A note of caution on the financial performance of the British housebuilding sector

In the context of concerns about excessive market power, this paper evaluates the financial performance Britain’s leading volume housebuilders using data on stock market returns as well as accounting-based financial performance metrics for the last two decades. Using descriptive analysis, the financial performance of the housebuilding sector is compared with 18 other sectors, and variation in financial performance among the seven largest listed housebuilding firms is analysed. The findings indicate that the average stock market returns and profits margins for the housebuilding sector have been relatively low compared to most other sectors. Firms in the housebuilding sector typically have more conservative balance sheets with low gearing and large cash holdings. Possibly the most distinctive feature of the housebuilding sector is the size of inventories. There has also been significant variation in stock market performance among individual housebuilding firms, with two companies delivering the majority of the sector’s returns. It is concluded that this variability may undermine the notion of significant market power within the sector, instead highlighting the importance of firm-specific factors in determining financial performance.