>> Vistry Group Trading Update 15th January 2025 <<
Vistry Group PLC provided a trading update for the year ending 31 December 2024, ahead of its full-year results on 26 March 2025. The Group reported total completions up by approximately 7% to 17,200 units, with adjusted revenue increasing by 9% to £4.4bn. However, adjusted profit before tax is expected to decline to approximately £250m, down from £419.1m in 2023, reflecting delays in partner agreements, canceled land transactions, and slower open market completions. Partner Funded units accounted for 73% of total completions, with significant growth in this segment compared to open market sales, which declined due to constrained consumer demand and mortgage affordability.
The Group continued to secure high-quality land and development opportunities, totaling 16,500 units for the year, and strengthened its partnership strategy with over 220 new agreements. Notable projects include a regeneration initiative with Homes England and a joint venture in Cornwall delivering 1,200 homes. Despite neutral build cost inflation and stable average selling prices, net debt increased to approximately £180m due to higher finished stock and work in progress. The Group emphasized improvements in customer satisfaction, achieving a 5-star HBF rating for the fifth consecutive year and receiving multiple industry awards.
Challenges emerged in Vistry's South Division, where cost issues impacted profits by £105m in FY24. The Group implemented tighter controls and restructured its operations, consolidating six divisions into three larger ones to streamline reporting and leadership. Looking ahead, Vistry remains committed to its asset-light, high-returns Partnerships strategy and aims to reduce stock and improve cash generation in FY25. With a strong forward sales position of £4.4bn, the Group expects steady demand from Partner Funded markets but acknowledges that open market conditions remain uncertain, reliant on consumer confidence and government housing policies.
For FY25, Vistry plans to mitigate low single-digit build cost inflation through scale efficiencies and operational improvements. The Group also aims to address challenges in the South Division under new leadership and build on its strong foundation in affordable housing and PRS markets, ensuring sustainable growth and profitability.
Howard Marks points out that investors erroneously chase outsized returns, and in so doing often disregard the risk that they are taking. As a result they often suffer a permanent impairment of capital when an unfavourable outcome leads to a large loss. He counsels that the proper approach is not to chase outsized returns, but to chase situations where the downside is very limited. This, he says is the secret of successful investing and it requires a thorough analysis of the potential risks and downside.
This is what I have attempted to do, so it is heart-warming that you have expressed your appreciation for this aspect of the write up. Thank you.
I want to thank you for this wonderfully balanced and detailed article and echo the sentiments that this is the best writeup I have read on Vistry. You’ve tackled both the problems in the bull thesis and bear thesis and settled on a very reasonable position that there is a lot of uncertainty but heads I win, tails not lose much. I’ve held Vistry for a few years and been very frustrated lately by the profit warnings. I too feel that it is oversold but I appreciate now there is more hair on this thesis than I thought when first taking a position.
Thanks James. Very interesting take on the "is the UK short of houses?" question. No doubt in my mind that govt policy on interest rates (for 15 yrs) has hindered housebuyers rather than helped, despite the intention. I'm already in Vistry, having bought on the way down, and was considering topping up yesterday. I'm also a watcher of NVR.
The prospects for the UK economy are extremely poor in my view, with misplaced govt policies exacerbating our lack of productivity, and with a family member in construction, I know from his experiences that a chronic shortage of skilled labour is a constant problem. Taxing employment (and disproportionately hitting semi-skilled employment) through higher National Insurance charges is just bizarre.
The biggest challenge for all housebuilders is the treacle through which they wade at Local Planning Authority level. 40 yrs ago within a large UK bank, I helped with the funding of about a dozen small-medium-sized housebuilders, agreeing loans, lending stage payments and monitoring sales. All of those smaller builders seem to have disappeared and I suspect the reason for that is the sheer complexity and time consumption of building controls. The small builder would spend so long on these activities that there would be no time for building anything! This does of course mean that the large operators like Vistry have a competitive advantage over the small guy, because they can employ professionals to deal with Local Authorities.
The biggest question here is: does the CEO have the skills and mgmt buy-in to make this work?
Very well said. I couldn't agree more with both your sentiment and the questions you raise about the CEO.
Contrary to their intention, the new Labour government's economic policy will do more harm than good.
The biggest danger to this sector is a significant house price correction, which is arguably long over due and the only viable solution to the affordable housing crisis.
