Quality housebuilding drives GDP, says Barratt CEO

In many ways the UK economy takes its cue from the housing market. Since houses are the most valuable asset most people will own in their lifetime, a rise in housing prices directly boosts consumer confidence and spending. And since mortgages are the single greatest source of household debt, a fall in prices could send the economy into a tailspin, as evidenced by the bursting of the U.S. subprime bubble in 2007.

With great economic impact comes great responsibility, which is partly why housebuilders are so often in the line of fire. Just last year in these very pages, Lord Deben, chair of the Committee on Climate Change, doubled down on his claims that housebuilders are “cheating the people they sell to” by not installing proper insulation. Two months later, Liberal Democrat leader Vince Cable called it “obscene” and “the worst excesses of corporate greed” that the CEO of a major housebuilder received a £100m-plus bonus.

Yet some in the housebuilding business feel quite strongly about their firms being the exception to this often negative portrayal of the industry as a whole. This is exactly the view of David Thomas, CEO of the UK’s largest housebuilder, Barratt Developments, which was just awarded a maximum five-star customer satisfaction rating for its tenth consecutive year. No other major housebuilder comes close to that track record and it’s something Barratt is obviously proud of.

“Our approach is that we've got to put ourselves in the position of the customer,” Thomas says. “And I think that a decade as a five-star housebuilder just goes to show that we’re really focused in terms of that delivery.”

The House meets Thomas in surprisingly modest offices for a FTSE 100 company. Thomas, who has built an eclectic career hopscotching from industries like restaurants and hotels to shipping and video games, is himself a modest man, motivated more by his firm and its priorities than by his own accomplishments.

“This is a business of some scale,” he says. “But what I say to our management team is that although we’re a big business, we’ve got to behave like a small business and focus on each employee and each customer.”

Thomas joined Barratt in 2009 as Finance Director, tasked with restructuring the firm and reviving a balance sheet that had taken a beating from the 2007-8 financial crisis. He became chief executive in 2015, determined to master the complexities of the industry.

“When you look at housing from a headline level, the idea is: buy land, get planning, build houses, sell houses,” Thomas says. “It seems on the face to be a really simple industry, but the reality is when you look underneath the surface, it’s hugely complicated.”

Regulation is a big part of this complexity. At the planning level alone there are regulations covering everything from noise and privacy to tree conservation. “And of course we also have crucial areas to focus on like health and safety where we have a responsibility to make sure we’re constantly improving,” Thomas says. Barratt is taking that responsibility seriously and is part of the government’s Early Adopters Group, established to test the implementation of recommendations from the Hackitt Review, which was set up after the Grenfell tragedy.

In fact, Thomas seems very clear about the responsibility Barratt holds to lead the industry on a whole range of issues, not least in its approach to tackling climate change and promoting biodiversity. “Our industry has a huge impact on communities around the country and a responsibility to look ahead at what that means for future generations,” he says. “And it’s a huge driver of GDP. There’s a massive GDP stimulus coming from housebuilding estimated at around £40 billion.”

Much of this stimulus is attributed to what economists call the “economic multiplier effect,” when a single injection into the economy (e.g. a new house) eventually leads to a bigger increase in total national income. In a recent report titled “The Economic Footprint of House Building in England and Wales,” Lichfields and the Home Builders Federation cite research showing an economic multiplier of 1.78 for construction jobs, meaning a single construction job supports the creation of 0.78 jobs elsewhere. Other studies have suggested that homeownership itself has a multiplier effect, since buying a house often leads to new spending on things like furniture, appliances, and landscaping. “The economic multiplier effect of housebuilding is huge,” Thomas says. “That’s the reason why it has been a key driver for government policy.”

Housebuilding is also predominantly homegrown, which is another reason why it has such a big impact on GDP - as the industry grows, it’s mainly Britons who prosper. “It’s an industry that benefits UK towns in terms of GDP and in terms of employment,” Thomas says. “Although there will be some materials imported from overseas, it’s largely a UK industry.”

Largely, but not entirely. According to Jordan Marshall of Building, an industry magazine, “we’ve all got Brexit jitters, but few have them worse than those in the industry who rely on materials coming in from Europe.” Thomas is upfront about Barratt’s reliance on imports. He says that about 10% of the materials Barratt uses are directly imported from Europe or elsewhere, and about 30% are either in this category or assembled using parts from Europe. But while he has concerns about Brexit, particularly the uncertainty around what he calls “quite protracted discussions,” he’s hardly suffering from the jitters.

“If there’s any change in tariffs or if there’s any change in the efficiency of the importation process, that will impact the industry,” Thomas says calmly. “There’s also the whole area of skills. Currently a percentage of the workforce are not UK passport holders, which in a post-Brexit environment may become more challenging for an industry already suffering from a skills shortage.” Thomas says that’s one of the reasons Barratt is investing in modern methods of construction. By next year the company aims to have 20% of homes built with an element of off-site construction in them.

Whatever Brexit throws at the industry, Thomas will continue to train Barratt’s sights on its number one priority: quality. The word is all over the company’s website, with one page proclaiming “we’re obsessed with quality.” But it’s not just a marketing ploy. Thomas says Barratt inspects each house on a stage-by-stage basis in close cooperation with the National House Building Council (NHBC), a warranty and insurance provider that requires builders to adhere to strict standards and technical requirements. “It’s really important that we stay very, very focused on quality and that we try to get it right the first time,” he says. If the firm’s track record with customer satisfaction is any indicator, it will.

To mark their tenth year in a row receiving a five-star customer satisfaction rating, Barratt Developments are announcing a major new £500,000 three-year partnership with homelessness charity St Mungo’s to improve the lives of people experiencing homelessness.

*This Interview originally appeared in the House Magazine.