Why have the volume housebuilders been so profitable?

Over the last decade the largest housebuilders, and particularly the “big-three”,  have consistently reported supernormal levels of profitability. Through comprehensive analysis of earnings call transcripts, annual reports and policy documents, this study explores the drivers of this profitability, and what it tells us about the nature of the housebuilding industry, the development land market and the relationship between volume housebuilders and the state.

Key arguments;

>Post-GFC, the big three successfully adopted a “margins over volume” strategy, allowing them to generate large amounts of cash, most of which has been returned to their shareholders.

>The state played a crucial role in increasing their profit margins, through two main interventions, both of which benefitted larger housebuilders over smaller housebuilders;

  • Mortgage market support schemes which (likely) inflated their sales prices, and allowed them to wind-down their own shared equity schemes.
  • Renegotiation of section 106 agreements and the subsequent liberalisation of the planning system.

> The state’s prioritisation of large sites in the planning system also provided the big-three with (monopsonistic) market power, keeping down the input cost of their land.

>  The state shaped the land and housing market in this way because it perceived itself as a necessarily passive actor in the production of housing, reliant on the structural power of the largest housebuilders.

We conclude that in order to expand housing supply in a way that aligns with social and environmental needs, the state needs to recognise its own structural power, and assume a larger and more active role in the housebuilding and land market.

Click here to download the report

Supplementary Appendix: Click here to download a supplementary appendix that provides further evidence regarding changing conditions in the local land markets within which the big three housebuilders were active over the study period. It can be read in conjunction with Section 7 of the main report.


Date: September 26, 2023 9:00 am

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