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AM45252

AMA HOUSEBUILDING MARKET - 2002

Overview

This report covers: housebuilding, market, higher specification levels, future trends, private sector, Local Authority, Housing Associations, regional development offices, market size, market value, market report, marketing, brand shares, market research, market research, market value, companies, market leaders, competition, customers, retailing, analysis, city, manufacturing, commerce, industry, blue-chip, corporation, leading companies, business intelligence, critical success factors, charlie, analysis, industry sectors, industry size, sales, turnover, market share, critical success factors, current issues, company profiles, sector size, demand, trends, manufacturing output, distribution, market segmentation, forecasts, overview, factors, structure, strategy, sector, brands, branding, policy, trade associations, overseas trade, employment, marketplace, legislation, financial results, advertising, promotion, branding, brands, sales, turnover, exhibitions, strengths, weaknesses, opportunities, threats, political, social, economic, technical, buyer behaviour, consumer penetration, product development, market growth, future trends, sources, information, penetration, expenditure, acquisitions, mergers, profiles, takeovers, buyouts, facts, figures, statistics, strategic, expansion

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Table of Contents

Executive Summary

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TABLE OF CONTENTS

INTRODUCTION

EXECUTIVE SUMMARY

The housebuilders market is a substantial end-user of a large number of building products including bricks, blocks, kitchens and bathroom products. Within the UK private sector housebuilding has had a volatile history, with peaks and troughs in activity tending to mirror the general economic climate. The recent history of the housebuilding market has been that of steadier growth, with housebuilders concentrating on sustaining margins and quality of new homes rather than concentrate on vastly increasing completions.

Historically, the new housebuilding sector has had a volatile nature, with levels of housing starts and completions affected by the general level of economic and consumer confidence. In addition, the housebuilding sector is also highly susceptible to fluctuations in interest rates and inflation.

Following moderate growth in housing completions during 1996 and 1997, the economic downturn of 1998 led to a decrease in the number of housing starts for that year, which in turn affected the completion levels for 1999. The public and registered social landlords (RSL's) sectors were also affected with a marked decline in the volume of housebuilding activity undertaken. During 2001, completions reached their lowest level since the mid 1920's with planning constraints again cited as a significant factor. Additionally, the merger and acquisition strategies of some of the larger housebuilders during the year meant that focus was on internal restructuring rather than increasing completions numbers.

Private sector housing starts were expected to recover during 2000, which would have provided impetus for future completions levels. However, provisional figures indicate that completion levels for the private sector showed only marginal increases during 2001. For all sectors, housing completions are only expected to indicate moderate annual growth levels of approximately 3-4 percent and to reach an estimated 186,000 by 2005. However, factors including the limited availability of suitable land, increasing housing land prices, generally reported slowing down of the planning approvals process and increasing concentration on RMI (repair, maintenance and improvement) rather than new build work (particularly by the public sector), could all impact on the overall completions level.

During the last 4-5 years there has been an increased incidence of the use of brownfield sites for new housing developments. The government emphasis on inner-city and urban regeneration has indicated that previously used land will have greater significance for new housebuilding in the future. In response to the urban regeneration programme a number of leading housebuilders have set up dedicated "inner city" divisions that are capable of providing all types of social and private sector dwellings on inner city sites.

The number of registered housebuilders during 2000 was approximately 15,400 but only an estimated 5,200 individual companies were involved with the building of one or more new houses, the remainder concentrating on RMI work. The increasing concentration of the housebuilders market has continued during 1999/2000 with a greater proportion of companies now building in excess of 2000 houses per year.

In the past 3-4 years, the majority of the larger housebuilders have been increasing market share and national coverage through acquisitions and mergers, aided by the re-positioning of some of the larger construction companies away from housebuilding. Consolidation of some of the leading housebuilding groups has occurred in 2001, through merger and acquisition activity. During 2001, the top 20 national housebuilders accounted for just over 49 percent of total new housing completions, which had slipped from just over 50 percent in 2000. The leading national housebuilders were Persimmon, George Wimpey and Barratt Developments, which together accounted for an estimated 21 percent of the market in terms of completions.

Throughout the past five years the leading national housebuilders have experienced consistent gains in market share, completions levels and profits and turnover. The leading housebuilders have consistently increased their share of the overall market through acquisitions, mergers and expansion programmes. Levels of turnover and profits have improved during the time period to reflect this programme of growth, with industry averages of 118 percent growth in turnover and 180 percent growth in profits directly attributable to housebuilding activities between 1997 and 2001.

The most significant developments in 2001 have been the consolidation of the national housebuilders and continued interest in the housebuilding market. The flurry of consolidation activity was instigated by the announcement of the proposed merger between Beazer and Bryant during December 2000. However, the counter offer for Bryant from Taylor Woodrow during January 2001 ensured that the deal did not go ahead with Beazer finally accepting a take-over offer from rivals Persimmon. This was followed by Wilson Connolly acquiring Wainhomes in April 2001, and more significantly, George Wimpey acquiring Alfred McAlpine Homes in October 2001. The main result of these activities has been the emergence of a leading group of five companies who accounted for over 28 percent of the market in 2001. More recent activity has seen Redrow acquire Tay Homes.

The larger regional housebuilders have also been the subject of corporate activity with Galliford Try acquiring both Gerald Wood Homes and the Knapp Group during the year, whilst Kier acquired Allison Homes.

The use of pre-fabricated and factory finished building materials has increased during the last five years. Key factors underpinning this trend include the slowing down of the planning approvals process, the lack of available land for new housebuilding and the significant skills shortages within the industry which have all led to increased pressure on available build time. Although the use of pre-fabricated products is still very much in the development stage, materials such as floor and wall panels, pre-assembled roofs, and bathroom pods are beginning to find niche sectors within the new housebuilding market. Pre-finishing of building products is also increasing with the use of push fit plumbing fittings, pre-plumbed water tanks, door and window sets and pre-finished joinery products.

The use of direct supply agreements for certain products such as bricks, has been extended within recent years. However, builders merchants remain a very significant and very important supply channel for the housebuilders market, with some manufacturers agreeing to supply products only through nominated merchants. Another major feature is the increased use of sub-contract installers and the use of "supply and fit" contracts that have led to a devolvement of the buying process away from the housebuilders.

The increasingly onerous legislative and industry standards have seen the use of approved supplier lists increase during the last 2-3 years. Technical specification has increased in importance and for many of the larger housebuilders, is now considered to be a head office function. The larger regional builders use either internal staff, external architects or specialist contractors for technical specification purposes.
The short-medium term future for the housebuilders market appears to be fairly optimistic with sustainable growth forecast for the next 2-3 years. With the recent increased focus on the sector, it is a distinct possibility that some of the smaller and medium-sized nationals could consider mergers or further acquisitions in order to maintain market position and defend their considerably improved performance of recent times.

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Last updated by Amanda Porteous September 2002