Yahoo Finance Grand Designs’ Kevin McCloud: Big builders are artificially driving up house prices for profit
Britain has a growing shortage of new homes. The government’s target is 300,000 new homes a year, but the country has consistently missed that goal. According to official data, delivery peaked at 248,591 in 2019 before falling to 234,400 last year.
Most of the issues in the market can be traced back to the big builders that dominate the sector, TV presenter Kevin McCloud, told City A.M. The TV personality, best known for presenting the long-running property show Grand Designs, said these builders’ focus on profit over growth has had a huge and damaging effect on Britain’s property market.
A lack of government action, combined with intense lobbying from the large builders over the last decade, now means “our building regulation standards are an embarrassment compared to pretty much every other country in northern Europe,” McCloud said.
Builders drive up house prices
The market is dominated by large builders. The Competition and Markets Authority’s (CMA) final report into competition in the housebuilding market in Great Britain, published earlier this year, said these large builders accounted for two-fifths of the homes built in 2021 and 2022. Thousands of smaller regional builders were responsible for 50,000.
These smaller builders don’t have the scale of their larger peers, but they can still earn attractive margins and build quality homes. “I met a housebuilder, a medium-sized firm in Lancaster, and they showed me around a whole bunch of Passive Houses they’d built with the local housing association and local authority, and they were making eight per cent to 10 per cent profit,” McCloud said. “That would be enough for most companies, but the major housebuilders want more,” he added.
Passive Houses are designed to have minimal running costs, and builders must follow strict criteria to meet the qualification. These include an efficient heat recovery system, well-insulated walls, and “extremely high-performance windows.” In many respects, they are the gold standard of high-quality energy-efficient properties. But there’s a cost to building homes of this quality, a cost the large builders are not willing to pay.
Last year, Persimmon, one of the largest builders in the country, reported an underlying new housing gross margin of 20.5 per cent. This was a bad year for the group. In 2022, when it didn’t have to battle inflation, its new housing gross margin was 30.9 per cent. That was enough to give the business one of the highest gross margins of any company in any sector in the UK.
McCloud cited a study conducted by Brunel University and published in 2023 that looked into the state of the UK’s newbuild housing market between 1998 and 2020. The study’s authors wanted to find out if the high cost of new homes was justified by high land, building and planning system costs.
The authors found the big builders’ land prices, construction costs, and administrative costs have barely increased after accounting for inflation. Meanwhile, the floor area per new private dwelling has remained static. However, what has increased is builders’ profit.
“According to our calculations, their profits per dwelling rose £75,000 between 2000 and 2019,” the study noted.
This finding supported another piece of research from 2021, which found the pre-tax profit per house sold at the seven largest UK housebuilders rose from about £6,000 in 2009 to £63,000 in 2017.
Self-build grand designs and the Right to Build Act
Self-building would be one way to get around this issue of profit over people, but here, the UK once again stands out from the rest of Europe, and not in a good way.
“If you want to buy a really great self-build home now, you go to Germany, as that’s where all the companies are building them,” McCloud explained. “There’s an amazing range as there are thousands of companies building houses, not competing with big players, but selling to self-builders,” he added. In Austria, 86 per cent of all new houses are built by their owners. In Germany, “it’s about half.” In the UK, “we languish at about eight per cent.”
That number has hardly budged over the years because the country does not have the infrastructure or the will to do anything about it. In fact, local authorities are breaking the law to stop people from building their own homes.
In 2016, following campaigning by Richard Bacon MP, the government introduced the Right to Build Act, which means local authorities have to host a Right to Build register. “So if you’re a self-builder and you want to build, you can go and ask your local authority to put you on the list,” McCloud explained. It should be free to get on the list, but some authorities charge you, which is illegal.”
What’s more, most local authorities don’t even bother to follow the law. “Every year at Grand Designs Live, I invite Richard Bacon on stage, and I ask him, ‘So how many local authorities have a register?’ and I think two or three years ago, only one in three had this despite the fact they’re legally mandated to provide this service for free,” McCloud said. “It’s getting better now. It’s more than half,” he added, “and I think if the economy were better, more people would be building their own homes today.”
As the presenter of Grand Designs, McCloud has been the face of self-building in the UK for nearly two-and-a-half decades. So, what’s his advice for those who want to go down this route? “The thing I’ve learnt is craftsmanship, training, pride, is what matters most, whether you’re building a flat or a five bedroom house,” McCloud said.
“In this country, we don’t value training, we don’t value craftsmanship, we don’t value pride, whereas every other European nation does,” he added.
Kevin McCloud was speaking ahead of Grand Designs Live, the premier home exhibition, taking place at London ExCel between 4th – 12th May https://www.granddesignslive.com/
