Capital structure and resilience – The case of the UK Residential Real Estate Developers

Despite several attempts, the UK’s residential development market is in a persistent crisis characterised by undersupply for housing and rising house prices. Market consolidation over the past two decades has reduced competition, reinforced market entry barriers, and contributed to higher housing prices and fewer affordable options. This study examines the financial positions of the UK’s largest housebuilders (n = 75) that combined have a market share exceeding 50%. By looking at data from 2004 to 2023 we are testing for the Pecking Order Theory and Trade-Off Theory. In doing so, we apply panel regression to investigate the relationships between growth, firm size, asset tangibility, profitability, non-debt tax shields, and effective tax rate with short-term debt, long-term debt, total debt, and shareholders’ funds. We find that smaller and high-growth firms more frequently use debt financing to minimize costs while larger firms more often use equity financing. Tangible assets are positively associated with long-term debt and equity, while profitability is negatively associated with short-term debt and significant non-debt tax shields are negatively associated with debt levels. We conclude that the capital structure practices of UK housebuilders mostly align with the Pecking Order Theory. However, the models' moderate explanatory power suggests other factors at play which need future research focus.