It would dent the NAV of housebuilders as their land banks would fall in value and need to be written down.
It's why I have never invested in Vistry until now. However, the share price dip has now created a more appealing risk/reward skew - almost a margin of safety.
My position is about 3%, I wouldn't go larger than that.
Interesting Guardian article, thanks for sharing. It's a complex issue, but I think that the original Guardian position about there not being a housing shortage per se is correct.
There are a few key issues:
1/ Misallocation of housing
A significant issue stems from the post-WW2 baby boomer generation, many of whom enjoy generous "final salary pensions." These steady incomes allow them to remain in large family homes even after their children have moved out. As a result, many four- and five-bedroom homes are occupied by one or two elderly individuals, leaving only a single bedroom in use. This misallocation contributes to a shortage of family homes for those who need them.
2/ Uninhabited Properties
Many wealthy UK residents own second or third homes used only occasionally for vacations and so effectively withdrawn from the housing stock. This is problematic and there has been something of a backlash in certain communities such as Cornwall.
3/ Housing allowed to become a speculative asset
The buy-to-let craze has resulted in a bubble in the housing market. Just like Bitcoin and other speculative assets the value is driven by expectations of continuous capital inflows, rather than fundamental economic factors. This has led to a dislocation in valuations.
4/ Safe haven asset and money laundering
Properties are often purchased by non-UK domiciled high-net-worth individuals as a means of wealth storage, with little concern for rental income. This practice, sometimes linked to money laundering, exacerbates housing scarcity.
5/ Cash strapped housing authorities
Many properties remain uninhabited, with some falling into disrepair due to a lack of funding by local housing authorities to restore them.
They ended the dividend in 2023, opting for buybacks instead. Those have paused now but Greg's record suggests when they start returning capital again, it will be in the form of buybacks, not dividends.
I think you demonise dividends a bit too much. They're essentially equivalent to buybacks, but less tax-efficient (as in, you can reinvest your dividends to make them act like buybacks - or you can sell when the company buys shares back such that your interest in the business remains the same, to make buybacks act like dividends. The only difference is tax). That being said, if you aren't reinvesting dividends, the choice of whether to repurchase (vs pay a divvy) and when to do so can act like management trading on your behalf - which is nice if they do it well, as Singleton did.
Matt, I respectfully disagree. Dividends are nothing like buy-backs.
- Dividends are paid out of taxed corporate income and then taxed again as income.
- Dividends are subject to the friction of transaction costs (commissions and spreads)
- After the double taxation and friction, there is far less cash to be reinvested than there would have been had management simply retained the capital.
- If you reinvest dividends through the market then you pay a multiple of book value, but management reinvesting in the business means that the money is invested at book value, so far more accretive to investors.
- Dividends assume that all investors are income investors. They aren't. Some would rather optimize compounding capital.
- Even if all investors were income investors, not all require the same percentage draw-down at the same time. There is no one size fits all. A buy-back program allows individual investors to manage their cash needs on a bespoke basis as and when needed by selling a small fraction of their holding (Warren Buffett advocates this approach).
Hi James. I've read your post. I'll take your points one at a time.
- Buybacks (or rather, the pre-tax profit that allows them) are also subject to corporate income tax, and are thus also double-taxed (the second time being capital gains when you sell the shares). I acknowledged that buybacks and dividends differ in their tax treatment - dividends are taxed as income, buybacks taxed as capital gains, and deferred. This is the main advantage of buybacks, and the reason I will always prefer them to dividends.
- No, dividends are not subject to spreads or commissions. Buybacks are subject to spreads and commissions. Assuming no withholding tax in your jurisdiction, the only frictional costs on dividends are transaction costs, which are typically minimal, if not 0. This is an advantage of dividends over buybacks (though doesn't usually outweigh the tax thing).
- This point is just the same as the two points above.
- We're not talking about reinvestment in the business. That's a third option. We're discussing option 1, dividends, versus option 2, buybacks.
- This is not a practical consideration, rather you're discussing the mindset of management here. In my view that's not relevant to this discussion, as we're talking about the practicalities of dividends vs buybacks - although I will say that I see it as a green flag when management opts for buybacks over dividends when the share price is low.
