Tackling London's housing crisis just helped this builder more than double profits

A passenger is squeezed up against a door in one of the few tube trains which became overcrowded during rush hour at Oxford Circus underground station in London February 5, 2014. Millions of commuters in London faced travel chaos on Wednesday on the first full day of a 48-hour tube strike by London Underground staff over planned job cuts and the closure of ticket offices.

REUTERS/Luke MacGregor

London is reaching capacity - we need more houses.

London-focused house builder Telford Homes has a pretty simple strategy - build normal houses in outer London areas where normal people can actually afford to live.

And that strategy is paying off handsomely. The builder released its half-year report on Wednesday, showing:

  • Revenue more than doubled from £65 million ($98 million) to £139.5 million ($210.3 million);
  • Pre-tax profit more than doubled from £9.4 million ($14.2 million) to £20.9 million ($31.5 million);
  • Margins "in excess of the Group's target levels."
The reason for the booming business? London's housing crisis. Telford CEO Jon Di-Stefano says in the update: "A fundamental lack of supply of homes in London is contributing to strong demand for our properties in non-prime locations."Advertisement

While activity at the top end of London's property market is slowing due to factors like an increase in Stamp Duty, London's sub-£1 million ($1.5 million) housing market - amazingly, what passes for affordable these days - is booming. This is where prices are rising fastest due to a chronic lack of supply.

That rocketing demand is why, despite rising sales and building costs, Telford is able to more than double revenues and profit from where it was a year ago.

Telford builds homes worth between £500 ($753) and £800 ($1,206) per square foot< ;and has seen booming demand in East London areas like Stratford, Whitechapel, and Limehouse.

Telford is also basing its 5-year growth strategy on the housing crisis, saying:

London still suffers from an acute shortage of homes compared to current need, let alone future population growth, and it is clear that any increase in supply needs to be in areas where tenants and owner-occupiers can actually afford to live. The imbalance between supply and demand in the Group's typical locations is the primary driver of the Board's plans to increase the number of homes that Telford Homes is building over the next few years.