Vistry targeting 25,000 homes per year under new partnerships strategy

Vistry is setting itself up to deliver 25,000 homes per year under its new partnerships housing strategy, the firm’s partnerships boss has told Housing Today.

Stephen Teagle told Housing Today that Vistry planned to deliver the firm’s previously stated target of 20,000 homes per year in “short measure” and was structuring itself to build 25,000 homes per year.

This would make the company, which yesterday announced it is to merge its traditional private housebuilding business into its partnerships operation, by some distance the biggest housing developer in the UK.

Until as recently as last year Barratt, currently the UK’s biggest housebuilder, was targeting building 20,000 homes a year, which has commonly been seen by the industry as an effective limit beyond which builders will struggle to grow. However, Barratt last week said it expects output to fall to as low as 13,250 next year amid the slowdown in the housing market.

In contrast, Vistry yesterday saw its share price spike after it said it believed it could deliver 5-8% annual revenue growth with its new model, which is more reliant on building affordable and rented homes, and return £1bn to shareholders.

Partnerships housebuilding, in which developers work to build homes for long-term investors such as housing associations, local authorities and build to rent landlords alongside homes for sale, is seen by investors as more resilient to housing market downturns.

Stephen Teagle, chief executive of partnerships at Vistry, said: “We’ll be delivering 20,000 homes within a fairly short measure, and we’ll be delivering beyond that.

“I can see our business is capable of, and we’re structuring our business so that we are capable of delivering over 25,000 homes a year.”

In interim results released yesterday, the firm said it delivered just 6,050 homes in the half year to June 30, meaning that reaching 25,000 homes per year implies doubling output from current levels.

Describing the strategy shift as “transformational”, Teagle rejected the idea that it was an opportunistic response to the downturn in the market, and said Vistry was now committed to delivering more affordable and rented housing through a partnerships model for the long term.

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“This is this is an absolute strategic commitment from our board,” he said. “From the people in the business, and a commitment we’ve given to our partners from wider stakeholders that we want to be part of the solution for housing supply in this country.

“We don’t want to be part of short term, cyclical approaches. And this partnerships platform, as well as providing a returns-based [business] model, represents that commitment for the long term to delivering affordable housing and addressing the housing crisis.”

Vistry said yesterday that it will look to achieve its growth by increasing the number of homes that are pre-sold to affordable or private rented landlords on its developments to a minimum of 50%, with a target of 65%. While it is already achieving this in the partnerships side of its business, its traditional housebuilding business has typical pre-sold just 25% of homes, mostly to housing associations under Section 106 deals.

Teagle also said that Vistry, which announced that its housebuilding boss Keith Carnegie will leave the firm by the end of the year as it restructures, was looking for a private investor to ramp up production via its own in-house ‘for-profit’ housing association, Linden First.

Teagle said 10 year-old registered provider Linden First had only a “very small stock holding” at the moment, and Vistry was now looking at how the organisation could be used to “assist” housing delivery. He said: “We are interested in talking to partners and external investors who would be interested in an opportunity to invest in that for profit in order to use that to assist with our delivery.

“That is not intended to displace our work with existing registered providers, merely to amplify it.”

The new strategy will see Linden embark on a restructure which the firm said will see it trim its operating divisions from 32 to 27, cutting an unspecified number of jobs, and saving an extra £25m. Vistry said it would update the market on job cuts in its next trading update in November.

Vistry also yesterday became the first housebuilder to make a specific write down in its accounts for the cost of implementing the government’s requirement for all housing blocks over 18m to have a second staircase. Vistry said it had written down £18.4m against the policy, comprising a £6.1m inventory write-down and a £12.3m provision for additional costs incurred on committed sites.

Analyst Aynsley Lammin at Investec said Vistry was “exceptionally well positioned” to be the leading partnership housing provider in the country, and increased the target share price for the firm by over a pound from 815p to 965p.