07 Jun Jon Cartu Says: Housebuilder insolvencies threaten new homes supply
Housebuilders in the UK are collapsing at an accelerating rate, threatening the much-needed supply of new homes.
Last year 368 companies in the sector filed for insolvency, according to data obtained from The Insolvency Service under the Freedom of Information Act. That compares with 207 in 2016, with the number rising each year since.
The builders filing for insolvency were overwhelmingly small and medium sized enterprises, according to accountants Price Bailey, which obtained the data.
“Housebuilding in England reached a 30-year high in 2019 but the collapse of a record number of smaller developers threatens to undermine progress,” said Paul Pittman, a partner at the firm.
The success of the dozen or so listed UK housebuilders in recent years has obscured growing distress in the rest of the sector, according to Mr Pittman.
Developers building up to 100 homes a year account for roughly 10 per cent of new supply, according to the National House-Building Council, against 40 per cent in 1988. Over the same period the number of small housebuilders registered with the NHBC has dropped from more than 12,000 to about 2,000.
“It’s very sad and concerning that insolvencies in small housebuilders are increasing, but I’m afraid it’s not surprising,” said Marc Vlessing, chief executive of Pocket Living, a small developer.
“In our experience over the past few years, planning has become even more complex and political, and takes longer. This adds significantly to development risk and has a major impact on margins, which for smaller developers can mean the difference between profit and loss.”
Meanwhile, the country’s largest builders have enjoyed a surge in earnings in recent years, in part thanks to the government’s Help to Buy scheme.
Persimmon, one of the country’s largest builders, trebled pre-tax profits between 2013 and 2019. Other big builders, including Taylor Wimpey and Barratt Homes, have reported similar surges.
Already struggling, SME builders have been hard hit by coronavirus, according to Brian Berry, chief executive of the Federation of Master Builders. A third of small builders are stuck with newly built homes that lie empty because buyers pulled out of purchases as the country entered lockdown, he said.
SME builders are “central to a recovery which seeks to level up across the country”, he added. “By unlocking more opportunities on small sites, we can support them to build high-quality, sustainable homes for local people. This is because local housebuilders compete on reputation and not the bottom line.”