeting their obligations to include meaningful percentages of genuinely affordable housing in their developments, another generation of children is growing up homeless, or in cold, damp and overcrowded conditions.”

Multi-million pound executive pay

The rewards enjoyed by bosses are significant.

As well as their £141m wages, Tony Pidgley and Rob Perrins of Berkeley are also sitting on shares in the company worth £440m.

They are not alone. Two executives at Persimmon, another of Britain’s biggest house builders, have shares worth at least £105m as part of their company incentive plan.

Our investigation – published days after the Chancellor Philip Hammond announced more than £5bn of government money would be spent increasing affordable homes and speeding up house building – also shows that Taylor Wimpey CEO Peter Redfern has been paid more than £24m in the past five years.

Related: ‘Dismay doesn’t do it justice’: How a secret system was used to axe hundreds of affordable homes on Britain’s most iconic construction site

Redfern was commissioned this year by the Labour Party to carry out a review into the decline in home ownership. He concluded that increasing housing supply alone would not solve the crisis, arguing the lack of access to mortgages was the primary driver of the drop.

Shadow Housing Minister John Healey said house builders should be maximising investment in new homes, not short-term shareholder profit or pay.

“It’s down to ministers to make sure that happens, which is why we need much tougher rules to stop companies just sitting and speculating on land that should have new houses built on it,” he said. “I want to see Government bring in new ‘use it or lose it’ powers so non-developing firms forfeit their planning permission”.

Company  Executive Pay and share sales        2011-2016
 Berkeley  Tony Pidgley  £94m
 Berkeley  Rob Perrins  £47m
 Persimmon  Jeff Fairburn £8.5m
 Persimmon  Mike Killoran £10m
 Taylor Wimpey  Peter Redfern £24m
 Taylor Wimpey  James Jordan £11m
 Barratt  David Thomas £16m
 Barratt  Steven Boyes £16m

Affordable housing targets consistently missed

During Boris Johnson’s six-year tenure as Mayor of London, not a single London borough met its affordable housing targets, according to an industry analysis by BNP Paribas published last May. Some councils managed to secure an average as little as 14% of affordable housing as part of private developments, when their target was 50%.

In the same period, the housebuilders’ profits soared. Last year, Barratt’s pre-tax profits rose from £42.7m in 2011 to £565m this year. Persimmon’s profits rose from £144m to £638m.

Only Taylor Wimpey and Barratt specify in their annual reports what percentage of the homes they built last year was affordable – 19% and 18% respectively, falling significantly short of targets typically set by local authorities which are typically at least 30% (in London they can be as high as 50%). None of the companies responded to the Bureau’s request for details on their affordable housing rates.

Planning documents kept secret

Previous in-depth reporting by the Bureau highlighted how the UK’s planning system allows developers to reduce their affordable homes targets while keeping their justifications secret.

Developers carry out financial viability assessments for their proposed developments, which often conclude that meeting the affordable housing targets set by local authorities would reduce their profits to a point that the scheme would be worth their while. However those assessments are kept confidential, with even councillors unable to see them.

In order to make sure schemes goes ahead, the local authorities typically reduce their targets or accept payment from the developer in lieu of the affordable homes. That money is supposed to be invested into social and community projects, or the council’s own affordable housing schemes.

Number of homeless families rises 45%

While our investigation shows how industry profits have gone through the roof, so have the number of homeless families. The number of households living in temporary accommodation in England increased 45% in the last six years to 73,120, according to government statistics released in September.

Among those homeless households are 114,930 children – more than the entire population of Dover.

Responding to the Bureau’s questions, a Berkeley Group spokesperson said: “Tony founded Berkeley from scratch 40 years ago. Today it supports 30,000 jobs and we have paid over £2 billion in the last five years towards affordable homes and community facilities”.

Related: Thousands of affordable homes axed

Persimmon said that the pay and share sales received by Fairburn and Killoran were part of “a long term plan that runs for almost a decade which is designed to drive outperformance through the housing cycle and to incentivise the management,” and about 150 executives were part of it.

The company argued accusations housebuilders deliberately sat on land banks to drive up prices were untrue. “The land bank allegation is frequently levelled at the industry but has no foundation in fact,” it stated.

A Barratt spokesperson said: “In the year following the financial crash in 2008, Barratt made a loss of nearly £700m and for four years afterwards paid no dividends to its shareholders.”

“Since the crash Barratt has recovered and built more than 110,000 high quality homes for families across England, Scotland and Wales. Today, as the UK’s largest housebuilder we are proud to support more than 55,000 jobs and contribute £3bn of gross value to the UK economy.”

A Taylor Wimpey spokesperson said:  “As with any business, we invest to generate returns for shareholders. Our margins have varied depending on our strategy and performance as well as economic conditions. UK operating margin was 9.7% in 2011.”

The four biggest companies are all members of the Home Builders Federation. The organisation’s executive chairman Stewart Baseley, said: “House building is a high risk business and in the financial crash many companies went to the wall or made huge losses. Since then the industry has invested heavily in land, created tens of thousands of new jobs and significantly increased delivery of desperately needed new homes.”

A version of this story appeared in The Sunday Mirror. Click here to read it.

