Special report: sector sees near-10% rise in development sales income

John Lumley, strategic sales director at L&Q, said: “In recent years, L&Q’s development pipeline has expanded significantly. Our expansion into new areas outside of London saw our first own-built homes launching in areas like Milton Keynes and Warwickshire in 2019, while the acquisition of Trafford Housing Trust brought in additional schemes in the North West.

“Between 2019 and 2021, we went from selling homes at 28 to 40 schemes, and 39 to 59 sales outlets, increasing the proportion of shared ownership homes sold from 22 per cent to 32 per cent along the way.

“The first few months of 2020-21 were very difficult, as physical viewings weren’t possible. We stepped up our online presence with virtual tours and brought in health and safety protocols which ensured we were able to open our sales offices and show homes safely, and capitalise on pent-up demand as lockdown restrictions relaxed.”

He added that once restrictions were lifted, L&Q saw an increase in enquiries and activity driven by the stamp duty holiday, a change in consumer preference as people sought homes outside city locations, an accumulation of savings following lockdown and low interest rates on mortgages making purchases more affordable.

“In line with the wider housing market, we’ve seen growth in values – mainly in houses – and areas outside of London. We’ve also found that demand for shared ownership has been stronger outside of London where Help to Buy is at 20 per cent,” Mr Lumley added.

Clarion saw a near-68 per cent increase in its total development income to £213m.

Unlike NHG and L&Q, the organisation made the majority of its development income through first tranche sales, which were up 70.6 per cent to £125.7m. Its open market sales income rose by 63.3 per cent to £87.7m.

Clarion’s total development surplus stood at £18.9m, leaving a 16.5 per cent margin, compared with 8.8 per cent the year before. 

Its margin on open market sales was notably down on last year to 1.8 per cent, from 13.6 per cent the year before. In comparison, its first tranche sales margin was up by just over three percentage points to 13.8 per cent.

Richard Cook, group development director at Clarion, said: “In 2020-21, we built a record 2,126 new homes – 90 per cent of which were affordable – as part of our wider strategy to drive up the development of mixed-tenure communities with homes people can afford. 

“More schemes coming forward last year resulted in more homes being available to sell. The increase in our sales income for 2020-21 was also driven partly by market conditions, such as the stamp duty holiday and other knock-on effects from the pandemic as the year progressed.

“Early lockdown restrictive measures preceded a rise in remote working and a spike in demand for larger homes with outdoor space. This created a bubble of supply and demand which continued throughout the year, evident across private and affordable tenures.”

Peabody, Vivid and Metropolitan Thames Valley remained in the top 10 despite all of them seeing decreases in their development income.

Open market sales income again played a role in this, with all bar Metropolitan Thames Valley seeing decreases in their open market sales income. 

Peabody recorded a 40.2 per cent decrease in its open market sales income to £70m and a 24.4 per cent decrease in its total development income to £127m. 

Despite this, however, it still had one of the highest surpluses on its development activities, totalling £21m. Its margin had also increased on the year to 19.1 per cent from 8.7 per cent in 2019-20.

Network Homes recorded one of the largest increases in its open market sales income, which drove up its overall development income. The provider’s non-social housing sales income increased by 868.1 per cent to £42m. 

At the same time, it recorded a 12 per cent decrease in its first tranche income to £20.8m. Despite this, its total development income still rose considerably by 124.3 per cent to £62.8m.

Matthew Bird, new business and sales director at Network Homes, said: “In 2020-21, Network Homes experienced particularly high revenue from property sales and especially private sale homes. This was principally due to the completion of a large phase of a regeneration scheme at Stockwell Park early in the year, where 76 homes were sold privately.”

Top 30 first tranche margins

Broadacres Housing Association made the largest margin on first tranche sales at 54.1 per cent. That was on an income of £3.3m and a surplus of £1.8m. 

Its surplus increased slightly on last year, from £1.4m. So too did its income, from £2.3m. However, its margin was down five percentage points from 59 per cent.

Despite being in the top 30 first tranche margins list, 20 of the HAs here saw a decline in their margins. 

While a number of these declines were small, there were some noteworthy changes, including a near-20 percentage point drop in margin for London-based Anchor to 36.9 per cent. The provider made a surplus of £231,000 on an income of £626,000.

North East provider Karbon Homes saw one of the largest increases in margin – 22 percentage points – to 33.6 per cent, from 11.9 per cent in 2019-20. This was on an income of £2.8m and a surplus of £930,000.

Top 30 non-social housing margins

In contrast to the top 30 first tranche list, 19 of the HAs with the largest non-social housing development margins saw them increase on the previous year.

Oxford-based Soha Housing made the largest margin at 51.1 per cent. This was on a surplus of £470,000 and an income of £920,000. It increased on last year from 33.8 per cent. 

London-based Southern Housing Group followed with a margin of 43.3 per cent, nearly 14 percentage points up on the previous year.

Network Homes and Citizen came next in the list after making margins on their open market sales of 32.4 per cent and 29.9 per cent respectively. 

Risk warnings

Costs and rising inflation are expected to impact housing providers in 2021-22 and beyond. The conflict in Ukraine is also exacerbating already existing economic/supply chain risks, such as material and labour shortages. The outcome of this on the UK development market is still playing out.

Savills’ Mr Vaughan also noted that the end of Help to Buy in 2023 will no doubt impact the market. “I think we’ll see plenty of activity this year [2022] driven by Help to Buy, but fundamentally something needs to replace it… [because] without Help to Buy, you freeze a lot of first-time buyers out of the market.”