These disappointing results are in part a consequence of government planning policy that deters developers from building on greenfield sites. Building homes on awkward brownfield sites is much more complicated than repeating house types across pristine countryside. These types of schemes also tend to suffer from planning delay, meaning housebuilders are hanging on to the land for longer.
Planners are also insisting that brownfield developments blend with the local vernacular, which means that housebuilders have to build more one-off homes. The more astute builders are designing standard housetypes that can incorporate different facades according to where they are built.
The added complexity of brownfield building means that managers are having difficulty screwing down costs. Prowting cited cost overruns as a major reason behind its disappointing results, as has Gleeson Homes, which is switching from refurbishment to simpler new-build projects because the costs are more predictable.
Crest Nicholson is building a number of large, complex schemes on brownfield land and as a result its production fell 12% last year. Cost overruns occurred on three sites last year and, in an attempt to keep these to a minimum, Crest Nicholson is now focusing on project management rather than construction, which it is leaving to the contractors.
Brownfield sites can be lucrative, though, if the housebuilder buys the right land and builds the right type of homes. Although Crest Nicholson's production fell last year, its pre-tax profit was higher because the average selling price had jumped from £167,400 in 2000 to £203,300, which boosted the operating margin from 13% to 15.6%. Ingress Park is an example of where Crest Nicholson has been able to add value to an unattractive brownfield site by building high-quality, distinctive homes.
There is still plenty of opportunity for housebuilders. The number of new homes being built is historically low, and this undersupply means that double-digit house price inflation will be around for a while yet. Bullish statements from Berkeley Homes and Persimmon before Christmas about their prospects prove that building within the government's planning constraints can be profitable.