Britain’s largest housebuilder, Barratt Development’s latest update is indicative of both the opportunities and challenges facing the sector right now.
On the one hand demand still seems robust, and Barratt is back building homes at pre-pandemic volumes with units selling faster than expected.
“On the other it is becoming far more costly to do so and under-resourced planning departments are acting as an impediment to growth,” says Danni Hewson, financial analyst at AJ Bell.
“Build cost inflation of 6% in the year just gone is burdensome enough but a potential double digit increase in the current financial year would really challenge Barratt’s ability to protect margins.
“House prices may have risen rapidly enough to cover these higher costs so far but Barratt, like its peers, is running just to stand still in terms of profitability and there is a significant risk that raw material and labour costs continue to grow.
“At least, unlike Persimmon, it is not being forced to downscale its volume targets just yet, suggesting its relationships with suppliers, procurement strategy, simplified build process and attractiveness as an employer are paying off.”
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