AS his flight descended on Edinburgh on Thursday evening Mark Clare got another reminder of the changeable weather that greets many a visitor.
The following day we’re enjoying some sunshine, but Clare is reminded of the previous night’s wet and blustery conditions.
“We dropped out of the clouds and it seemed someone had turned the lights out,” he says. It may have been symbolic of what has been happening in his industry these past few years.
Clare, chief executive of Barratt Developments, Britain’s biggest housebuilder, has had to endure some of the toughest ever trading conditions in the industry. He is enthused by various initiatives on both sides of the Border to help homebuyers get a mortgage, including New Buy in England and the MI New Home scheme unveiled last week by the Scottish Government, but he says the fundamentals are still not in place.
“There has been a massive amount of support because all the political parties see the need to sort out the housing crisis,” he says. But he argues that real growth will only come when buyers can access the funds they need.
He understands the dilemma facing the banks which rely on retail deposits and, crucially, on wholesale markets which remain largely closed, but until this changes demand will remain subdued.
On the face of it, the housebuilders are weathering the storm. Barratt last week reported a 159.3 per cent rise in annual pre-exceptional pre-tax profits from £42.7 million £110.3m. Debt was halved to £167.7m and operating margins rose from 6.6 per cent to 8.2 per cent, largely as a result of sales on land purchased at bargain basement prices after the collapse of the market in 2009.
Cala Group saw its highest profits since turning private in 1999. Miller Group returned to profit in the first half the year, although revenues at its housing arm were flat.
In spite of the rosier figures, Clare would hesitate to say the sector is returning to growth. It is showing some signs of life, but he is honest enough not to put a spin on better news, including Barratt’s pledge to restore its dividend next year for the first time since 2008.
“Yes, the business is in recovery, but the market is not,” he says. “The industry has done a lot to improve its level of efficiency, cutting costs and improving margins.
“It is smaller and the profits have grown from a lower base. We are still well short of peak profits. We need a growth in volume and volumes will not be there until we see more lending.”
On this he echoes his peers, including Keith Miller, chief executive of the eponymous construction group. Miller said after last week’s results that confidence was returning and government initiatives were helping, but lending remained the problem.
Clare says the government is setting targets for the numbers of new homes it wants to see built, but there have to be buyers and he is now calling on the Treasury to include the housing sector in the new Funding for Lending scheme due to be launched as the latest attempt to ease the flow of finance through the banks and into the economy. The banks will borrow money at cheaper rates of interest. Clare wants as much as a quarter of the £80 billion of funds to be allocated to helping the housing sector which he believes would be money well spent.
“I have lobbied hard for government to use this for housing and not just for small businesses,” he says. “We are in the fourth year of flat-lined mortgage lending and until there is more lending there will be no improvement in demand.”
The need to support first time buyers is critical and where until recently half of potential buyers could raise a mortgage now it is one in four, he says.
The slump in demand has also influenced the type of units now being built. Cala has moved into premium family homes and Barratt likewise has rebalanced its portfolio from 55 per cent apartments to 35 per cent with more emphasis now on family houses.
Clare says research shows buyers being more enticed into buying new as the quality of build has improved and the cost of running a new home is noticeably better than an older property. Prices have also dropped in some places by as much as 25 per cent since the crisis hit.
He notes calls in some places for measures to stimulate building more homes for rent which would provide another stream of business, though he says it will take a big change in Britain’s approach to housing for it to make an impact.
“It would be helpful if there was institutional investment in private rental. It happens overseas but not here and the government is looking at it. Would it transform the market? No. But it would help.”
He’s also yet to be fully convinced that changes to the planning systems north and south of the Border will make a discernible difference. “The planning system works okay, and changes will only be marginal. The Scottish Government is probably better than in England where it is slower.”
Clare is pleased that the politicians have come good on promises to tackle the burdensome planning rules. But the shift of emphasis to local authorities is still a work in progress and there were early teething problems as some housebuilders claimed the new regulations were unclear.
Clare arrived in the industry after 12 years at British Gas and Centrica, succeeding David Pretty in 2006. A year later he broke three decades of Barratt going it alone by leading the £2.7bn acquisition of Wilson Bowden, best known for its David Wilson Homes brand. The deal also brought the Ward Homes and Wilson Bowden Developments brands into the Barratt group, originally based in Newcastle Upon Tyne but now located in the former Wilson offices in Coalville, Leicestershire.
Investors in construction and housing companies are familiar with the sector’s cycle but in spite of the current downturn those who bought shares in Barratt at the turn of the year have been rewarded with an 85 per cent uplift. Clare hopes that with government support some growth may return to the sector, but he wants a clear focus on current plans.
“We don’t need any more initiatives. Let’s get the current ones working,” he says.
30 second CV
Education: Prices Grammar School, Fareham, Hampshire; Portsmouth Polytechnic
Career: Palmer, Riley & Co; GEC Marconi; Nortel; British Gas; Barratt Developments
Ambition while at school: I wanted to be a motor racing driver. I became an accountant.
What car do you drive? Range Rover
Kindle or book? Kindle
Can’t live without: I’m a gadget freak, I’d have to say my iPad.
Leisure pursuits: My family, shooting and boating with my wife.
What makes you angry? Things not happening quickly enough. I am very impatient.