Shareholders are pocketing billions in dividends – and it's making UK's housing crisis worse

Our household incomes are being eroded by a pervasive but largely invisible force. We call this ‘maximising shareholder value’ – and it stems from companies making excessive profits by charging customers more and more for their products and services. This is motivated by a desire to return as much money to shareholders as possible, or to ‘maximise’ the value of their share.

The drive to push-up profits and dividend payments affects the cost of life’s necessities, and we are seeing this in goods and services such housing, water, energy and transport to name but a few. This is wreaking havoc on people’s incomes and standard of living.

In the recent BBC Two documentary, Britain’s Housing Crisis: What Went Wrong?, we provided an example of how this is happening in our housing market, through the activity of our largest housebuilding firms. In the documentary we presented findings from ten years’ worth of research into these companies and their finances. Our most recent research has revealed that between 2005-2022, the biggest eight housebuilders in the UK made a phenomenal £49 billion in profits before tax, from which they paid their shareholders £16.4 billion.

To get some context here, we can compare this with the only significant government programme that funds the development of affordable housing in England (often called the AHP). Between 2016-21 the government allocated £9 billion from the AHP to develop 170,000 affordable homes. Over this same period, the dividends paid by the eight largest housebuilders to their shareholders – which are mainly international investment funds, insurance companies or asset management businesses – was a staggering £11 billion.

Let’s take a minute to process this. Payments to shareholders from just eight companies trumped the spending power of our whole government on new affordable homes. How can this be justified?

Creating new housing is expensive. One of the reasons that our housing crisis is so difficult to solve is that the money required to build new housing is so large. If it costs £150,000 to build a home (just in terms of land, labour and material costs) a few billion does not get you very far in addressing the scale of need we have for decent, affordable homes. The amount of government grants for each new affordable home is increasing, but this has the potential to reduce the total number that can be built. Aside from hugely expanding government expenditure, what can be done?

In the search for new resources to build affordable homes, we might turn to the excess profits of housebuilders, or as they define it, their ‘surplus capital’. This could be put to much more productive use to create many more affordable homes – and in turn mitigate levels of homelessness, housing need and entrenched poverty.

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Let’s imagine that the government requires housebuilding firms of a certain size to sign a Builder’s Social Contract. This contract states that over and above a specific level, their profits will be subject to a ‘public return’ to support the development of new affordable homes, such is the state of the crisis in our housing market. Since housebuilders are benefitting from excess demand, may be aided by reforms to the planning system, and would get a boost from reinvestment in the construction of affordable homes, the proposal for a public return seems a reasonable request.

The contract states that the equivalent of 15 per cent of all profits before tax will be paid into a fund for new affordable homes. If this measure had been implemented between 2010-22, it would have generated £6.3 billion, or enough to develop 100,000-plus additional affordable homes. There are no real losers here because most large shareholders do not impart new capital into housebuilding firms for new housebuilding, and so it does not hinder development capacity. Shareholders would still get a dividend return that far exceeds what they were getting before the financial crisis. SME housebuilders, excluded from these contract requirements, would be given a competitive edge, and a major signal would be provided to housing associations to gear-up for new development.

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Capturing a share of excessive profits should be seen as our entitlement. Programmes such as Help to Buy – which were underwritten by us the taxpayer – played a major role in creating the levels of housebuilder profit seen in the last 10 years. Securing public benefit from this is a legitimate claim.

If we needed a final reminder of how important this is, consider the home buyer who purchased a home from a big housebuilder in 2022. They paid, on average, £22,000 extra on the purchase price of their new home just so shareholders could receive inflation-busting returns. It’s time to return some of that value for the hundreds of thousands of people who really need it.

Tom Archer is a senior research fellow at the Centre for Regional Economic and Social
Research (CRESR) at Sheffield Hallam University. Ian Cole is emeritus professor of housing studies at CRESR at Sheffield Hallam University. Their report ‘The Invisible Hand that Keeps on Taking’ can be read here

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