Barratt to build fewer houses this year despite Labour pledge to fix shortage

By The Guardian (World News) | Created at 2024-07-10 13:10:27 | Updated at 2024-07-21 19:21:21 1 week ago
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Barratt Developments, Britain’s biggest housebuilder, expects to build fewer houses this year despite Labour’s pledge to build hundreds of thousands more.

Its shares were the biggest faller on the FTSE 100 index on Wednesday, dropping by 2.9%, and later trading 1.2% lower.

Barratt expects completed homes to drop by up to 7% to between 13,000 and 13,500 this year, down from 14,004 in the year to 30 June, citing “another year of economic and political uncertainty”. That total was down by 18.6% from the previous year, when it built 17,206 homes.

Despite lower output, the builder estimates that adjusted profits before tax will be slightly ahead of its previous expectations, amid tight cost control and easing building materials inflation. Analysts had forecast full-year profits of £355m.

David Thomas, Barratt’s chief executive, said the business looked forward to working with Keir Starmer’s government on addressing the UK’s housing shortage. “We welcome the new government’s urgency and focus on housebuilding and reform of the planning system as key to both unlocking economic growth and tackling the chronic undersupply of new homes.”

The housing market is still recovering from the aftermath of Liz Truss’s unfunded budget in September 2022 that sparked a crisis in the mortgage market. The Bank of England is taking longer than expected to lower interest rates, with financial markets forecasting the first reduction in August or September.

Barratt had drastically scaled back land purchases in the last two years but is starting to purchase more land again.

This week, the new chancellor, Rachel Reeves, unveiled a number of measures to “get Britain building again” and construct 1.5m new homes over the next five years. The government will create a taskforce to accelerate stalled housing sites, beginning with 14,000 homes, and hire 300 planning officers in local authorities.

Thomas took part in a call hosted by the business secretary, Jonathan Reynolds, with 170 business leaders on Tuesday, and Barratt has further meetings lined up with ministers.

Barratt said demand from first-time buyers had stabilised and shown some recovery, accounting for 27% of private sales in the past year, up from 25% the previous year. Demand among existing homeowners remained resilient, at 16% of private reservations in the year, although Barratt said it was having to offer sales incentives and part-exchange to prospective buyers.

Meanwhile, housebuilders are embarking on a wave of consolidation. Barratt has agreed to buy another housebuilder, Redrow, in a £2.5bn deal, which both sets of shareholders approved in mid-May. Together, they could build 18,000 homes a year.

Crest Nicholson, another UK housebuilder, said that its board would be “minded to recommend unanimously” a sweetened £720m all-share takeover deal from its bigger rival Bellway, if it tables a firm offer. Crest shares rose by 2.9% to 245.4p.

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A month ago, Crest rejected a £650m approach from Bellway. The FTSE 250-listed builder has been struggling, racking up losses in the first half of year. It slashed its dividend in its latest profit warning last month as it continued to be hit by volatile mortgage rates and slowing demand in the housing market.

Meanwhile, the building materials merchant Travis Perkins appointed the former Taylor Wimpey boss Pete Redfern as its new chief executive.

Redfern ran Taylor Wimpey for 14 years until 2021 and was involved in the company’s creation – he was the boss of George Wimpey before it merged with Taylor Woodrow in 2007.

He is taking over from Nick Roberts at Travis Perkins, which also appointed a new chair, Geoff Drabble. Drabble also chairs the building materials distribution firm Ferguson, and the packaging firm DS Smith, which has agreed to a £5.8bn takeover by its bigger US rival International Paper.

Redfern will receive an annual salary of £760,000 reflecting his experience – higher than Roberts’ £675,000 salary – and will be in line for annual cash and share bonuses at the same level as his predecessor. There are no forfeited awards from previous employment to be bought out.

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