Government proposals to cap developer margins risk undermining the very investment needed to deliver new homes. Drawing on decades of sector experience, Terry Fuller challenges common assumptions about excessive profits in housebuilding – highlighting the complex realities of funding, risk, and market dynamics. Here he sets out why reducing margins could deter investment, shrink supply, and ultimately slow the delivery of much-needed housing.
By Terry Fuller
Former Managing Director, Taylor Wimpey; former Executive Director, Homes England; and current Chair of two local authority housing development companies
Government has recently suggested that developer margins should be reduced from a standard 20% to 15%
Well, that should kill off any investment for new homes.
It also illustrates that government doesn’t understand the difference between developers, promoters, contractors and house builders. Nor gross and net margins.
House builders
The number of house builders operating in the English market has reduced since 2000, so that the largest 10 now deliver circa 40% of all new homes built. Mergers are driven by house builders attempting to increase their long-term land supply and skills base (together with Chair/CEO vanity in some cases).
Sources of funding – The majority of major house builders are funded by shares traded on the London Stock Exchange. They are therefore competing with a multitude of other PLCs seeking long term capital in exchange for dividends paid twice a year. Key investors are pension funds and insurance companies.
Profit margins – Most of the majors seek a gross profit margin of 20% of revenue against private sales income. Interrogating annual accounts indicates a net margin post overheads, finance and tax of between 4.5% and 10% as dividends paid to shareholders. Out of that 20% comes finance costs, overheads, remediation of cladding and poor investments, and Corporation Tax.
Second hand competition – The total number of homes sold in 2024 was 1.09m, of which 218,000 were new (20%). The point here is that new homes do not control the market in volume or price.
Top four house builder results in 2024/25
| Firm | Homes | Revenue | Operating profit | Net margin |
| Vistry | 17200 | £4.3bn | £358m; 8.3% | £193m; 4.5% |
| Persimmon | 10600 | £2.9bn | £405m; 14% | £303m; 10% |
| Barratt | 14000 | £4.1bn | £369m; 9% | £328m; 8% |
| Taylor Wimpey | 10500 | £3.4bn | £415m; 12% | £219m; 6.4% |
House builders’ margins – conclusion
Seeking to reduce the profit margins down from a gross 20% will directly reduce the net profit margin and tax. We would see share prices drop, private investment removed and housing numbers evaporate. We saw this between 2008 and 2012, when house prices, profits and output numbers tumbled, impairment of assets and losses became the norm, and share prices fell from £4.50 to 10p for Taylor Wimpey and others.
Developers as house builders
Persimmon, Taylor Wimpey, Vistry and Barratt have large Strategic Land Divisions acting as developers. These ‘profit centres’ will sell their serviced land on to their house building divisions and to other house builders. The Strategic Land profits are absorbed by the main group to produce the final annual accounts. It is possible to calculate those as a gross margin of 13% (of serviced land value) and net of 4%.
Given the size of the long term capital investment in strategic sites, together with the risks of not obtaining a planning consent for a site, the driver is about securing a long term land supply for the house building regions.
| Firm | Strategic plots |
| Taylor Wimpey | 136,000 |
| Persimmon | 70,000 |
| Barratt | 106,000 |
| Vistry | 76,000 |
Contractors and margins
Most contractors (Willmott Dixon, DJ Higgins, Keir, Rydon, Wates, Henry Boot, Barnes, Carter, et al.) appear to cover new build in housing, health, commercial and infrastructure, together with repairs and maintenance contracts. They rarely split the results for public consumption. Some (Wates, Lovell et al) also undertake open market sale, making it more difficult to analyse the returns on work undertaken.
Contractors rarely purchase land or build for sale. They tend to work for low margins and higher return on capital employed. At the same time though, any build cost increases frequently erode their profits. So they naturally tend to look at what ‘extras’ they can gain from existing contracts.
The following table illustrates five contractors working in this sector, their group turnover and net profit.
| Firm | Turnover | Net Profit | % |
| Bell | £202m | £4.2m | 2.1 |
| Mears | £1.1bn | £47m | 4.2 |
| Willmott Dixon | £1.2bn | £20m | 1.6 |
| Keir | £4.0b | £51m | 1.2 |
| Wates | £2.3bn
(£550m maintenance turnover) |
£24m | 1.0 |
Overall conclusion
The private sector requires private investors, either in the form of bank loans or shareholders, and to attract the investment requires the ability to compete in the global market for funding and provide returns. The following is a selection of other plc companies and their profits:
HSBC £32 billion
BP £15 billion (2023)
Tesco £3 billion (2024)
BAE £3 billion (2024)
British Gas £752 million (2023)
Rio Tinto £7 billion (2024)
If the project does not hit the required profit margins, it’s not viable, so not fundable, so it will not happen. So let’s stop calling house builders greedy because they make profits; let’s stop suggesting they control the market at 20%; let’s recognise that asking too much drives house builders away ( à la London); and let’s recognise that all forms of construction holds risk and require rewards; and also provide 2.1 million jobs and hundreds of thousands of new and improved homes; while contributing 6.5% of the UK’s GDP (Gross Domestic Product).
To discuss this article, contact Greg Campbell.
