Building company attributes setbacks to a 'faulty planning system' and increasing interest rates for financial struggles
In the UK, independent house builders like Eccleston Homes have faced significant challenges due to the broken planning system and high interest rates. Eccleston Homes, based in Cheshire, recently reported a pre-tax loss of £1.2 million for the 12 months ending October 2024, a sharp decline from a £2 million profit the previous year. Their turnover dropped from £31.1 million to £22.2 million, and the number of houses completed fell from 87 to 68.
The broken planning system is described as favoring large-scale developers with in-house planning teams, making it hard for smaller and independent builders to obtain planning permission or compete effectively in the market. Sites with fewer than 10 homes have halved since 2010, with large developers dominating 38% of the housing pipeline. This system hinders smaller builders who often provide plots or custom homes and train most construction apprentices.
Government and experts believe planning reforms aiming to streamline approvals and better support SME and self-build projects could rebalance this situation, but major benefits from these reforms are still years away.
Interest rates have stayed high for a prolonged period, causing many buyers to delay purchasing homes, further impacting sales for builders like Eccleston Homes. The Bank of England is expected to cut rates to 4% around the time of these reported difficulties, potentially providing some relief in the near term.
Eccleston Homes is budgeting for an increase in legal completions in the current period. Interestingly, 54% of their homes are budgeted to legally complete forward sold, which is more than last year. However, the drop in gross profit from 22.9% to 17.4% was a significant factor in the disappointing results for the period.
The company also blamed the "broken planning system" as a major issue in recent years. If the Trump administration pushes ahead with a sustained tariff trade war, it may result in a slowing or reversal of the downward trend in interest rates, potentially further impacting the housing market.
In summary, Eccleston Homes' financial downturn is largely attributed to the planning system's inefficiencies limiting build capacity and delaying projects, and high interest rates suppressing demand. The UK planning system's tilt towards large developers makes it harder for independent builders to secure affordable land or timely permissions, affecting their output. Planned reforms to the planning system aim to improve the situation but are expected to take years to have a significant impact. Eccleston Homes expressed hope for further interest rate cuts and is budgeting for an increase in legal completions in the current period. However, the implementation of some regulatory changes relating to energy efficiency and the move away from gas boilers is uncertain, and inflationary pressures have eased, but Eccleston Homes still needs to contend with increased costs due to rising building regulation changes.
- To address the challenges faced by independent house builders like Eccleston Homes, budgeting and investing in strategic planning strategies might be crucial, as the broken planning system in the UK seems to favor large-scale developers and hinder smaller builders.
- As Eccleston Homes aims to increase legal completions in the current period, it is crucial to monitor changes in the real-estate market, including the impact of high interest rates on potential buyers and the potential effects of regulatory changes related to energy efficiency and the move away from gas boilers.
- In order to navigate the current economic climate and make smart financial decisions, it is essential for businesses like Eccleston Homes to stay informed about changes in finance, such as interest rates, as they can significantly impact both demand and the cost of acquiring property.
