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Cala critical of home building policy

Focus on low end of housing market ‘misguided’

Alan Brown CalaHome builder Cala, says the government’s focus on helping those at the lower end of the market is misguided.

It says the most effective way to increase the UK’s overall housing output is to support production across the entire market, rather than just at the lower end of the housing chain.

The comments came in a trading update for the first eight months of the year in which he said the company remains on course to deliver another record year of revenues and profits

       19 new sites (1,877 plots) contracted during the period with a potential gross development value (“GDV”) of £660m

       Planning permission granted on 25 sites (2,038 plots) with a potential GDV of £700m

       Private sales per site per week of 0.50 (2015; 0.37) with private revenue per site per week up 29% to £255,000 (2015; £197,000)

       Strong trading during early weeks of 2016 with total net private reservations to date up 49% – Group now 83% sold for FY16 and commenced forward selling for FY17

Mr Brown said:  “Following a strong end to 2015, we have continued our positive trading performance into 2016 and remain on course to deliver another record year of revenues and profits for the Group.

“While market conditions remain positive and Government measures to support the housebuilding industry have undoubtedly had a positive impact at the lower end of the housing ladder, we continue to believe that the most effective way to resolve the overall housing undersupply is to increase production further up the chain. 

“Although support for affordable housing and first time buyers is clearly important, the requirement for greater numbers of four and five bed family homes is arguably even more critical when it comes to addressing the real housing needs of growing families across the country.

“With this in mind, our focus remains on scaling up our divisions to increase the number of homes we build and, with the infrastructure in place to deliver an annual capacity of up to 2,500 units, we feel we are well placed to play our part in delivering the family homes that the UK desperately needs.” 

Government policy

The company said that consistent Government support for the UK housing market has “undoubtedly had a positive impact on both supply and demand”, with the National Planning Policy Framework and measures such as Help to Buy providing significant support to both housebuilders and would-be homebuyers.

“However, while the Government has increased its focus on affordable housing and first time buyers via new initiatives such as the Starter Homes programme, the Group believes that this focus is misguided and feels that the most effective way to increase the UK’s overall housing output is to support production across the entire market, rather than just at the lower end of the housing chain.

“Although support for affordable housing and first time buyers is clearly important, the requirement for a greater number of four and five bed family homes is arguably even more critical when it comes to addressing the real housing needs of growing families across the country.

“According to research by Nathaniel Lichfield & Partners, commissioned by CALA, which focused solely on the English housing market, over the past ten years alone there has been a steady decline in the number of 4+ bed homes being built.

“However with the rise of the country’s burgeoning middle classes and a growing trend amongst an ageing population for ‘empty nesting’, more home owners and aspirational younger buyers are now demanding larger houses over smaller properties, to avoid overcrowding at home – an issue which plagues more than 700,000 English households.

“Addressing this shortage of family homes is the most effective way to encourage movement further up the housing ladder while naturally freeing up smaller properties that are already within the UK’s existing housing stock, for first time buyers.”

Continued land market activity

Cala said that with the backing and support of its main shareholders Patron Capital and Legal & General, the group remains focused on continued investment in its existing land bank which will provide it with a solid platform to deliver on its stated growth strategy.

During the period, the group contracted 19 short-term and strategic sites (1,877 plots) with a potential GDV of £660m and ahead of new hurdle rates set at the beginning of the financial year.  Cala also contracted land with a planning permission or secured a first-time planning permission on 25 sites (2,038 plots) with a potential GDV of £700m during the period.

Building on these sites, if not already commenced, will begin in the next few months once all remaining pre-start conditions have been cleared.

Growth strategy on track

Last year saw the completion of the group’s first full year of its new growth strategy, during which Cala doubled in size while achieving record margins.  This positive momentum has continued into 2016 and management’s focus for the remainder of the year remains on scaling up the group’s divisions to increase the number of homes it huilds

Cala already has in place the requisite infrastructure to deliver on its growth ambitions and remains on course to deliver an annual capacity of up to 2,500 units within five years, resulting in revenue of c.£1 billion.

In the near term, the group remains focused on delivering a significant uplift in return on capital employed as it reaches an operationally efficient scale, with a greater alignment of capital employed to profit delivery expected to result in ROCE of over 20% in 2016.

“With a continuation of the strong market backdrop, the board is confident of building upon this positive momentum in the remainder of the year and the group remains on course to achieve record revenues and profits for the full year.

“Longer term, Cala’s growth plans and operational efficiency targets remain on schedule and the group is confident of driving future shareholder value.”



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