- As I said, just like you can turn buybacks into dividends by selling a few shares, you can turn dividends into buybacks by reinvesting them. You get the same "cash management on a bespoke basis". Again, the relevant considerations are tax and transaction costs, not bespoke-ness.
Please also amend your post to reflect that Vistry replaced its dividend with buybacks, if you haven't already.
Thanks for taking the time to share your views. We'll agree to disagree.
Additionally, Vistry has not abandoned its dividends in favour of buy-backs. In its most recent reports it states:
"The Group intends to sustain the capital allocation policy of a two times adjusted earnings ordinary distribution cover in respect of a full financial year. The ordinary distributions are to be made either through share buybacks or dividends, with the method to be determined by the Board considering all relevant factors at the time."
They have abandoned the dividend. The ex-dividend date is 20 April 2023. I'm not saying they can't or won't change their mind in the future, but right now they are not paying a dividend and have switched to 100% buybacks.
Instructing a credible author in public to edit his writings is stretching politeness rather, especially when the Board's policy is on record and has been quoted above. If you don't like the analysis you don't have to read or act on it.
Hi, Vistry are not paying a dividend and are prioritising buybacks so they are fulfilling James Emanuel's wants already. They may do something different in the future as they will respond to the share price and so they have left options open, which is what we should want them to do. Greg Fitzgerald in calls has said buybacks are a priority at this price and the dividend has been abandoned.
This is a minor quibble but I think it important to be accurate. In your section on the UK housing market, your figures all relate to England only, I believe. Yet your text suggests that they are UK figures. UK = England + Scotland + Wales + Northern Ireland
There are 4 charts in that section. The first is for the UK as a whole (England + Scotland + Wales + Northern Ireland), the second and third are England only and the fourth is Great Britain (so excluding only Northern Ireland).
I'm not sure it matters too much in relation to the point being made.
Additionally, Vistry Group primarily operates in England, with limited presence in Scotland and Wales, and no significant operations in Northern Ireland.
Having worked in housing half my life, I can tell you margins will always be crushed , with this business model. Look for 3% not 12%.
The bit you all miss is getting contractors to work like clockwork on site to enable smooth production.
What tends to happen is one or two trades screw it up for all and then it’s just a shit show. ( quality, no staff, want more money, no materials, weather, walking off the job, , are just a few of the issues.
Contractors have the upper hand so long as we have a massive contractor shortfall.
Thirty years ago, most major housebuilders employed their own in-house tradespeople. However, in a bid to boost profitability, they began outsourcing building trade functions to contractors. This shift led to a significant decline in quality. When contractors are employed with profitability as the primary focus, the goal becomes finding the cheapest fixed-cost contractor. From the contractor’s perspective, a fixed fee creates an incentive to complete the work as quickly as possible—often by cutting corners—resulting in subpar quality.
Over the past decade, with low interest rates and the "everything bubble," property prices skyrocketed, much like a helium balloon that couldn’t be kept down. So the cost of property was climbing while the quality of new housing was declining. All this meant bumper profits for the house builders, which in turn encouraged more house building. Over the period so many commercial property sites were converted into residential housing.
The other factor to consider is that while property prices were rising, home owners were more inclined to extend/improve their existing home. This also created demand for tradespeople.
The influx of money into the sector created a labour shortage, which was addressed by importing workers from overseas to meet demand.
Today, the landscape is shifting. Property prices have peaked and are more likely to decline than rise in the coming years. Investment in the sector is now expected to shrink, except at the affordable end of the market, where political factors are driving development more than economic considerations. The demand for tradespeople will therefore decline with contractors fighting to secure work - in this kind of climate, reputation is the only way to ensure a steady flow of work, so the quality of the labour input is likely to increase.
Vistry seems to be at the right end of the market. It states that it expects profits and cash generation to improve year on year and it has seen an uplift in inquiries during January 2025 so far.
You say the following: "You may be wondering how an over supplied market can be over-priced. It’s a good question, so allow me to furnish you with an answer." I'm afraid I do not understand your answer. I think you are saying there is oversupply and amateur landlords are buying the properties, but if this is the case then some of these properties must be sitting empty and the landlord is not making money and so the typical landlord will need to sell, causing prices to come down?
The answer is that residential property has been allowed to become a speculative asset. Bitcoin is also a speculative asset. The prices of speculative assets is driven up by the expectation that new flows of capital will keep pushing their value higher, not based on fundamental economics.
