01 March 2017

Blog: Galliford Try – Future Proof

by Scott Fulton | 1 March 2017

From an equity capital market perspective, there was a lot riding on The Housing White Paper produced by the Department of Communities and Local Government (DCLG) on 7th February 2017. It was expected to offer a panacea for the “UK housing crisis”; unlocking a swathe of new home development without compromising the Green Belt, current house prices and Government finances. Unsurprisingly, given the weight of expectation, the White Paper did not please all parties.

However, while immediate commentary focused on the larger house builders’ land banks and the sporadic performance of Local Authority planning departments, more considered reflection of its contents suggests that this document represents an important step forward for UK housing strategy.

That is the view of Peter Truscott, CEO of Galliford Try PLC*, one of the few listed companies with exposure to the full range of housing production in the UK. “Overall, the White Paper is positive. It highlights that, from a delivery perspective, the Government is hugely supportive of an increase in housing supply. Moreover, this support is not only for home ownership but acknowledges the vital role which mixed tenure development can play.”

A “full panel” approach to the gap between the current UK housing stock and the ability of the industry to supply the required increase is a new development within Government policy. Pre-Referendum, the clear focus was on home ownership, evidenced by the introduction and subsequent extension of the “Help to Buy” programme together with a range of monetary policy initiatives designed to maintain low cost mortgage finance. Following the change in senior personnel wrought by Brexit, there has been a distinct change in the “mood music” from Central Government. A “Help to Build” fund, announced in the 2016 Autumn Statement, together with the mandate given to DCLG to advance the debate, pointed to a far more “supply-side” mind set.

As we commented in our blog “A Quiet Revolution” on 8th December 2016, the role of “partnership” housing – where Housing Associations work with private developers to provide homes across tenures – is likely to grow in the medium term. The Housing and Planning Act of 2016 removed the right of the Housing and Communities Agency (HCA) to regulate mergers and disposals within Housing Associations. Shortly afterwards, the Bank of England announced that Housing Association bond issues would be included within its £10bn stimulus package. In combination, these two changes have created an environment whereby Housing Associations can combine to take advantage of cheaper finance. As a result, we have seen a raft of Housing Association combinations, such as Affinity Sutton and Circle Housing Group to form Clarion Housing Group, who are able to access non-public funds to develop a range of housing tenures.

This is an important trend as it speaks to the preparedness to undertake “mixed tenure” developments where the sale of private homes cross-subsidises the provision of affordable tenures for rent and/or shared equity. True to their status as landlords and, increasingly, asset managers, the Housing Associations have turned to private entities with whom to partner in this provision. The growth in Partnership Housing within companies such as Galliford Try* is a testament to this structural change.

Galliford Try* announced its interim results for the six month period to 31st December 2016 on 21st February 2017. Within this report, the company revealed an 8.9% gain in profits and a 16.5% increase in forward orders from its Partnerships & Regeneration business which contains its mixed tenure work with Housing Associations. Critically, Galliford Try is targeting an increase in profits from this segment of 2.5 times by 2021. This is by far the fastest growth envisaged for its operations over this timeframe and reflects the company’s confidence that Partnership housing is a central component of UK housing development.

Peter Truscott highlights; “the challenge for Government and the industry is to provide increased housing supply across the tenure range. At Galliford Try we believe that provision will be more balanced than has been the case for several decades. We have seen a shift in Government thinking away from just home ownership. Affordable and rental tenures are clearly a critical part of the medium term market. Our strategy, outlined within our announcement of strong interim results, is to grow our ability to support all areas of the market in this regard. Looking forward, while we remain confident of growth in homes to own development, our strongest area of potential growth is within Partnerships & Regeneration.”

Over the remainder of this Parliament, the issue of housing supply is likely to be a dominating factor. In the run-up to Brexit, the health of the UK housing market is a key bellwether. However, the May Administration has been at pains to move the debate on from house prices and affordability. It has signalled clearly that it wants a more broadly based solution which provides sustainable housing supply. As Galliford Try highlights today, this presents considerable opportunities for those with the capability to support the new direction.

Capital Access Group acts as an advisor to Galliford Try

Capital Access Group will be hosting a seminar on 6th March 2017 at which Galliford Try and Grainger will present their views on the UK housing market following the publication of the Housing White Paper.

Please contact CAG to attend this seminar.