Construction companies should know better than to build on sand. In their hurry to profit from Britain's recent housing boom, U.K. homebuilders were running up debt to finance the acquisition of land banks, fund new housing starts and snap up rivals. When the boom came to a halt last summer -- and finally turned to bust this spring -- some of the nation's biggest builders found their financial foundations exposed and rapidly crumbling.

Looking especially vulnerable is the U.K.'s largest homebuilder, Taylor Wimpey plc, which last week warned it was in danger of breaching banking covenants in 2009 because investors had shunned an emergency £500 million ($997 million) share placing. Created out of the £5 billion ($10 billion) merger of Taylor Woodrow plc and George Wimpey plc last summer, Taylor Wimpey has seen its stock fall more than 90% from its July 2007 peak. Barratt Developments plc, one of hardest-hit chips in the house-building sector, is trading at around 6% of last year's values.

At the other end of the scale, Berkeley Group plc, which announced results June 27, ended its fiscal year with just £4 million of debt. (It had more than £80 million of cash a year ago.)

Most builders are weaker than Berkeley but stronger than Taylor Wimpey. As many analysts see it the sector's shares may be oversold. But the chances of a fundamental recovery in the underlying house-building market are remote. Analysts talk of a slump of some 18 months.

Barratt has been particularly unlucky. There's a consensus that many of the Newcastle-upon-Tyne builder's problems date to the acquisition of its rival, Wilson Bowden plc, for £2.2 billion last spring. Barratt's debt at the end of June 2008 was forecast at £1.7 billion. Some of that amount was incurred to fund the Wilson Bowden purchase, although a portion of the original acquisition finance has now been paid down. The commercial developments arm of Wilson Bowden was put up for sale earlier this year for £250 million as Barratt strove to reduce its debts. But closing a sale would not be enough to drag the company out of the mire in the current market.

There was a general improvement in housing-sector stocks for a few days in late June, when Barratt was reported to have reached an agreement with its banks to waive a clause that would have put it in breach of its covenants after a land valuation write-down expected later this year. But Barratt and its peers have been sliding again since then. The market has not yet reached bottom.

The problem, for homebuilders in particular, is the credit crunch. An Englishman's home is his castle, as the saying goes. In crowded Britain, supply has long lagged behind the demand for new homes from would-be castle owners.

But if buyers cannot get credit, then the demand goes unfulfilled, even for the limited supply that is available. House sales are down by 60% since the credit squeeze intensified in March. If builders cannot sell their existing stock, they will not be able to pay down their operating debt and they will not begin to build more to meet that pent-up demand.

Some relief could come from the government, which last year promised to provide more affordable housing. But the administration's peculiar form of socialism with British characteristics (to paraphrase former Chinese leader Deng Xiaoping) seems to rest on the contradictory idea of a command economy run by market forces. The government has set ambitious targets for affordable housing but relies on the private sector to build it.

Planning permission to build luxury developments is often granted only on condition that builders agree to include a percentage of cheaper units. But if no builder applies, neither the rich nor the relatively poor get their new homes. An alternative scheme, whereby the government encourages construction through subsidies to housing charities and nonprofit organizations, has also slowed.

Some of the weakest players might wish they could be bought in a new outbreak of the M&A fever that put them into such debt in the first place. But for the moment, the chances of that are slim. even for those homebuilders whose shares appear to be bargains. Private equity buyers will struggle to raise debt, and without credit for house buyers, there will be no credit for homebuilders either. And the sector's foundations continue to shift and crack in the sand.