Poor outlook (From York Press)
Get in touch: send your photos, videos, news & views by texting YORK to 80360 or send an email»
Poor outlook
11:07am Monday 29th October 2012 in Letters By Reader's letter
THE writing is on the wall for housing numbers because of limited capacity of house-builders.
Small and medium-sized companies have disappeared in large quantities, and the few large companies left have reduced capacity and reduced balance sheets.
The biggest by market capitalisation, Persimmon, has agreed to pay shareholders £1.9billion in dividends over the next nine years.
The company is making pre-tax profits of £200m, so in real terms, if its margins stay at that level, it will not grow in terms of capacity based on its balance sheet. If its margins shrink, so will Persimmons’ capacity, unless finance costs (interest rates for borrowing) reduce significantly, which isn’t likely.
The only chance of being able to increase volumes is subject to a combination of higher margins and lower borrowing costs.
What does this mean for councils desperate for new housing? Councils which want to attract house-builders will only do so with attractive (lower) affordable housing targets.
Those which do not lower their targets will not get the housing they need.
There is only one way to increase housing in York – through a stimulus by dropping the affordable requirements.
Paul S Cordock, Durlston Drive, Strensall, York.
Comments(2)
Scarlet Pimpernel
says...
3:06pm Mon 29 Oct 12
Owing to the effects of the credit crunch and the ensuing recession, the housebuilding sector has shrunk. Many small and medium-sized companies have either failed or ceased to trade, and the largest have reduced in size; both in terms of staff numbers and their balance sheets. There is now insufficient capacity for the sector to grow any where near sufficiently to address the UK’s need for housing.
Growth in the sector will be constrained owing to the following factors:-
• Inavailability of finance owing to high risk, low profitability and insufficient returns on equity.
• Finance where available, is too costly. The additional turnover it facilitates is not sufficiently profitable to justify the borrowing – it results only in increasing turnover, not profit, therefore it is pointless.
• In addition to Persimmon, Berkeley Group have agreed to return £1.7billion cash to shareholders as dividends over the next nine years. This means that at current levels of profitability they too will be unable to grow their balance sheets or capacity because all earnings will be paid to shareholders.
• There is no incentive to new entrants (entrepreneurs and investors) to set up housebuilding enterprises. There is too much risk, too much regulation, too costly regulatory burdens and insufficient profit/returns.
capt spaulding says...
11:45am Mon 29 Oct 12
Even doubters must now see the blindingly obvious, that until C of Y Council become realistic with its requirements, nothing will happen in the York area any time soon.