Springfield: housing shortage ‘becoming more acute’

Elgin-based Springfield Properties, which is building a number of new communities throughout Scotland, has warned that the country’s undersupply of housing “is becoming more acute.”

Springfield said in a trading update for the six months ended November 30, 2023, its reservation rates in private housing remained stable but subdued.

“Demand compared with the prior year period continued to be impacted by high interest rates, mortgage affordability and reduced homebuyer confidence, resulting in lower completions and reservations,” said Springfield.

The firm said it is trading in line with management expectations and is on track to meet its debt reduction target.

“As noted in the group’s final results announcement of 20 September 2023, the board adopted a strategy focusing on reducing debt to be in a stronger position for when normalised market demand returns,” said the trading statement.

“A key element of this is the active pursuit of land sales to accelerate cash realisation from its large land bank and without impacting the group’s development pipeline.

“During the period, the group entered into two agreements for profitable sales of land for a total consideration of £9.3m, and is confident of signing other such agreements in the near term.  

The group continues to carefully manage working capital by commencing to build private homes when they are reserved and maintaining tight control over costs across the group.

“Build cost inflation has also continued to reduce as anticipated , and is expected to be c. 4% for H1 2024.

The group’s net bank debt was c. £94.0m as at 30 November 2023. This figure does not include the c. £8.8m of outstanding proceeds from contracted land sales to be received by the end of the financial year, with additional profitable sales expected in H2 2024.

“The group remains on track to meet its target of reducing net bank debt to c. £55.0m by 31 May 2024 (31 May 2023: £61.8m).

The increase in net bank debt over the six-month period primarily reflects £11.0m in scheduled deferred payments relating to the group’s acquisitions of Tulloch Homes and Mactaggart & Mickel Homes and £6.0m in contracted payments for land.

“It also reflects the usual working capital cycle, with work-in-progress at the end of the first half for delivery in the second half of the year.

The board also notes that the £18.0m additional term loan that the group secured in September 2023 to provide extra surety against the challenging market backdrop has not been utilised.”

In its outlook, Springfield said: “The fundamentals of the business and of the housing market in Scotland remain strong.

“There is an undersupply of housing across all tenures, which is becoming more acute – as evidenced by three local authorities, including Edinburgh and Glasgow Councils, recently declaring housing emergencies.

“The group offers high quality, energy efficient homes in popular locations across the country and it has an excellent track record of delivering developments exclusively dedicated to affordable housing.

“This is further supported by the group having one of the largest land banks in Scotland, with c. 6,500 owned plots and strategic options over a further 3,255 acres, equating to c. 33,000 plots as at 30 November 2023.

“This includes a strong landholding in the Highlands region, where new housing is recognised as a key infrastructure requirement to support the creation of the Inverness and Cromarty Firth Green Freeport, which is due to bring £3.0bn of investment and c. 10,000 new jobs into the region.

In addition, the decisive actions that the group has taken during the current year put it in a stronger position to deliver future growth as more favourable economic and trading conditions return.”