There are also properties that are uninhabited. Some have fallen into disrepair but local housing authorities don't have the capital to bring them back into service. Some are bought by non UK domiciled high net worth individuals looking for somewhere to store their wealth, but not concerned about rental income (this is a particular problem in London) where it is suspected that property is being used to launder money. Many wealthy UK residents also have second and third homes which they use only occasionally for vacations.
There is also a huge problem with the post WW2 generation known as baby boomers. This generation had the benefit of 'final salary pensions'. As a result, they are still receiving a great income despite having retired decades ago. With that kind of income, they can afford to stay in the family home that they have always lived in, despite the fact that their children have long since flown the nest. This means that there are four and five bedroom family homes being occupied by an elderly couple (or person) where only one bedroom is being used. This leads to a shortage of family homes for those that need them. So there is a huge issue of misallocation of housing.
Rent prices rise for a while because people need to live somewhere and will pay the prevailing price... up to a limit. Rents have been consuming more and more of people's disposable income, exacerbating the cost of living crisis in the UK. Homelessness has risen sharply in the UK in recent years. Affordability is capped by income, and wage growth has been largely stagnant for a decade or more.
This is what they describe as the housing crisis in the UK.
So as house prices have risen, driven by the irrational exuberance of naïve people who think that capital values will keep rising forever (classic bubble mentality), rents have not been able to keep up - hence the collapse in rental yields. This is proving particularly problematic now that rates have risen and are likely to rise further. UK Government Bond yields hit a 27 hear high last week - so there is pain ahead for borrowers and residential landlords are among the most levered sector of the population.
>> Vistry Group Trading Update 15th January 2025 <<
Vistry Group PLC provided a trading update for the year ending 31 December 2024, ahead of its full-year results on 26 March 2025. The Group reported total completions up by approximately 7% to 17,200 units, with adjusted revenue increasing by 9% to £4.4bn. However, adjusted profit before tax is expected to decline to approximately £250m, down from £419.1m in 2023, reflecting delays in partner agreements, canceled land transactions, and slower open market completions. Partner Funded units accounted for 73% of total completions, with significant growth in this segment compared to open market sales, which declined due to constrained consumer demand and mortgage affordability.
The Group continued to secure high-quality land and development opportunities, totaling 16,500 units for the year, and strengthened its partnership strategy with over 220 new agreements. Notable projects include a regeneration initiative with Homes England and a joint venture in Cornwall delivering 1,200 homes. Despite neutral build cost inflation and stable average selling prices, net debt increased to approximately £180m due to higher finished stock and work in progress. The Group emphasized improvements in customer satisfaction, achieving a 5-star HBF rating for the fifth consecutive year and receiving multiple industry awards.
Challenges emerged in Vistry's South Division, where cost issues impacted profits by £105m in FY24. The Group implemented tighter controls and restructured its operations, consolidating six divisions into three larger ones to streamline reporting and leadership. Looking ahead, Vistry remains committed to its asset-light, high-returns Partnerships strategy and aims to reduce stock and improve cash generation in FY25. With a strong forward sales position of £4.4bn, the Group expects steady demand from Partner Funded markets but acknowledges that open market conditions remain uncertain, reliant on consumer confidence and government housing policies.
For FY25, Vistry plans to mitigate low single-digit build cost inflation through scale efficiencies and operational improvements. The Group also aims to address challenges in the South Division under new leadership and build on its strong foundation in affordable housing and PRS markets, ensuring sustainable growth and profitability.
One of the best analysis I have read on Vistry that touches many issues that other bullish writeups have missed.
Howard Marks points out that investors erroneously chase outsized returns, and in so doing often disregard the risk that they are taking. As a result they often suffer a permanent impairment of capital when an unfavourable outcome leads to a large loss. He counsels that the proper approach is not to chase outsized returns, but to chase situations where the downside is very limited. This, he says is the secret of successful investing and it requires a thorough analysis of the potential risks and downside.
This is what I have attempted to do, so it is heart-warming that you have expressed your appreciation for this aspect of the write up. Thank you.
