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Social housing’s biggest builder L&Q closes all construction sites

The social housing sector’s biggest builder L&Q is closing all its construction sites and halting all capital expenditure in response to the country’s coronavirus outbreak.

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L&Q is closing all its construction sites in response to the UK’s #coronavirus outbreak #ukhousing

L&Q will close developments under construction and send workers home after today, as a result of the #coronavirus crisis #ukhousing

It comes as another major association, Sovereign, told Social Housing that it is pausing all new build activity, while the country’s largest association, Clarion, expects the sites run by its contractors to be closed by the end of the week.

L&Q, the London-based housing association that owns and manages more than 110,000 homes across the country, has confirmed that it is closing developments and sending workers home after today.

It said it is also stopping all discretionary spend and delaying capital expenditure plans.

The move comes after some of the UK’s volume house builders set out plans to close sites, including Taylor Wimpey, Barratt and Bovis Homes – the latter of which also includes its partnerships business Vistry.

Another, Redrow, told the markets it is keeping its sites open for now.

In a statement to the financial markets, L&Q said: “We have found that social distancing on construction sites is extremely difficult to achieve.

“Added to this in London, our construction workers are heavy users of the public transport network.

“L&Q wants to be part of the effort to maintain the safety of our transport network for critical key workers, and we also want to be part of the national campaign to halt the spread of the virus.

“Therefore, in the interest of customer and employee safety, we have today taken the difficult decision to close down all of our construction sites. This decision will be reviewed in three weeks, and in the meantime we’ll be making all our sites safe and secure as quickly as possible.”

In his public address last night, prime minister Boris Johnson set out extreme measures in an effort to reduce the spread of coronavirus, and said only essential businesses and services should stay open.

However, there was uncertainty as to whether construction sites should close, with the majority of house builders appearing to remain open today.

Housing secretary Robert Jenrick followed up on social media, saying advice for the housing, construction and building maintenance industries is to work from home where possible.

But he stopped short of site closures, saying: “If you are working on site, you can continue to do so. But follow Public Health England guidance on social distancing.”


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L&Q is the sector’s biggest developer, according to Inside Housing’s Biggest Builders survey. It completed more than 2,800 homes in 2018/19.

It almost trebled its development starts to 6,500 in the 2019 financial year.

L&Q has set out plans to deliver 100,000 homes over 10 years and has previously that a third of the target will be delivered by L&Q’s own development function, another third will be contracted out, and the final third will be delivered via joint ventures.

But it has needed to refocus its investment strategy on fire safety and existing properties in recent years following the Grenfell Tower tragedy in 2017.


It said in the statement today that it “does not underestimate the impact on people’s jobs and incomes, and this decision has been taken after very careful consideration”.

“We will do everything we can to support people through this period,” it added.

The group is also urgently discussing the implications of this decision with the government, the mayor of London and other key stakeholders.

It added: “While this unprecedented situation calls for tough short-term adjustments, our longer-term commitment to working with partners and building the homes people need remains undiminished.”

 

Financial impact

 

L&Q said it is “too early to speculate about the full extent of the ongoing crisis on L&Q’s future financial performance [and] we have planned for an inevitable material impact on trading performance and cash flows”.

It said the group continues to have “a well capitalised balance sheet and a strong liquidity position”.

But it added: "In order to conserve cash and increase our flexibility, we are taking measures to tightly manage our working capital and capital expenditure and have taken the decision to stop all discretionary spend and delay capital expenditure plans."

The group added that it is expecting to face weeks or months of uncertainty, including periods of inactivity and disruption to income streams and therefore its ability to generate cash.

Ongoing disruption could also impact its unaudited financial reporting timetable to the markets.

Slowing investment in new build

 

L&Q revised its surplus after tax projection for the 2019/20 financial year from £250m to £270m to “in the range of £200m to £220m”, after adding £70m to its annual maintenance budget.


That had already led to a decision to pause activity on new developments and to “reappraise existing commitments”, as set out in a trading update in November 2019.

Waqar Ahmed, group finance director at L&Q, told Social Housing on 16 March that in dealing with the impact of coronavirus, “any additional financial resources will be deployed as and when needed”.


But he said the resources are not expected to be material, and that the organisation is therefore still in line with the forecasts reported in the last trading results.

 

Sovereign pauses development

Sovereign – which operates across the South of England – is committed to delivering 1,900 new homes a year by 2022, and has previously said 90 per cent of new build will be of an affordable tenure.

Tom Titherington, executive director of development and commercial at Sovereign, said that in light of the current social and emerging financial crisis due to the coronavirus outbreak, the group has paused all its new development activity while it “takes stock of both the situation and the potential impact on our business plan”.

“We will remain active, but will be reappraising the form and nature of projects. We have let our partners and contractors know we’ve made this call and they have appreciated the clarity and certainty we’ve been able to give them.”


He said that the “ultimate decision whether to close a site rests with our development partners or our contractors”.

“We’re seeing a mixed picture across our sites at the moment, but our expectation is that these will close over the next few days.”

Mr Titherington added: “We have a really strong development programme and pipeline, as well as a solid financial position, and believe this puts us in a strong position to continue to develop new homes whatever the future scenario.


“No matter how difficult things are in the short to medium-term, things will return to a form of normality.

“In that context we are aware of the cash flow implications for contractors across the supply chain and we will want to support our partners as best we can through this challenging period.”

Clarion expects sites to close by end of week

Clarion Housing Group - which owns and manages 125,000 homes across the country - said it expects the sites run by its contractors to close this week. Clarion typically delivers its new homes through section 106 agreements, thereby relying on builders and contractors.

Richard Cook, group development director at Clarion Housing Group, said the provider’s first priority is to protect all staff working on construction sites, who have so far "all been told to avoid public transport and adhere to the social distancing advice from government".

"Most of our sites were open on the 24 March, in line with the advice from the Secretary of State.

 

"However, we use external contractors to build our homes and a number of our partners are now taking the decision to close sites, which we support .

"We expect the majority of our sites to be closed by the end of the week and will of course move more quickly if the advice from government changes.”

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