'Supernormal profits' of Britain's biggest housebuilders - new report

From government subsidies and cheap land to profit margins, Dr Chris Foye's new report investigates the policy environment that let the largest housebuilders gain huge profits.

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A new report - Why have the volume housebuilders been so profitable? - reveals how the UK’s three largest housebuilders used their market power to deliver abnormally large profits and gain an advantage over smaller builders. The study uncovers how they used the risk of withholding housing supply to renegotiate contributions to local authorities and win government subsidies.

The research carried out by Dr Chris Foye at Henley and Dr Edward Shepard at Cardiff University analysed over a decade’s worth (2007-2018) of transcript calls between the largest three housebuilders and their investors alongside annual reports and performance metrics.

The study demonstrates that the UK's three largest housebuilders were transparent with shareholders about using their market power to withhold housing supply, change the terms of agreements made with local authorities in their favour, and to bring about favourable government mortgage policies like Help to Buy.

These policies inflated the price of new builds, and disproportionately benefitted the larger housebuilders over smaller housebuilders. The three companies were also transparent with shareholders about how little competition they faced in the land market, which allowed them to keep down the price they paid for land and therefore maximise profits.

Dr Chris Foye, researcher at Henley Business School, said:

"Over the last decade, the government in England has relied on a handful of large housebuilders to deliver new supply, bailing them out and supporting them with major government subsidies. Yet housing supply, and especially affordable housing supply, continues to lag demand, and much of it is of poor quality. The considerable power housebuilders wield over housing markets and policy has allowed them to be abnormally profitable, without dramatically increasing their levels of supply.”

The research was published by the UK Collaborative Centre for Housing Evidence which is funded by the UKRI Economic and Social Research Council and UKRI Arts and Humanities Research Council.