Redrow saw profits drop by more than a fifth in the first half of its financial year, after the housebuilder built fewer inner-city flats.
The reduction in sales of expensive apartments and the launch of its budget Debut range saw the company's average selling price drop £13,600 to £163,100 for the six months to the end of December.
Redrow sold 150 flats in the period, compared with 446 in the first half of the previous financial year, which the company said had been unusually strong. But the effect will be less pronounced for the full year, with a target of 500 unit sales for the In the City range - most of which are already sold - compared with 667 in the previous year.
Across the group, sales fell by just 34 units to 2,077 as Redrow ramped up output of its core Signature homes division by 9 per cent.
Neil Fitzsimmons, the chief executive, said: "2005 was a tough and challenging year, with subdued transaction levels. And, yes, there was margin erosion."
He said the entire housebuilding industry would have to get used to working on lower margins, now that runaway house price inflation had ended. The operating margin for Redrow dropped to 17.4 per cent - which Mr Fitzsimmons described as a "more sustainable" level - compared with 19.9 per cent last time.
Group pre-tax profit was £53.4m, down from £68.3m for the period in 2004.
The company said the second half of its financial year had seen a more "encouraging" start and signalled its confidence with a 19 per cent rise in the half-year dividend. The first 9 weeks of the second half had seen sales rise 10 per cent, driven in part by an increase in the number of sales sites.
But the company said: "Despite government initiatives, the planning system continues to frustrate our industry and we expect our average number of outlets for the second half of the financial year to be slightly lower than previously anticipated. However, this should be mitigated by the increased rate of sale per outlet currently being achieved."
At the end of December, the forward order book stood at 4.5 months' sales of 1,816 units. Mr Fitzsimmons, said: "We will have to wait and see whether this start [to 2006] will be sustained. But we have positioned the business to deliver in more normal markets."
Redrow's Debut "affordable" range, with prices starting at £55,000, has delivered 105 completed sales, from its first two sites, at Rugby in Warwickshire and Chorley in Lancashire. Planning has been secured this year for three sites that will have 300 Debut homes.Reuse content