The Berkeley Group – Effects of the Macroeconomic Environment on Managerial Decisions

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“The biggest risk…is that Brexit reinforces structural problems in the housing market. If fewer people buy and sell properties, greater numbers of rich pensioners will end up staying in houses too big for them…in effect reducing the supply of housing for others. And if European workers are put off or prevented from coming to Britain, the country’s building capacity will shrink, making it even harder for the government to hit its target of building 250,000 homes a year.” (The Economist Newspaper Limited)

Also, being reliant on forward sales, and therefore requiring overseas and institutional investors, increases our exposure to global macroeconomic events. For instance, foreign direct investment in UK properties can be affected by events such as:

- movement in foreign currency exchange rates[12]

- easing of commodities prices and commodity economies

- slowing of growth in emerging markets

- changes in foreign government policy regarding overseas ownership

Lastly, global ‘mega-trends’ will have an impact on our business. Apart from the trend away from home ownership mentioned above, the ageing population will change the type of accommodation we need to produce to meet changing demands of our consumers. In the next decade we can expect our core customers to be millennials, with virtually all of them digital natives. With a move away from traditional working and labour requirements, we can expect to see dramatic shifts in requirements from housing as more people decentralise their working, become virtual employees or micro-entrepreneurs.

Conclusion

In summary, the Group can expect local and global macroeconomic activity and mega-trends to heavily impact both the mesoeconomic environment of volume housebuilders and also the microeconomic environment of our purchasers. Long term increases in housing unaffordability can be expected to increase governmental oversight and policy implementation that can have significant impacts on the business.

Further, as buy-to-let ownership reduces and long-term renting increases, changing trends in home ownership and dwelling usage will have a profound effect on the type of product we offer, and also the manner in which we finance our projects.

Lastly, as housing moves more towards ‘product’ rather than ‘necessity’ greater levels of price elasticity can be expected as convergence in the mass-housing market occurs, even in the London market that has traditionally provided greater margins than the rest of the UK market.

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Bibliography

Berkeley Group Holdings plc. Full Year Results Presentation Year ended 30th April 2016. Annual Report. London: Berkeley Group Holdings plc, 2016.

Castella, Tom de. Why can't the UK build 240,000 houses a year? 13 January 2015. 10 December 2016. .

Christensen, Clayton. Jobs to be Done. 2016. 29 November 2016. .

Europe Economics. How to Increase Competition, Diversity and Resilience in the Housebuilding Market? White Paper. Europe Economics. London: Europe Economics, 2014.

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FTI Consulting. Understanding supply constraints in the housing market - A report for Shelter. White Paper. London: FTI Consulting, 2012.

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Office For National Statistics. Overview of the UK population: February 2016. 26 February 2016. 10 December 2016. .

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Peace, Alexander. "Housebuilder shares following Great Britain's withdrawal from the EU." Estates Gazette 2 July 2016: 5.

Select Committee on Economic Affairs. "Building more homes." Report of Session. Select Committee on Economic Affairs, 2016.

Sidders, Jack. "2015 Estate Gazette Awards." Estates Gazette 12 December 2015: 3.

Spaulding, William C. "Supply-Demand Market Equilibrium." 2016. thisMatter.com. 7 December 2016. .

The Economist Newspaper Limited. Why house prices haven’t fallen since the Brexit vote. 10 December 2016. 10 December 2016. .

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