During a conversation with a colleague on the recent spate of cash calls by house builders I was quizzed on how much damage the recession had done to their balance sheets.
I made a stab (a lucky guess as it turned out), but I should have had a number at my figure tips. I waffled while I grabbed a calculator and tapped in some very rough and ready numbers.
Well have a guess how much that bit of number crunching came up with?
Here's what the numbers suggest:
- Plot costs down from about £44,000 at peak to £31,000.
- Say four years land banks at 200,000 units a year at peak
- That makes the value of land banks at peak, say, £35 billion. That same land would be worth now about £25 billion. So a rough drop of about £10 billion on land alone.
- Add in the restructuring costs and finance costs and we have a fair slab more.
So chances are, to answer his question, we are probably somewhere in the £10 billion to £15 billion range.
A quick reality check, looking through the accounts of the six big traditional stock-market-quoted house builders, finds they produced about a third of the homes in 2007, had just shy of 300,000 plots and between have recorded exceptional costs of around £4 billion as a result of the recession, much of which was write downs on land.
Times that £4 billion or so by three and we are in the same ball park.
Some will argue that land has fallen further. It may have, but not all land on the books of house builders would have been priced at peak prices. So theoretically the pain may have been greater in terms of the potential asset value at peak.
It's silly to read too much into this sort of calculation, but it is instructive and provides a notion of the scale of the financial pain in house building.
That of course is just one way of looking at the damage of the recession.
Meanwhile, what caught my eye on the subject of scale, was how the balance sheet losses suffered by residential developers and house builders seems to be rather in the same league as the money £13 billion the Homes and Communities Agency has for the next two years.