By recent standards Barratt’s announcement that it has cut its losses and debt looks like good news for housebuilding but it seems markedly more cautious about the future than many of its rivals.
Group chief executive Mark Clare struck a downbeat tone in his comments on the group’s results for the year ending 30 June. ‘The outlook for new housing remains challenging as a result of continuing constraints on the availability of mortgage finance and overall economic concerns,’ he says. ‘Against this background we will remain focused on improving profitability by achieving full value for the homes we build and maintaining tight control of costs.’
Barratt lost £162.9m before tax during the year compared to a loss of £678.9m in 2009 and following a rights issue it cut its net debt from £1.3bn to £366.9m.
But it’s noticeable that its successes came from cutting costs and increasing its margins rather than a more broad-based recovery in the new homes market. ‘During the year conditions in the housing market in Britain steadily improved,’ says chairman Bob Lawson. ‘Nevertheless, by historic standards the market remained difficult and activity levels continued to be extremely low in terms of the number of house buyers and sellers.’
Lawson says the key restriction remains the availability of mortgage finance, especially for higher loan to value purchases. That’s hit the new homes sector even more than the secondhand market because deposits tend to be higher.
The response across the industry has been to open fewer sites and change the sort of homes built. ‘Our response to the restrictions that the current market conditions impose has been very clear,’ says Lawson. ‘Our priorities have been driving efficiency and optimising selling price growth. As a result, we have reduced volumes but have driven significant margin improvement, especially in the second half of the year.’
Barratt’s average selling price increased by 10.9% during the year and by 17.8% in the last six months. While some of that was down to house price inflation, most of it was driven by ‘the changing profile of what we build’.
‘Customer demand and mortgage availability have both driven a change in our product mix away from flats towards houses,’ he says. ‘This change in mix will continue as we start to build on the many sites we have successfully replanned, working together with local authorities.’
While Barratt started buying land again last year, there’s little sign of a change in that approach. The company built 11,377 homes in 2009/10. With more sites open now, it plans to increase output by 5-10% this year but that will still not take its completions back to the 13,000 seen in 2008/09 let alone the 19,000 it built in 2007.
With the Halifax reporting a flat housing market today and Connaught’s woes highlighting the impact of public spending cuts, that caution seems a very sensible approach for housebuilders like Barratt. A recovery in housebuilding though looks as far away as ever.
On Monday the Construction Products Association forecast that only 72,000 homes will be built this year. It said that although output will increase over each of the next five years by 2014 it will still be 18% below the level of 2006 and 41% lower than the level needed to meet population growth.
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