Housing Secretary Steve Reed – who sports a red baseball cap with the slogan ‘Build, Baby, Build’ – still appears to believe that the Government can fulfil its commitment to deliver 1.5m homes by 2029.
But Reed is possibly the only person in Britain who thinks that this key promise of providing 300,000 properties a year can be kept.
And this doubt is turning the spotlight on the outlook for housebuilder shares, which have been brought low by a decline in buyer demand and other factors such as the increased cost of labour and materials.
Will these stocks continue in this sorry state? Or will Chancellor Rachel Reeves – who likes to be seen in a hard hat – use her forthcoming Budget to kick-start development and make home-ownership more affordable? In which case, housebuilder shares could look like alluring bargains.
The pledge to overturn ingrained Nimbyism and allow more people to climb on to the housing ladder was central to Labour’s appeal to young voters.
As a result, Reeves is under pressure to introduce an updated version of Help to Buy, the controversial aid package covering new-build homes which was withdrawn in 2023.
Looking for answers: Will Rachel Reeves – who likes to be seen in a hard hat – use her forthcoming Budget to kick-start development and make home-ownership more affordable?
Housing insiders said Reeves’ speech this week carried hints that such a policy could be unveiled, alongside near-certain tax rises. Help to Buy, which encouraged housebuilders to get shovels into the ground, made its debut in 2013. About 40,000 homes were purchased each year using the scheme.
In the absence of such a concession, estate agency Savills estimates that only about 840,000 homes could be put up – 42 per cent fewer than the target.
Broker Berenberg predicts there will be a ‘multi-year recovery, albeit at a relatively modest pace’. But even they forecast that housing starts will only reach 190,000 in 2029. About 180,000 homes are likely to be built this year.
The Government may hope that loosening planning red tape will solve the problem.
But as Gary Channon, manager of the Aurora UK Alpha investment trust, points out, these reforms will not improve output for three years.
Channon says: ‘Some form of demand stimulation is needed not just to encourage buyers, but to give housebuilders the confidence to increase output beyond current plans.’
The threat of higher taxation in the Budget in 18 days’ time may be making you feel more cautious. But if you see the diversification of your portfolio as a safety measure in challenging times, housebuilder shares offer long-term opportunities.
A ‘son’ of Help to Buy would be good news on this front. Yet, even if this does not materialise, housebuilders should benefit from lower interest rates.
Here’s how to invest in the businesses that enable the British to achieve the dream of home ownership, and also pay some generous dividends to shareholders.
HOUSEBUILDERÂ SHARES GIVE WAY
Following last summer’s general election, it seemed – briefly – possible that the 1.5m goal could be met, despite a labour shortage, the bill for cladding remediation and much else.
This ebullient mood soon disappeared, and the FTSE 350 Household Goods and Construction index has subsequently tumbled by 32 per cent. This contains names such as Barratt Redrow, Bellway, Taylor Wimpey and Vistry.
Most housebuilders’ shares are trading at a discount of 20-30 per cent of ‘book value’ – that is, the price they paid for their land. In the past, they have traded at as much as twice book value.
Shares in Barratt Redrow, the industry’s largest player, are down by 20 per cent over the past six months.
This week, the company said it still hopes to complete between 17,200 and 17,800 homes this year, although bookings are slowing thanks to Budget tax-grab fears. Barratt Redrow has led the calls for a new-buyer incentive. But in the interim, the company is offering a loan product for customers trying to raise a deposit. Persimmon is making a similar offer.
Bellway is also seeking a first-time buyer concession. As Jason Honeyman, Bellway’s chief executive, has put it: ‘Not every young person has the benefit of the Bank of Mum and Dad.’
A HELPING HANDÂ ON TO THE LADDER
Reviving Help to Buy, in whatever form, would be hazardous for the Government.
The original scheme may have ensured that more homes were built, but there was a rumpus over the massive boost that Help to Buy gave to housebuilders’ profits, and to the pay of their bosses. Jeff Fairburn, the former chief executive of Persimmon, pocketed a £75m bonus, for example.
Oli Creasey, property analyst at Quilter Cheviot, acknowledges these issues – but highlights the damage that could be inflicted on the Government if the 1.5m homes policy fails. He says: ‘I wouldn’t be surprised to see some form of Help to Buy be brought back at some point in this government, and the sooner it comes, the bigger its impact will be.’
Creasey argues that the lack of an incentive clouds the outlook for housebuilder shares.
‘Things could change if the Budget contains a surprise,’ he adds. ‘But for now, the demand dynamics simply are not right.’
BUILDING BLOCKSÂ OF A PORTFOLIO
Housebuilders may face much the same array of challenges in whatever part of the country they operate. But analysts believe that some businesses have better prospects.
Analysts rate Barratt Redrow a ‘buy’ at the current price of 376p. The average price target is 512p.
Bellway is also considered a ‘buy’. This week Barclays raised its target price to 3410p, against the current 2634p. Persimmon shares, another ‘buy’, stand at 1200p. The average analysts’ target price is 1482p. There’s also the lure of the 5 per cent dividend yield.
Berkeley is considered a hold at 3916p, although analysts do see some upside for the shares, with a target price of 4385p.
Earlier this year, Crest Nicholson, beset by cladding and other problems, seemed unlikely to survive. Yet a turnaround is underway. The shares at 161.3p are still rated a ‘hold’ by most analysts, evidently on the basis that there are better bets in the sector.
Taylor Wimpey fell from the FTSE 100 in September due to a plunge in its shares. The price is down 28 per cent this year and by 41 per cent over the past decade to 102.75p.
But analysts expect Taylor Wimpey to outperform the sector. The average target price is 130p. The dividend yield is an appetising 8.8 per cent.
Vistry, an affordable housing specialist, is a ‘hold’ at 631.8p, probably because of the successive profit warnings that it issued in 2024 – and also because of its lack of a dividend. But Vistry could be better positioned than many of its peers to take advantage of any arrangement that makes housing more affordable.
The principal reason to put money into these shares is the conviction that home ownership remains the most cherished British dream. Politicians like to be seen in headgear suggesting that they could carry out other construction tasks. But this is a job for the professionals – the listed housebuilders.
I have a small stake in Aurora UK Alpha, which owns Barratt Redrow and Bellway because the UK has a housing shortage which must be solved.
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