Springfield suspends affordable and PRS housing activity amid unclear policy environment
Springfield Properties said today it has put all long-term fixed-price affordable housing contracts on hold and has temporarily suspended its expansion into the private rented sector (PRS) amid concern about market conditions and the Scottish Government’s future rent freeze policy.
Announcing otherwise upbeat end-of-year results for the group, the stock market-listed housebuilder said it had taken the “pragmatic decision to temporarily pause entering into new large, long-term affordable contracts in order to protect its margins”.
During the year under review, the group achieved its highest ever affordable housing revenue. The number of affordable home completions increased by 11.6% to 405 (2021: 363). Average selling price increased to £159k (2021: £146k) as a result of a change in housing mix. However, revenue and margin in affordable housing were impacted by price inflation.
This was partly due to key subcontractors going out of business, which necessitated the group finding replacement subcontractors that led to some delays and higher costs. In particular, the margin suffered from the delivery of two large, long-term contracts that had been signed in early 2020 and was therefore based on expectations of lower material and labour costs.
Springfield added that the longer-term fundamentals of affordable housing “remain strong” and the group expects to recommence signing contracts “when more normal market conditions resume” and following the Scottish Government’s next affordable housing investment benchmark review to reflect inflation, which is expected to occur in November 2022.
“As a result of the action taken in affordable housing, the group is well positioned for when the market normalises,” it added.
Notwithstanding delivery of the contract at Bertha Park, the group’s strategy to expand its PRS activity with Sigma is currently on hold due to emergency legislation that is being introduced in Scotland, as announced earlier this month, to protect tenants by freezing rents and imposing a moratorium on evictions until at least 31 March 2023.
Springfield said it recognises that this is “a temporary measure designed to support families facing fuel poverty this winter”, adding that the group “continues to believe that the delivery of PRS housing offers a viable revenue stream in the longer term”.
The housebuilder added: “Whilst this does not impact the group’s existing agreement to deliver 75 PRS homes, any decisions on the expansion of this activity will wait until the policy environment is clearer.”
The announcements came as Springfield Properties announced its final results for the year ended 31 May 2022, reporting record revenue and profit and the delivery of more than 1,000 homes in a year for the first time.
For the year to 31st May 2022, Springfield grew revenue by 19% to £257.1m (2021: £216.7m) and pre-tax profit by 10% to £19.7m (2021: £17.9).
The 1,242 completions was a new record for the company. 712 private homes were completed over the year, which Springfield said reflects the acquisition of Tulloch Homes and organic growth. In terms of affordable housing, 405 properties were completed as the group delivered against its highest ever contracted order book. In contract housing, where Springfield provides development services to third party private organisations, 125 homes were completed.
Innes Smith, chief executive officer of Springfield Properties, commented: “This year we achieved our highest ever annual profit and revenue with strong results across private, affordable and contract housing. I am pleased at how we managed the material and supply chain pressures facing our industry so that, while not immune, we were able to mitigate much of the impact.
“In keeping with our strategy, we significantly expanded our business with the acquisitions of Tulloch Homes and, post period, the Scottish housebuilding business of Mactaggart & Mickel – two high quality housebuilders with land in areas of strategic importance. We also achieved a milestone with the delivery of our first housing for the private rented sector.”
He added: “We entered the 2023 financial year delivering against a strong order book in private housing, reflecting sustained demand for the type of homes that we provide and the expansion of our business. We have excellent visibility over full year private revenue forecasts based on homes delivered, missived and reserved.
“While the challenging economic backdrop will impact our affordable and PRS housing activity in the short term as we await decisions from the Scottish Government, we are on track to deliver another year of revenue and profit growth overall. Moreover, the fundamentals of the housing market in Scotland remain strong with high demand for homes across all tenures coupled with a national shortage in housing supply. As a result, the board continues to look to the future with confidence and to delivering sustainable value for all of our stakeholders.”