If you want to read more about Howard Marks' thoughts on risk, please read: https://rockandturner.substack.com/p/thinking-like-pabrai-marks-and-buffett
I want to thank you for this wonderfully balanced and detailed article and echo the sentiments that this is the best writeup I have read on Vistry. You’ve tackled both the problems in the bull thesis and bear thesis and settled on a very reasonable position that there is a lot of uncertainty but heads I win, tails not lose much. I’ve held Vistry for a few years and been very frustrated lately by the profit warnings. I too feel that it is oversold but I appreciate now there is more hair on this thesis than I thought when first taking a position.
Thanks James. Very interesting take on the "is the UK short of houses?" question. No doubt in my mind that govt policy on interest rates (for 15 yrs) has hindered housebuyers rather than helped, despite the intention. I'm already in Vistry, having bought on the way down, and was considering topping up yesterday. I'm also a watcher of NVR.
The prospects for the UK economy are extremely poor in my view, with misplaced govt policies exacerbating our lack of productivity, and with a family member in construction, I know from his experiences that a chronic shortage of skilled labour is a constant problem. Taxing employment (and disproportionately hitting semi-skilled employment) through higher National Insurance charges is just bizarre.
The biggest challenge for all housebuilders is the treacle through which they wade at Local Planning Authority level. 40 yrs ago within a large UK bank, I helped with the funding of about a dozen small-medium-sized housebuilders, agreeing loans, lending stage payments and monitoring sales. All of those smaller builders seem to have disappeared and I suspect the reason for that is the sheer complexity and time consumption of building controls. The small builder would spend so long on these activities that there would be no time for building anything! This does of course mean that the large operators like Vistry have a competitive advantage over the small guy, because they can employ professionals to deal with Local Authorities.
The biggest question here is: does the CEO have the skills and mgmt buy-in to make this work?
Very well said. I couldn't agree more with both your sentiment and the questions you raise about the CEO.
Contrary to their intention, the new Labour government's economic policy will do more harm than good.
The biggest danger to this sector is a significant house price correction, which is arguably long over due and the only viable solution to the affordable housing crisis.
It would dent the NAV of housebuilders as their land banks would fall in value and need to be written down.
It's why I have never invested in Vistry until now. However, the share price dip has now created a more appealing risk/reward skew - almost a margin of safety.
My position is about 3%, I wouldn't go larger than that.
Thanks James great write up from many angles. Appreciate it!
Incredible writeup! Some pushback on the housing shortage not being a myth: https://iea.org.uk/what-the-supply-side-deniers-at-the-guardian-get-wrong-about-britains-housing-crisis/
Interesting Guardian article, thanks for sharing. It's a complex issue, but I think that the original Guardian position about there not being a housing shortage per se is correct.
There are a few key issues:
1/ Misallocation of housing
A significant issue stems from the post-WW2 baby boomer generation, many of whom enjoy generous "final salary pensions." These steady incomes allow them to remain in large family homes even after their children have moved out. As a result, many four- and five-bedroom homes are occupied by one or two elderly individuals, leaving only a single bedroom in use. This misallocation contributes to a shortage of family homes for those who need them.
2/ Uninhabited Properties
Many wealthy UK residents own second or third homes used only occasionally for vacations and so effectively withdrawn from the housing stock. This is problematic and there has been something of a backlash in certain communities such as Cornwall.
3/ Housing allowed to become a speculative asset
The buy-to-let craze has resulted in a bubble in the housing market. Just like Bitcoin and other speculative assets the value is driven by expectations of continuous capital inflows, rather than fundamental economic factors. This has led to a dislocation in valuations.
4/ Safe haven asset and money laundering
Properties are often purchased by non-UK domiciled high-net-worth individuals as a means of wealth storage, with little concern for rental income. This practice, sometimes linked to money laundering, exacerbates housing scarcity.
5/ Cash strapped housing authorities
Many properties remain uninhabited, with some falling into disrepair due to a lack of funding by local housing authorities to restore them.
Thanks James. I appreciate the time and thought that went into this.
They ended the dividend in 2023, opting for buybacks instead. Those have paused now but Greg's record suggests when they start returning capital again, it will be in the form of buybacks, not dividends.
I think you demonise dividends a bit too much. They're essentially equivalent to buybacks, but less tax-efficient (as in, you can reinvest your dividends to make them act like buybacks - or you can sell when the company buys shares back such that your interest in the business remains the same, to make buybacks act like dividends. The only difference is tax). That being said, if you aren't reinvesting dividends, the choice of whether to repurchase (vs pay a divvy) and when to do so can act like management trading on your behalf - which is nice if they do it well, as Singleton did.
