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Building houses in Britain is like printing money right now

Sep 9, 2015, 13:14 IST

Committee members for the initiative REUTERS/Ruben Sprich

House builder Barratt Developments put out its full-year results on Monday and they underline just how hot Britain's property market is at the moment.

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Revenue in the year to June 30 jumped 19.1% to £3.7 billion ($5.7 billion), while pre-tax profit shot up a crazy 44.8% to £565.5 million ($870.8 million). That's a huge jump.

Barratt, which makes mid-market homes for families rather than luxury digs, put the leap down to increased efficiency, more completed homes, and rising sales prices.

The two key points for Britain's housing market are the later - completed homes and prices.

Barratt completed 11% more houses in the year - around 1,600 more. Prices in the year still rose 7% and even prices for "affordable" homes - government mandated builds meant to be in reach of those less well-off - rose by 7%.

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A reminder: interest rates are 0.5% and total pay grew 3.2% on average in the quarter to May. 7% is more than double that. It's a crazy level for house prices to be rising at - but it's not unusual.

Redrow, a similar mid-market house builder, announced a 53% rise in pre-tax profit on Tuesday in its full-year results. Redrow's average selling prices jumped 13%.

Barratt has a paragraph in its results that sums up pretty well what's going on right now (emphasis ours):

The market for new homes remains strong across Britain, with demand continuing to exceed supply. The mortgage market has continued to improve both in terms of availability and rates, as well as Government support for the new build market.

In short, as fast as people like Barratt and Redrow can build these houses, the public still wants more. And the demand is being supercharged by support for the housing sector from the government.

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A Barratt homes new-build site under construction in Slough in 2008 - these aren't luxury homes.Cate Gillon/Getty Images

40% of the properties that Redrow sold in the year used Help to Buy, the government scheme that lets first-time buyers or those moving to new builds get a mortgage with a deposit of just 5%. For Barratt, Help to Buy made up 31% of sales.

It's no surprise, then, that builders like these are breaking ground as fast as they can. They'd be stupid not to when conditions are so good.

In fact, one of the few things builders have to complain about right now is a shortage of workers.

Barratt says in this morning results: "A shortage of high quality, skilled labour continues to test the industry and limit its output." Redrow echoed those comments. Demand for electricians and the like is so high, there aren't enough to go around

While its pretty much all good news for house builder and their investors right now, there are growing concerns about how long this property boom can continue.

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Deutsche Bank warned recently that global real estate looks like it's close to "peak valuations" and Moody's Analytics flagged back in July the danger that the ECB's quantitative easing programme is fuelling a property bubble in markets like London, Oslo, and Munich.

That signals that property price rises may not be as simple case of supply and demand playing out - it could be an asset price bubble. If that's true, then house builders won't be so happy when it pops.

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