HOME SWEETENED HOME

A year ago the hot topic was the big prices housebuilders were paying for land. With contracting waiting its turn on death row, the homes division was the only place construction groups could look for a lively profit. A clumsy, but effective, strategy emerged: the world and his wife rushed out a rights issue, bought up sites and pumped up sales volumes. The result was not only higher sales and bigger profits. It was also a 20-50% hike in land prices that threatened to leave the earnings revival still-born.

In 1995, the threat to housing profits comes in a different guise.

New building regulations, effective from 1 July, could add œ200-œ1,000 to the cost of a new home. With house prices at best static, City brokers fear margins will bear the brunt.

If they are right, it is yet another blow for a struggling industry. Some housebuilders argue that the new regs have been pretty well-trailed, and so decent companies have already judiciously adjusted their cost plans, in particular, the prices they are paying for land.

After the spending stampede of last year, one is entitled to ask for evidence of such prudence before believing in it.

How healthy is the housing market anyway? After the crucial Easter holiday, in the new RICS survey, estate agents report a 10% rise in foot traffic. Hardly a massive boost on a dampened market. A bigger rise is reported on housebuilders' sites. But last year the talk was of price rises, this year it is simply attracting visitors and getting sales.

Ominously, there are reports that builders are once more resorting to discounting and incentives to shift stock. It would fit the data. Figures from the New Homes Marketing Board show new house sales increased their market share by a third in 1994 to 12.9% - their highest score for years. 'New homes at realistic prices are selling particularly well', notes the RICS. Does 'realistic' in the current market mean discounted? Again there are brokers who suspect it does.

At the fag end of last year, discounting became a significant worry as the majors pulled out the stops to hit sales targets for their accounting period (the trend was even cited by one firm as the reason it had slipped back into loss).

It will be bad news indeed if - at the peak of this year's selling season - housebuilders are again having to slash and sweeten. If it is happening on any scale, it surely presages the come-uppance of volume housebuilders for planning over-ambitious gains in their market share.

For now the jury is out. But it is clearly vital that housebuilders keep their nerve and hang on for the anticipated better second half.

That their margins are under renewed assault should merely serve to underpin their resolve.