Tesco continues land-grab with house-building plan

Tesco's going into property - and not everyone's pleased about its latest diversification plans.

Last Updated: 06 Nov 2012

Once upon a time it used to be just another place to get your groceries. Now Tesco has its own homeware offering, its own mobile phone network, its own high street bank, and soon, its own houses. Apparently, Britain’s biggest retailer is planning to develop four ‘mini-villages’ in the South East, along with ‘mixed-use living and leisure schemes’ (malls with flats?) in Ipswich and north-east England. Inevitably its plans have come under the cosh, with some critics demanding that competition authorities investigate Tesco's ‘tightening grip’ on the British economy. It does sometimes feel like Tesco is everywhere you look these days. But in an age where it’s increasingly difficult to get a foot on the property ladder, perhaps more affordable housing is a good thing? Every little helps, as someone once said...

Tesco’s plan is to build dozens of homes near its stores; it reckons this will create about 100 jobs, so good news for local people. As usual, its timing looks impeccable: the property market has started to look a little healthier of late, with house prices up about 10% on average since last April. Competition is also looking thinner on the ground: many homebuilders have struggled to borrow money from banks, forcing them to reduce the size of their planned developments or abandon them altogether. So maybe people will buy Tesco houses instead (we wonder how many Clubcard points you get for that? and will they do 3 for the price of 2?)

But the idea that Joe Public will soon be able to eat his Tesco-bought dinner, sat at his Tesco table in a home built by Spen Hill (the supermarket’s property development arm), paid for with - you guessed it - a Tesco mortgage, is rather too much for some critics to stomach. Some claimed that further expansion could lead to it becoming too powerful, with one pointing out that the retailer could end up with more information in its possession than the Government. ‘There’s a sense that they are using their market power to dominate aspects of the economy,’ Josh Ryan-Collins, from the New Economics Foundation think tank, told The Times. Strong words indeed.

Tesco's riposte is that it's a simple case of supply and demand: according to the Federation of Master Builders, fewer homes are being built now than at any time since 1946. And it’s not because we need fewer of them; it's because fewer people can afford them. And therein could lie Tesco's problem: even if the giant retailer builds these houses, will people buy them (however favourably they compare price-wise)? Of course Tesco does have the advantage of having its own bank, which could be crucial to the success of the scheme. But will it be prepared to lend the 80% or 90% mortgages that first-time buyers often need, and that other banks are so reluctant to offer?

Time will tell. But one thing's for sure: as Tesco eyes up yet another part of the value chain, its opponents won't appreciate this latest foray into a new field...

In today's bulletin:

Tesco continues land-grab with house-building plan
Companies get the jitters about potential hung parliament
Revenue squeezes an extra £13bn out of UK business
Employees still value CSR, despite recession
eBay joins virtual catwalk after model first quarter

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