T he entire housebuilding sector is in a funk, grumbling about energy prices, the cost of labour, regulation, planning delays, taxes and more, but few have messed up a bad hand quite like Vistry. Three years ago this mashup of the Bovis, Linden and Countryside brands aspired to build 20,000 houses a year, and made itself the darling of the incoming Labour government by betting big on “affordable mixed-tenure housing” in partnership with councils, housing associations and institutional landlords.
The City, too, fell for former executive chair Greg Fitzgerald’s promise that a “capital light” approach of pre-selling homes via a partnership model would yield oodles of cash. The share price doubled to almost £14 between October 2023 and August 2024.
Fitzgerald departed in May after too many profit warnings and now, with the shares down to the bare foundations of 262p, it’s time for new chief executive Adam Daniels’ review of what happened. Short version: the logic of the partnership stuff wasn’t so silly, but the execution was horrible, especially in the south of England.
“The pace of change meant that the operating model, controls and culture did not scale consistently with the group’s volumes [of construction],” he said, a polite summary of a growth strategy gone awry. For good measure, a proportion of the land bank would not be acquired “under the investment approval criteria that will be applied in the future”, which read as a confession that Vistry simply overpaid for plots.
The good news, of a sort, for shareholders is that the damage to the balance is not deemed so severe that fresh equity is required. Daniels’ prescription for recovery, however, is a long exercise in getting smaller and living with shrunken ambitions.
The aim is to build 12,000 houses a year, rather than the 20,000-plus imagined by Fitzgerald. A greater proportion of those homes will be in the north of England. As for return on capital employed – a critical metric for housebuilders – the old idea was 40%. That’s been cut to 30%, and only by 2031.
It all sounds perfectly reasonable: keep things simple, fix the balance sheet by eating into the land bank, and concentrate on the parts of the country where market prices (which still matter for a mixed-tenure model) are holding up better.
In Vistry’s favour is the fact that, for all its financial troubles, it’s still in the government’s good books. Last month, the company received a £350m direct grant to construct 3,000 affordable homes under the £39bn social and affordable homes programme. If you take the long view, there is a possibility of a turnaround if Daniels can live up to the promise of better execution. At the age of 35, he has time on his side – and may need it.
The wider message for the government’s target to build 1.5m homes in England during this parliament, however, is as discouraging as ever. Vistry is an extreme example but virtually everybody is reining in ambitions in the name of financial discipline and cash generation. Even Barratt Redrow, the biggest of the lot, said in April it would be scaling back its land purchases. Angela Rayner, the housing secretary, has taken to calling the 1.5m figure a “stretch target”. Indeed, the only real question is by how much it will be missed. By an embarrassing margin, on current form.
