Springfield Properties announced today that it has put all long-term fixed price affordable housing contracts on hold and temporarily suspended its expansion into the private rental sector (PRS) due to concerns about market conditions and the Scottish Government’s future rent freeze policy.
The listed homebuilder announced otherwise upbeat year-end results for the group and said it had made the “pragmatic decision to temporarily halt the writing of new large long-term affordable deals to protect its margins.”
In the year under review, the Group achieved the highest income ever from affordable housing. The number of affordable housing completions rose by 11.6% to 405 (2021: 363). The average selling price increased to £159,000 (2021: £146,000) due to a change in the housing mix. However, affordable housing sales and margins have been impacted by price inflation.
This was partly due to key subcontractors going out of business resulting in the group having to find replacement subcontractors, causing some delays and higher costs. The margin suffered in particular from the delivery of two large, long-term contracts signed in early 2020 and was therefore based on expectations of lower material and labor costs.
Springfield added that the longer-term fundamentals for affordable housing “remain strong” and the group expects to sign contracts again “when more normal market conditions return” following the Scottish Government’s next benchmark review of affordable housing investment to reflect expected inflation to take place in November 2022.
“As a result of the actions taken in the area of affordable housing, the group is well positioned when the market normalises,” she added.
Notwithstanding contract fulfillment at Bertha Park, the group’s strategy to expand its PRS operations with Sigma is currently on hold due to emergency legislation being introduced in Scotland, as announced earlier this month, to target tenants by freezing rents and imposing a moratorium to protect about evictions until at least March 31, 2023.
Springfield said it recognized that this was “a temporary measure to support families affected by fuel poverty this winter,” adding that the group “remains expecting the delivery of PRS homes to last longer.” provides a viable source of income”.
The builder added: “While this does not affect the group’s existing agreement to deliver 75 PRS homes, any decisions on expanding this activity will await until the political environment is clearer.”
The announcements come as Springfield Properties announced its final results for the year ended May 31, 2022, reporting for the first time record sales and profits and the delivery of more than 1,000 homes in a year.
For the year ended 31 May 2022 Springfield increased sales by 19% to £257.1m (2021: £216.7m) and profit before tax by 10% to £19.7m (2021: 17 £.9).
The 1,242 completions were a new record for the company. 712 private homes were completed during the year, reflecting the Tulloch Homes acquisition and organic growth, according to Springfield. In terms of affordable housing, 405 properties were completed as the group delivered against its highest-ever backlog. In contract housing, where Springfield provides development services for private third-party organizations, 125 apartments have been completed.
Innes Smith, Chief Executive Officer of Springfield Properties, commented: “This year we achieved our highest annual profit and sales yet with strong results in private, affordable and contract housing. I am pleased with how we have managed the material and supply chain pressures our industry is facing, so while not being immune, we have been able to mitigate much of the impact.
“In line with our strategy, we have significantly expanded our business with the acquisition of Tulloch Homes and post-period Scottish homebuilder Mactaggart & Mickel – two quality homebuilders with properties in strategic areas. We have also reached a milestone with the delivery of our first apartment for private rental.”
He added: “We entered fiscal 2023 with a strong private housing backlog, reflecting continued demand for the type of housing we offer and the expansion of our business. We have excellent visibility into private sales forecasts for the full year based on delivered, shipped and reserved homes.
“While the challenging economic environment will affect our affordable and PRS housing activities in the near term while we await decisions from the Scottish Government, we are on track to deliver another year of overall sales and profit growth. In addition, housing market fundamentals in Scotland remain strong, with strong demand for housing across all ownership levels coupled with a nationwide shortage of housing. As a result, the Board continues to look to the future with confidence and to create sustainable value for all of our stakeholders.”