The extraordinary levels of executive pay and the vast profits amassed by Britain’s most successful housebuilder are laid bare in a Finance Uncovered investigation published in the Guardian today.
As a handful of key executives at Berkeley Group set in motion a hugely lucrative share incentive scheme worth hundreds of millions of pounds, we show how the company – London’s most important developer – routinely reduced its affordable housing obligations on dozens of schemes.
Berkeley is arguably one of the biggest beneficiaries of a decade-long surge in London prices, that has been fuelled by low interest rates, a shortage of supply, government Help to Buy subsidies and overseas investors.
In fact, many of the luxury towers that populate the banks of the Thames in central London were developed by Berkeley.
Amid an escalating housing crisis, we show that Berkeley successfully persuaded local authorities to reduce its affordable housing targets on almost every development it builds.
Our financial investigation has analysed Berkeley luxury developments including one for 71 homes in Westminster on land it bought from the Metropolitan Police which we estimate secured profits in excess of £200m profit for the company without a single affordable home built on site.
“Housebuilders are making indefensible executive profits while home-buyers struggle with high housing costs,” Labour’s shadowing housing minister, John Healey told Finance Uncovered.
Trawling stock exchange announcements, company accounts, local authority planning reports and freedom of information disclosures, our investigation shows:
- The founder of Berkeley, Tony Pidgley’s salary, benefits and bonus package (£29m) and Berkeley share sales (£145m) have totalled £174m in the ten years to 2018. This does not include the dividends Pidgley received from his Berkeley shares.
- On top of the £174m Pidgley has made from share sales, benefits and pay awards over the last ten years, the Berkeley chairman owns 4,446,995 shares worth £162m at last Friday’s stock market close.
- In total top bosses at Berkeley have been given 16,430,117 of shares by the company since 2008, which if unsold would today have a value of £599m.
- Just six executives at Berkeley Group – including Pidgley – are set to receive £127m in share awards over the next five years.
- Berkeley has amassed pre-tax profits of £4bn over the past decade – a period that takes in the financial crisis.
- Excluding developments where planning consents were gained by a previous owner and its student accommodation projects, in 93% of 57 London developments, Berkeley companies argued that building the local authority affordable housing target was unviable.
In one example, Land Registry data indicates Berkeley Group sold 71-homes in its Ebury Square development in Belgravia, central London, for a total of £358m.
The company told Westminster council that as the development was refurbishing an existing building that contained 60 units, only 11 additional homes would be generated. This meant that under Westminster planning rules, Berkeley was only obliged to build one affordable home. But instead of building it on site, Berkeley made a payment to the council of £1.6m towards low cost housing elsewhere in the borough.
Freedom of information disclosures show that Berkeley bought the Ebury Square site – a former police section house – from the Metropolitan Police for just £23.6m in 2009. The profit on this single development is thought to be in excess of £200m.
At Kew Bridge in west London, Hounslow council accepted Berkeley could build a fifth of a 308-unit scheme as affordable. This was half the local authority’s affordable target.
Building those units, Berkeley stated in a planning agreement, would mean the scheme would be £24.6m in deficit.
Berkeley told Hounslow that house sales at the scheme would generate £132m. The company agreed to make an additional payment to Hounslow capped at £8.3m in the event of the scheme performing well. Land Registry data suggest the scheme generated close to £250m with one apartment going for £4.55m.
Affordable housing targets set by councils are based on local demand and supply, the costs of housing locally and local wages. The targets are usually expressed as a percentage of new housing supply. The targets are not legally binding, and if a developer can demonstrate through a site-specific financial viability test that the target makes a development unviable, then the requirement can be reduced or waived. The test usually allows for a developer to make a gross profit margin of 20%.
A spokesman for Berkeley said: “Berkeley has a sustainable, successful business model that enables it to perform well throughout the economic cycle, as demonstrated by its results of recent years and creation of fantastic new communities and long term value. We are justly proud of our track record in building 10% of London’s much-needed private and affordable homes. Last year alone, Berkeley contributed more than £400m of subsidy for affordable housing and wider community and infrastructure projects, which has helped us be recognised as London and the South-east’s leading place-maker.”
The company’s remuneration policy was approved by 97% of shareholders on its introduction in February 2017, and includes caps that reduce potential awards to key executives by 50%.
Profits through the roof
Berkeley’s central London focus means its return on investment is by some way the best compared with its rivals in the quoted housebuilding sector.
But Britain’s top quoted builders have all racked up huge profits since 2011. Our research shows the top nine quoted builders collectively have amassed a staggering £16.9bn in pre-tax profits since the beginning of this decade. Just last year, nine of Britain’s biggest builders’ profits topped £4.56bn.
Such profits set against the UK’s housing crisis have prompted anger among social housing campaigners.
Defend Council Housing chair, Eileen Short said: “They plead poverty to literally line their own pockets, at the expense of the homes we need. It’s a vicious cycle which leaves the rest of us stuck paying extortionate rents to private landlords, and among the four million people on council housing waiting lists or in temporary unfit homes.”
Builders’ off-the-scale profits are in part down to generous support provided by the government that was intended to prevent a house market crash in the wake of the bank crisis.
The Help To Buy programme has seen £9.7bn injected into the British housing market through a mixture of mortgage guarantees and equity loans into new build with a further £10bn committed through to 2021.
But a Berkeley spokesman said: “Sales utilising Help to Buy are a very small part of Berkeley’s sales.”
Healey said Labour will introduce tougher obligations on housebuilders to build a larger number of affordable homes “as a condition of any new Help to Buy funding”.
Written by Nick Mathiason and George Turner
Picture: Tony Pidgley by David Levene for the Guardian