- 343 housebuilders went bust in last 12 months, a 67% increase in three years
- Listed housebuilders faring better than SME counterparts
- Brexit uncertainty, rising material and labour costs taking their toll
The number of housebuilders going bust has reached a record high, according to official data obtained by Price Bailey, the Top 30 accountants.
According to data obtained from the Insolvency Service under the Freedom of Information Act, a record 343 housebuilders went bust in the last 12 months (year ending 30 September 2019), compared to 272 in 2017/18, 220 in 2016/17 and 205 in 2015/16, which represents a 67% increase over the three-year period.
Price Bailey says that while the large, listed housebuilders have fared well over the last few years, SME housebuilders, in particular, have been squeezed by a convergence of factors, including stagnant house prices in London and the South East and rising material and labour costs. The depreciation of the pound has pushed up prices of raw materials and the exodus of Eastern European workers has contributed to high wage inflation.
Paul Pittman, Partner at Price Bailey, comments: “The listed housebuilders have performed well over the last few years but the success of the large housebuilders has masked problems in the wider housebuilding sector. While the number of new houses being built is at an 11-year high and profit margins have doubled over the same period, SME housebuilders have struggled.”
“Large housebuilders have been buoyed by rising house prices, low interest rates, a competitive mortgage market and government subsidy in the form of the Help to Buy scheme. Smaller housebuilders do not benefit from the same economies of scale as the larger builders and have seen their margins squeezed by rising labour and materials costs.”
He adds: “Subdued activity in London and the South East and falling prices as people defer purchases due to Brexit uncertainty have all taken their toll on the smaller housebuilders.”
Price Bailey points out that Newcourt Residential, a small housebuilder focused on the high end market in London and the South East, collapsed in August after it ran into cashflow difficulties.
According to Price Bailey, the loss of smaller housebuilders undermines the ability of the housebuilding industry to deliver a sufficient number of new homes to meet the country’s housing needs. Smaller housebuilders are more likely to develop smaller plots, brownfield sites, are less likely to landbank and tend to deliver a more diverse range of housing stock.
Total new company insolvencies in construction of domestic dwellings
Paul Pittman says: “A healthy ecosystem of smaller builders should be a key part of meeting the country’s housing needs. The proportion of new houses built by small housebuilders is dwindling and yet there is huge opportunity to build homes on the small parcels of land which the big developers won’t touch. The housing market is highly regulated and capital intensive, making it very difficult for new entrants to gain a foothold.”
The state-owned British Business Bank launched its ENABLE Build scheme in May, which will make up to £1bn of guarantees available to banks that lend to small builders. This will reduce the amount of capital these banks are required to hold against such small builder finance, encouraging additional lending to smaller developers.
Paul Pittman says: “While the initiative taken by the British Business Bank is welcome, small housebuilders still face significant obstacles. Public sector bodies could do more to work with small builders so that small plots of land can be identified, developed and quickly brought to market. The Government could also do more to de-risk the planning process and remove much of the cost and uncertainty around developing smaller plots of land.”
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About Price Bailey
Price Bailey is a top 30 accountancy practice specialising in providing accountancy and business advice to enable the growth of regional, national and international businesses. In addition to traditional accounting services, the firm has a range of specialists in many areas which combine to provide a complete, integrated business offering. These include tax consultancy, corporate finance, strategic planning, insolvency & recovery and employment law.