Why are senior executives of housebuilders and residential developers selling their shares? This is something I’ve been mulling over for the last few months – is this an early indicator of a bubble? Will there be another crash? Are we just jealous?
In the last 6 months Tony Pidgeley and Rob Perrins (Chairman and CEO, Berkeley Group) have cashed in £48m of shares, Dave Thomas (CEO, Barratt Homes) has banked £3.6m of shares, Peter Redfern has banked £1.5m of shares, and Jeff Fairburn (CEO, Persimmon Homes) at the top of the tree was in line for a bonus of £110m (£50m collected, with £60m to come) until somebody pointed out it was bloody mental and maybe there should have been a cap on it. Well a couple of resignations later and a guilt-ridden charity pledge, it’s still a rather large amount of cash.
When several of the largest housebuilders in the UK have their top exec’s selling vast amounts of shares, it is always going to raise a few eyebrows, especially after 2008.
The credit crunch, the financial crisis, the 2008 crash – whatever term you know it by, I’ll bet you remember where you were when it started unraveling. Housebuilding was hit particularly badly with several developers being bailed out by the banks, others having their share price reduced by 90% and a large number went into administration.
A good contact of mine who founded and ran a mid-sized housebuilder told me the story of when the call came in from the bank to tell him all loan facilities were over, and to make sure he didn’t go anywhere. He was on a beach in Brazil at the time, and it wasn’t long after returning that everything had to go including his cars, home and even his watches.
Another contact of mine told me how the PLC he was working at, shed nearly half of their staff in the following 6 months. I have also read hundreds of CV’s that involve some kind of career change around 2008, with some moving to renewable energy, some set up their own consultancies, and a large portion were forced to change industry entirely..
Clearly it was a devastating time for the industry and the professionals that were a part of that, and not something that we want to see repeating itself. With all the doom and gloom that surrounded it then, am I paranoid worrying about whether we are building up to another one? Possibly.
This brings to me to my original question – “Why are senior executives selling their shares?”. There could be several sensible reasons:
- They are cashing in on their hard work and reaping the reward from increasing the companies share price considerably, which has absolutely nothing to do with Help to Buy.
- Their long-term incentive programs are on a cycle and have now reached maturity, and are finally unlocked allowing them to purchase that holiday home in Verbier.
- The market is peaking and is due a correction and makes fiscal sense to sell at the moment – or so their wealth managers assure them.
- It’s 2008 all over again, get out while you can, clear the supermarket shelves of bread and water, and start retraining as a teacher (there is a shortage).
To understand which it might be we have to look at other market indicators.
The first indicator is there is still clearly a lack of houses/homes across the UK – this is undeniable, and that figure has risen over the last decade. The UK built 217,000 houses in the FY 2016/17 which is an increase of 15% from the prior year but is still some way off the figure of 260,000 (it varies on nearly every source) which is needed to “break even”.
Another big indicator for me is the lack of talent in the housebuilding industry. How can we hit the right levels of production, if we don’t have the skilled personnel to build said houses? There are a plethora of viable methods to lessen the burden on the traditional ways, but I won’t go into those now as this blog is already far longer than intended. A lack of talent means that developers can’t up their production accordingly which should mean on a simple supply and demand level, they are unlikely to crash or take a big dip.
There are still several government sponsored programs to encourage development and to help people on to the housing ladder (or to push up house prices, depending on who you talk to). Clearly these programmes are helping developers across the UK and are unlikely to be shelved soon, which should mean the profits keep rolling in.
With all that you’d probably think I’d be mad to suggest there is anything more to the share sales as a way to cash in their bonus for good work done!
But I’m cynical, and apart from a few boffins and bankers, the crash 10 years ago wasn’t exactly predicted, which brings me to think that the next crash will take a large portion of us by surprise.
What do you think? Is this the beginning of the end, or is there too much going for the industry at the moment?
Written by Anthony Kaye, Director – Alderpoint Partners
Anthony spent nearly 4 years at corporate search firm focusing on Residential Development before leaving to start a boutique search consultancy with an ex-colleague.