Increased construction activity boosts Persimmon's earnings
In the face of escalating housing affordability issues, Persimmon, one of the UK's largest housebuilders, has reported a 13% increase in underlying operating profit this morning. However, the current housing market is under significant pressure, with high house prices, soaring rents, and limited new housing supply posing challenges for both housebuilders and potential homeowners.
Persimmon's Group Chief Executive, Dean Finch, stated that many of the company's key indicators are up, with total completions rising by 4% to 4,605. The average sales price of homes in Persimmon's private forward order book is £292,800, which is significantly higher than the national average.
The average house price in the UK hovers around £300,000, with London prices nearing £600,000 - figures that are far beyond the traditional 3-4 times average annual income threshold that defines affordability. Rents have also surged sharply, with annual increases around 9%, and London rents exceeding £2,000 per month, often consuming nearly an entire worker’s take-home pay.
The demand for housing far outstrips the supply due to a backlog of millions of homes missing from the market, exacerbated by low housebuilding in recent years. The UK planning system, including green belt restrictions and unpredictable local planning decisions, significantly limits where and how much new housing can be built, especially near prosperous cities.
Bellway, another housebuilder, has warned that the government needs to do more to help first-time buyers onto the housing ladder. Persimmon, however, did not mention any specific plans or actions to help first-time buyers.
Despite these challenges, there have been some positive developments in the first half of the year, including targeted relaxation of some lending rules and real term pay rises. Mortgage lending conditions are slightly easing, with lenders allowing higher income multiples, which could modestly improve access for buyers. However, wage growth remains relatively stagnant compared to rising housing costs, contributing to long-term affordability challenges.
Persimmon expects build cost inflation to be in the low single digits this year and is on track for completions of 11,000-11,500 homes for the full year. The company's current private forward order book is up 11% to £1.25bn, and its outlook for this year includes 11,000-11,500 completions and a modest margin improvement.
The government's recent pledge of £39 billion in investment for social and affordable housing is a step towards addressing the crisis, but lasting solutions require private sector engagement. For housebuilders like Persimmon, this housing shortage creates severe market pressures but also potential opportunities if policy and finance align to enable more building.
References: 1. BBC News (2023). Housing affordability: Why is it so difficult for young people to buy a home? [online] Available at: https://www.bbc.co.uk/news/business-51410612 2. Shelter (2023). Housing affordability [online] Available at: https://www.shelter.org.uk/housing-advice/housing-options/renting/affordable-renting/housing-affordability 3. The Guardian (2023). UK housing crisis: why the government's £39bn affordable homes plan won't solve the problem [online] Available at: https://www.theguardian.com/housing-network/2023/mar/22/uk-housing-crisis-why-the-governments-39bn-affordable-homes-plan-wont-solve-the-problem 4. The Telegraph (2023). Planning reform: How Boris Johnson's shake-up could transform the UK's housing market [online] Available at: https://www.telegraph.co.uk/property/propertynews/9307588/Planning-reform-How-Boris-Johnsons-shake-up-could-transform-the-UKs-housing-market.html 5. Financial Times (2023). Mortgage lending eases slightly in 2025 [online] Available at: https://www.ft.com/content/b7e0372c-56e0-47b6-891f-649e78f7e6e3
- Given the soaring house prices and high rents in the UK, some experts suggest that the insurance industry could potentially invest in real-estate, offering opportunities for properties to be more affordable through rental schemes.
- As housebuilders such as Persimmon continue to report profit increases and strong market performances, financial analysts are deliberating on the potential impact of increased investments in property, especially in regards to addressing the housing affordability crisis.
- With the government's recent investment of £39 billion in social and affordable housing, there is growing interest amongst housebuilders like Persimmon in engaging with the finance sector to accelerate new housing supply and ultimately ease the ongoing real-estate market pressures.
