A UK housebuilding recovery will not be built in a day

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The UK’s housing market is in thrall to everything from newts to pernickety councillors to affordability. A government white paper aims to do away with some of these blockages, bypassing councils to ease the planning process.

That is helpful but — especially given delays as local councils adapt — not on its own game changing. High mortgage rates, additional taxes and red tape have combined to take a wrecking ball to share prices in the sector.

Hopes of a resurgence under the Labour government, which has committed to 1.5mn new homes over five years, were demolished after the new administration’s first Budget in October. Among them, shares in Berkeley Group, among the biggest housebuilders, are down by a quarter since an election-sparked rally peaked in August. Crest Nicholson is down by a third over a similar period. Most are trading at around one times book, a level more commonly seen during more difficult times, such as the onset of the global pandemic and the financial crisis.

The bull case for buying housebuilders’ shares on the cheap hinges on the government’s building goal, which equates to 300,000 new homes a year. That’s getting on for half as much again as current annual levels. But too many caveats remain. 

On the regulatory front, nutrient neutrality, designed to stop new housing developments from adding to river pollution and threatening those newts, is one. Reforms to those rules proposed by the previous government, which would have allowed for 100,000 new homes, were kiboshed.

Building materials inflation may be abating, but developers were handed extra levies — including an extra corporate tax to fund remediation — following the fatal fire at Grenfell Tower in west London in 2017. 

Efforts to stimulate demand have produced mixed results. The Help to Buy equity loan scheme, introduced in 2013 in a bid to help those struggling to get on to the housing ladder and closed a decade later, proved flawed. Before it was restricted to first time buyers, nearly a fifth of those accessing the scheme were trading up.

On the plus side, mortgage demand is inching upwards as rates creep lower. House prices have also been rising in recent months on Halifax numbers.

England’s band of homebuilders are tentatively gearing up for a recovery. Berkeley, which builds one in 10 of London’s new homes, has bought its first new sites in more than two years. Taylor Wimpey expects to hit the top end of its guidance of 10,000 homes this year but — assuming all the right conditions are in place — could probably stretch annual capacity to 16,000-17,000.

But housebuilding is a chicken-and-egg business: no one amasses huge land banks, secures planning permission and staffs up for a boom until there is more certainty on demand. The same applies to the sector’s shares. Better times beckon, but not yet.

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