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Why we need housebuilders to make a profit
The debate around housebuilder profit margins fails to acknowledge their status as public companies and ignores their contribution to the wider economy
GROWTH, REGENERATION & DEVELOPMENT
Terry Fuller
Former Managing Director, Taylor Wimpey; former Executive Director, Homes England; and current Chair of two local authority housing development companies
Terry Fuller
Former Managing Director, Taylor Wimpey; former Executive Director, Homes England; and current Chair of two local authority housing development companies
Issue 84 | June 2026
The 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 the government doesn’t understand the difference between developers, promoters, contractors and housebuilders. Nor gross and net margins. So, what is a more realistic picture and approach on housebuilder margins for a government with a target to build 1.5m homes by 2029? Given the high risk of land, construction costs and selling, and a need to attract billions of pounds of long-term private investment, a minimum 10% net profit would be my recommendation to the government.
Current picture
The number of housebuilders operating in the English market has reduced since 2000, so that the largest 10 now deliver around 40% of all new homes built. Mergers are driven by housebuilders 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 housebuilders 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 major housebuilders seek a gross profit margin of 20% of revenue against private sales income. Interrogating annual accounts indicates a net margin (after overheads, finance and tax) of between 4.5% and 10% as dividends paid to shareholders. Out of that 20% comes finance costs, overheads, Corporation Tax and remediation of cladding and poor investments.
Second-hand homes competition: The total number of homes sold in 2024 was 1.09m, of which 218,000 were new-build (20%). The point here is that new homes do not control the market in volume or price.
20% of the 1.09 million homes sold in England in 2024 were new-build (218,000)
Top four housebuilder results (2024/25)
Margin cap impact
Seeking to reduce the profit margins from a gross 20% would directly lower 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 during the Global Financial Crisis, 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.
“In addition to building homes, Persimmon, Taylor Wimpey, Vistry and Barratt have large strategic land divisions acting as developers.”
Strategic land impact
In addition to building homes, 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 housebuilding divisions and to other housebuilders. The profits from strategic land 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 housebuilding regions.
Building contractors and margins
Most main building contractors (Willmott Dixon, DJ Higgins, Keir, Wates, Henry Boot, Barnes, Carter, etc.) 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, etc.) 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 often 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.
Overall conclusion
To innovate and grow, the private sector requires private investors, either in the form of bank loans or shareholders. To attract this investment requires the ability to compete in the global market for funding and provide returns. For context, the following is a selection of other PLC companies and their profits:
“If the project does not hit the required profit margins, it’s not viable, so not fundable, so it will not happen.”
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 housebuilders greedy because they make profits. Let’s stop suggesting they control the market at a profit margin of 20%. Let’s recognise that asking too much drives housebuilders away (as has happened in London). Let’s recognise that all forms of construction hold risk and require rewards. Finally, let’s recognise that construction provides 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).