Follow the Bureau on Twitter: @TBIJ

Photo of Boris Johnson and Berkeley Group’s Tony Pidgley unveiling a new pier at St George Wharf in London in 2011 by Oli Scarff/Getty

Responses to this story

  • trepenpol says:

    December 15, 2016 at 6:30 pm

    Apologises for the late reply but there is more at risk than just housing. Being Cornish, housing development is becoming the main industry which is creating problems for the Cornish who had to be added to the Framework Convention Protection for the Protection of National Minorities in the belief that our ways and traditions may be preservered. This is not the case. As our main industries died out, this left available plenty of brownfield land, perfect for developing. Then we have the scenary which people will pay top dollar for. The problem is that our industries have not been replaced so the average person is jobless and will have to do some travelling to find a property available. Add to that the cutting of public services, the aging intrastrastructure which still lives in the 1970’s and a huge rise in population, not only are Cornish people still at risk of extinction but we have to live in slums if we want to live here. In short, my point is the blame shouldn’t just be aimed at the developers but also at the planning officers and their departments. I dread to think how common the problems Cornwall faces could be in the UK. We’re now at the stage where literally every development gets the go ahead and its somewhat unfair to see people drive around in the Porsche they own while we have to rely on foodbanks.

  • Patrick says:

    December 8, 2016 at 1:00 pm

    Would be more interesting if The Bureau could track and expose the personal and business links between key politicians and housing sector players.

  • Caroline Hope says:

    November 30, 2016 at 9:54 am

    ‘Affordable’ houses don’t wash.

  • Manwhoknows says:

    November 30, 2016 at 7:07 am

    Not really a story. Developers like all capitalists exist to make profit. They have no responsibility what’s over to society, A government, on the other hand, who refuses to house it’s people is nothing but a parasite.

  • Jamie McMillan says:

    November 29, 2016 at 11:02 am

    Not actually true that Lords report stated 300,000 houses per year needed ‘to meet demand’. It said that a min 300,000 needed to stop house prices increasing: not same thing at all. This all stems from Kate Barker (a director of Taylor Wimpey) who has been using the same argument since at least 2004. This assumes the sole reason for house price increases is lack of supply, not foreign cash, the QE-driven asset bubble, changes in occupancy, regional employment differences etc etc. It is a developers’ argument for loosening planning, and especially for building on the green belt – which of course would produce a giant windfall for developers as they speculatively own much of it.

  • Rupert Pitt says:

    November 28, 2016 at 5:01 pm

    Superb reporting. How can we allow this crazy situation to exist that whilst some have too much others have too little. The building firms like Persimmon have made abnormal profits because the housing market does not permit supply to meet demand. Planning laws restrict the supply of land. The abnormal profits building companies make should be taxed to pay for affordable homes.

  • SeanRead says:

    November 27, 2016 at 11:02 pm

    As unpalatable as this reads thanks for bringing these issues to our attention. Unaffordable housing is at the heart of a lot of the problems in society today and a ✅ by time bomb

  • Peter Smith says:

    November 27, 2016 at 7:54 pm

    How would Land Value Based Fiscal Reform contribute towards good, secure, affordable housing?

    In the face of a deep and ever worsening housing crisis there is widespread frustration at the failure to increase the rate of house building to address the imbalance of supply and demand. A large part of the problem is that the profits of the development industry are intrinsically linked to inflated land values which are boosted by artificial scarcity. It is not in the interests of developers to flood the market with new builds as this would have a price supressing effect and hit their bottom line.plymouth-houses

    At present it is all too common for land owners to sit on development sites and demand an unrealistically high price from others who want to bring them forward, or otherwise demand that local authorities lift the obligation to build sub-market affordable homes in order to make schemes more profitable. The viability discussion, a circular argument over the relationship between site value and planning obligations, can be typified as a stand-off between the developer and the planning authority with the latter commonly lowering its affordable housing requirement in the hope that this will result in stalled sites being taken forward.

    Land value based fiscal reform would strike at the root of the problem by fundamentally shifting the balance in favour of productive land use, rewarding the industrious and penalising the speculator. It would do this by introducing a modest annual cost on the land owner regardless of whether land is used productively or not. In return, one-off costs that developers currently face such as Community Infrastructure Levy and Stamp Duty Land Tax on development land could be eliminated in a revenue neutral way. These existing taxes are not paid by those holding land idle but are only levied once the decision is made to sell or develop the site. The revenue neutral fiscal shift could be extended further to the elimination of other taxes on house building companies and construction workers including VAT, corporation tax, income tax and national insurance. Reducing these harmful taxes would lower the cost of development.

    The net result would be a saving for those who proceed quickly with development and mounting costs for those that do not. The reform would prove to be an effective antidote to unproductive land banking and speculative behaviour which drives up the cost of land. Stalled sites, previously developed, underused and derelict land in both the public and private sectors would be unlocked and the build-out of development schemes would be accelerated. The surge of available land would have the effect of lowering its price, enabling new developers, including smaller house builders, self-builders and housing associations to join established volume house builders in providing a plentiful supply of affordable housing as well as creating additional jobs in the construction industry.

    The fiscal shift would also result in a more efficient use of the existing housing stock. Bringing empty homes back into use would be rewarded and an incentive would be created for existing households to downsize where possible. Not only would this mean a greater number of larger homes coming onto the market but it would also reduce the requirement for greenfield land to facilitate urban expansion.

    Thousands of hectares of land would be freed up and millions of new homes would be delivered across the country. Housing supply would increase to meet demand causing a fall in house prices as well as lower rents. At the same time the fiscal shift would mean higher after tax incomes and greater spending power for the majority of people which would make homes more affordable to the population at large. Furthermore, the end to scarcity that increased supply would bring would result in better quality housing and a more equal relationship between landlords and tenants, reducing the insecurity of tenure and poor conditions currently experienced by many in the private rented sector. In essence, a land value based fiscal reform would tackle the monopolisation of land which lies at the heart of our current housing crisis.