Bill Jamieson's Business Blog: Barratt highlights dire state of house building

Published on Wednesday 25 February 2009 11:06

FORMER house building giant Barratt brought the spotlight to bear on the stricken housing sector today with news of losses in the six months to end December soaring to £592 million against a profit previously of £195 million. The figure includes a writedown of £494 million on the value of its land bank.

The group said it had made a further 700 job cuts on top of 1,200 job losses anticipated last July following a wave of site closures.

The figures confirm an appalling state of affairs in the housebuilding industry which has been masked from public view by the bigger drama of massive bank losses, write downs, plunging shares - and taxpayer support.

Yesterday the Scottish government revealed that house building in Scotland had fallen to a 20 year low with figures showing a 43 per cent drop between the third quarter of 2007 and the same period in 2008.

In fact, as Homes for Scotland has been quick to point out, more recent figures show an even sharper decline.

Figures out this week from the National House Building Council paint a bleaker picture - a staggering 88 per cent decrease in registered starts in January compared with a year ago.

Already in Scotland some 26,000 housing related jobs have been lost - and there is little sign of any robust upturn.

This was the sombre backcloth to the first meeting yesterday between Jonathan Fair, chief executive of Homes for Scotland and the new housing minister Alex Neil.

Fair is urging immediate action on the recommendations recently announced by the Scottish government's own Housing Supply Task force.

These include speedy implementation of planning system reforms, searching out alternative methods of funding infrastructure to speed up house building and better use of public sector land for housing.

Development work across Scotland is seizing up - and with severe implications for local authorities.

Many councils rely on development projects to finance much-needed infrastructure and social amenity schemes that are attached to development plans as they go through the planning process.

But with developers strapped for cash and projects being pulled, councils face a seizure in their social housing and amenity projects.

Analysts fear that Barratt may come close to breaching its loan-to-value banking covenants which place obligations on the borrower to operate within certain parameters.

"Clearly there has been no breach, but with the LTV trigger levels still not disclosed, the market is going to remain concerned that with debt at 1.42 billion that a breach could still occur," said Robin Hardy at KBC Peel Hunt. The company said the housing market remains "intensely difficult" with little forward visibility, constrained by lack of mortgage availability, consumer confidence and falling prices.

But in line with its peer Redrow which reported results on Tuesday, trading since the start of the year has been slightly more upbeat.

A shortage of loans has prevented potential first time buyers entering the market, leading the government to announce plans on Monday to inject 14 billion pounds into state-owned Northern Rock to try and unlock lending in the UK.

Shares in Barratt have collapsed to penny stock status over the past year, tumbling from 443p this time last year to just 30p. But relief that the group is still operating within its banking covenants for now and that the company was not springing a rights issue sent the shares rallying 10.75p in relief to 82.1p.