Housing Corporation chairman Peter Dixon expects to squeeze profits up to 10%

Developers that bid for this summer’s £3.3bn competition to build social housing will have to accept tighter margins if they want to be successful.

The warning from the Housing Corporation, which hopes to attract private firms to bid for its £3.3bn two-year spending programme, was made to ensure it makes the efficiency savings demanded by the government.

Speaking to Building at last week’s annual Chartered Institute of Housing conference in Harrogate, corporation chairman Peter Dixon, pictured, said that developers made “25-30% profit and could afford to have that squeezed”.

The ODPM says the corporation must make £430m in efficiency savings by April 2008, the end of the government’s spending round. This money will be reinvested in building more housing.

In a separate speech at the Harrogate conference, Jon Rouse, the corporation’s chief executive, said to hit this target would require £9000 to be cut from the average grant per unit of social housing. This saving would reduce the average grant per unit to £70,000 for 2007/8.

Dixon said: “Some of the £9000 that Jon talked about will have to come off land prices and developers’ profits. We are not going to get this from squeezing materials alone. The profitability of developers at the moment is probably higher than it needs to be. They would argue that they take risks but they can afford to make less. We will put in less grant per unit to achieve this – you’ve got to squeeze the whole lot.”

He said if the corporation was not “able to do deals with developers” then he doubted that the efficiency goal and the housebuilding target (of 67,000 in the two years) to April 2008 would be met.

He said: “I know they won’t want to take a profit hit but if the private market is slowing down then I think we are in a position to squeeze profit 2-10%. It will depend on the particular scheme.”

There was a cool reaction to Dixon’s proposal. One housebuilder said: “Naturally the corporation wants value for money, but if it wants to squeeze our profits then the private sector will just go off and invest somewhere else.”