Matt, I respectfully disagree. Dividends are nothing like buy-backs.
- Dividends are paid out of taxed corporate income and then taxed again as income.
- Dividends are subject to the friction of transaction costs (commissions and spreads)
- After the double taxation and friction, there is far less cash to be reinvested than there would have been had management simply retained the capital.
- If you reinvest dividends through the market then you pay a multiple of book value, but management reinvesting in the business means that the money is invested at book value, so far more accretive to investors.
- Dividends assume that all investors are income investors. They aren't. Some would rather optimize compounding capital.
- Even if all investors were income investors, not all require the same percentage draw-down at the same time. There is no one size fits all. A buy-back program allows individual investors to manage their cash needs on a bespoke basis as and when needed by selling a small fraction of their holding (Warren Buffett advocates this approach).
I could go on and on. In fact, I wrote an entire chapter of my book on this topic. For the benefit of my Substack readers, here it is: https://rockandturner.substack.com/p/how-dividends-destroy-shareholder-value?utm_source=publication-search
I hope this helps.
Best regards
James
Hi James. I've read your post. I'll take your points one at a time.
- Buybacks (or rather, the pre-tax profit that allows them) are also subject to corporate income tax, and are thus also double-taxed (the second time being capital gains when you sell the shares). I acknowledged that buybacks and dividends differ in their tax treatment - dividends are taxed as income, buybacks taxed as capital gains, and deferred. This is the main advantage of buybacks, and the reason I will always prefer them to dividends.
- No, dividends are not subject to spreads or commissions. Buybacks are subject to spreads and commissions. Assuming no withholding tax in your jurisdiction, the only frictional costs on dividends are transaction costs, which are typically minimal, if not 0. This is an advantage of dividends over buybacks (though doesn't usually outweigh the tax thing).
- This point is just the same as the two points above.
- We're not talking about reinvestment in the business. That's a third option. We're discussing option 1, dividends, versus option 2, buybacks.
- This is not a practical consideration, rather you're discussing the mindset of management here. In my view that's not relevant to this discussion, as we're talking about the practicalities of dividends vs buybacks - although I will say that I see it as a green flag when management opts for buybacks over dividends when the share price is low.
- As I said, just like you can turn buybacks into dividends by selling a few shares, you can turn dividends into buybacks by reinvesting them. You get the same "cash management on a bespoke basis". Again, the relevant considerations are tax and transaction costs, not bespoke-ness.
Please also amend your post to reflect that Vistry replaced its dividend with buybacks, if you haven't already.
Thanks for taking the time to share your views. We'll agree to disagree.
Additionally, Vistry has not abandoned its dividends in favour of buy-backs. In its most recent reports it states:
"The Group intends to sustain the capital allocation policy of a two times adjusted earnings ordinary distribution cover in respect of a full financial year. The ordinary distributions are to be made either through share buybacks or dividends, with the method to be determined by the Board considering all relevant factors at the time."
So I shan't be amending my post. Thank you again.
They have abandoned the dividend. The ex-dividend date is 20 April 2023. I'm not saying they can't or won't change their mind in the future, but right now they are not paying a dividend and have switched to 100% buybacks.
So please do amend your post. Thank you.
Instructing a credible author in public to edit his writings is stretching politeness rather, especially when the Board's policy is on record and has been quoted above. If you don't like the analysis you don't have to read or act on it.
Hi, Vistry are not paying a dividend and are prioritising buybacks so they are fulfilling James Emanuel's wants already. They may do something different in the future as they will respond to the share price and so they have left options open, which is what we should want them to do. Greg Fitzgerald in calls has said buybacks are a priority at this price and the dividend has been abandoned.
This is a minor quibble but I think it important to be accurate. In your section on the UK housing market, your figures all relate to England only, I believe. Yet your text suggests that they are UK figures. UK = England + Scotland + Wales + Northern Ireland
Thank you for the challenge.
There are 4 charts in that section. The first is for the UK as a whole (England + Scotland + Wales + Northern Ireland), the second and third are England only and the fourth is Great Britain (so excluding only Northern Ireland).
I'm not sure it matters too much in relation to the point being made.
