Cutting capacity to weather the housing slump
Monday, August 25, 2008
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There was a great example last week of how to cut fixed costs and capacity to meet a sudden decrease in demand…
HBOS (the parent company of Halifax Bank and Bank of Scotland) announced that it was closing 53 branches of its Halifax estate agency chain. At least 100 jobs will go and around 450 staff will have to be relocated to other roles in the group.
The reason is simple. Estate Agents rely on the number of housing transactions for their revenues. They take a percentage of the sale value of each house sale completion. If the number of transactions falls, then revenues fall. Worst still, if the value of house prices falls, then the commission per transaction falls too.
In the current housing market slump, estate agents are caught in the middle of a “perfect storm”:
- Falling transaction numbers: about 50% lower than 2007
- Falling house prices: down by around 10% on 2007, depending on which house price survey you believe
Figures for July 2008 suggest that each estate agency in the UK sold an average of justs 6 houses during July.
Lets say that the average price of those houses was £200,000 and the estate agency charged 2% (probably a bit high as an estimate). Then the total revenue per agency would be just £24,000 for month - well below the break-even output for all but the smallest agency.
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