Construction workers on scaffolding

Fewer 'affordable' homes strategy may not be effective - Bovis

Bovis Homes Group Plc says a proposal to boost the supply of new homes in the UK by allowing builders to develop fewer ‘affordable’ homes may not be effective.

The construction of new homes is lagging well below rising demand as Britain's population surges, leading to pressure to find ways of boosting supply. A review of the housing market will reportedly urge the government this week to reduce the proportion of affordable homes required in housing developments, in a bid to encourage construction.

But Bovis, which reported a doubling in first-half profit on the back of strong demand across the industry, said such a proposal may not be effective, even if it makes individual properties more profitable.

"Being able to switch from social to private could increase the value generation from each of those houses, but it may take longer for us to develop through the site," Bovis Homes chief executive David Ritchie told reporters on Monday.

"If that was to come to fruition as a policy, one of the concerns would be, how are the banks going to support an increased level of private development?" Ritchie said. "In the short-term it could potentially be difficult ... to see volumes growing."

Bovis and its rivals are required under UK law to set aside a proportion of their schemes to be sold as affordable, cheaper homes. But a review by the chairman of venture capital group 3i will suggest this stipulation is relaxed, according to a report in the Financial Times.

Bovis and its rivals have enjoyed strong demand so far despite the UK's tough economic outlook, thanks to a shortage of available new homes in Britain and government efforts to spur the market.

Home buyers, however, have been hampered by lofty deposit requirements and stringent lending conditions, as banks seek to repair their balance sheets in the aftermath of the financial crisis.

"We need to see some fundamental details as to how the government are going to encourage banks to lend to an increased number of private purchasers," Ritchie said.

The company's profitability has also been boosted by a strategy to buy up development plots whose value had been depressed in the financial crisis, along with an increase in the number of its sales outlets and its focus on building in regions where house prices have stayed strong.

Bovis's profit before tax for the six months through June jumped to £16.2m from £8.1m in the same period in 2011. It doubled its interim dividend to 3p per share and said it expected continued strong growth through the rest of the year.

"As a result of a greater number of active sales outlets with an increasing proportion of new, more profitable sites, the group's profits will, subject to stable market conditions, continue to increase significantly in the second half of 2012, in line with the group's expectations," Ritchie said.

The company, whose revenue rose 27 per cent to £170.3m said the average sale price over the period rose to £164,000 from £163,400 and that it expects its average sale price for 2012 to be 6 per cent higher than that achieved in 2011.

Bovis shares were up 2.4 per cent at 505 pence by 1016 GMT, valuing the company at £660.7m. The stock rose as high as 511.6p, its highest since March.

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