Additionally, Vistry Group primarily operates in England, with limited presence in Scotland and Wales, and no significant operations in Northern Ireland.
Having worked in housing half my life, I can tell you margins will always be crushed , with this business model. Look for 3% not 12%.
The bit you all miss is getting contractors to work like clockwork on site to enable smooth production.
What tends to happen is one or two trades screw it up for all and then it’s just a shit show. ( quality, no staff, want more money, no materials, weather, walking off the job, , are just a few of the issues.
Contractors have the upper hand so long as we have a massive contractor shortfall.
Thirty years ago, most major housebuilders employed their own in-house tradespeople. However, in a bid to boost profitability, they began outsourcing building trade functions to contractors. This shift led to a significant decline in quality. When contractors are employed with profitability as the primary focus, the goal becomes finding the cheapest fixed-cost contractor. From the contractor’s perspective, a fixed fee creates an incentive to complete the work as quickly as possible—often by cutting corners—resulting in subpar quality.
Over the past decade, with low interest rates and the "everything bubble," property prices skyrocketed, much like a helium balloon that couldn’t be kept down. So the cost of property was climbing while the quality of new housing was declining. All this meant bumper profits for the house builders, which in turn encouraged more house building. Over the period so many commercial property sites were converted into residential housing.
The other factor to consider is that while property prices were rising, home owners were more inclined to extend/improve their existing home. This also created demand for tradespeople.
The influx of money into the sector created a labour shortage, which was addressed by importing workers from overseas to meet demand.
Today, the landscape is shifting. Property prices have peaked and are more likely to decline than rise in the coming years. Investment in the sector is now expected to shrink, except at the affordable end of the market, where political factors are driving development more than economic considerations. The demand for tradespeople will therefore decline with contractors fighting to secure work - in this kind of climate, reputation is the only way to ensure a steady flow of work, so the quality of the labour input is likely to increase.
Vistry seems to be at the right end of the market. It states that it expects profits and cash generation to improve year on year and it has seen an uplift in inquiries during January 2025 so far.
You say the following: "You may be wondering how an over supplied market can be over-priced. It’s a good question, so allow me to furnish you with an answer." I'm afraid I do not understand your answer. I think you are saying there is oversupply and amateur landlords are buying the properties, but if this is the case then some of these properties must be sitting empty and the landlord is not making money and so the typical landlord will need to sell, causing prices to come down?
The answer is that residential property has been allowed to become a speculative asset. Bitcoin is also a speculative asset. The prices of speculative assets is driven up by the expectation that new flows of capital will keep pushing their value higher, not based on fundamental economics.
There are also properties that are uninhabited. Some have fallen into disrepair but local housing authorities don't have the capital to bring them back into service. Some are bought by non UK domiciled high net worth individuals looking for somewhere to store their wealth, but not concerned about rental income (this is a particular problem in London) where it is suspected that property is being used to launder money. Many wealthy UK residents also have second and third homes which they use only occasionally for vacations.
There is also a huge problem with the post WW2 generation known as baby boomers. This generation had the benefit of 'final salary pensions'. As a result, they are still receiving a great income despite having retired decades ago. With that kind of income, they can afford to stay in the family home that they have always lived in, despite the fact that their children have long since flown the nest. This means that there are four and five bedroom family homes being occupied by an elderly couple (or person) where only one bedroom is being used. This leads to a shortage of family homes for those that need them. So there is a huge issue of misallocation of housing.
I hope this helps.
Also rent prices are said to be increasing implying there are not landlords struggling to fill their properties.
Rent prices rise for a while because people need to live somewhere and will pay the prevailing price... up to a limit. Rents have been consuming more and more of people's disposable income, exacerbating the cost of living crisis in the UK. Homelessness has risen sharply in the UK in recent years. Affordability is capped by income, and wage growth has been largely stagnant for a decade or more.
This is what they describe as the housing crisis in the UK.
So as house prices have risen, driven by the irrational exuberance of naïve people who think that capital values will keep rising forever (classic bubble mentality), rents have not been able to keep up - hence the collapse in rental yields. This is proving particularly problematic now that rates have risen and are likely to rise further. UK Government Bond yields hit a 27 hear high last week - so there is pain ahead for borrowers and residential landlords are among the most levered sector of the population.