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Every homebuyer finds in time that property ownership is a chore as well as a pleasure. Investors in UK developers know it too. Despite hopes for action in this week’s spending review, in the form of more government support for local authorities to construct affordable housing, the industry still faces a slow build.
An investment in the four FTSE 100 homebuilders — Barratt Redrow, Berkeley Group, Taylor Wimpey and Persimmon — when the Labour party first talked of building 1.5mn new homes has so far delivered a return to shareholders of 35 per cent since, not including dividends. A bet made when Labour took power nine months later and could take action, has produced a 12 per cent loss.
Prime Minister Sir Keir Starmer’s October 2023 1.5mn pledge was always a moonshot, equating to 300,000 new builds for each year of the current parliament — a rate not managed in more than 50 years. In the 12 months to March, about 180,700 homes were constructed, according to property agent Savills, which this week predicted that on its current track, the government will fall short of its 2029 target by two-fifths.
In theory, developers are well situated. The government is pulling for them, and efforts are already under way to streamline planning processes. Snags such as the end of a stamp duty holiday in April, which created a buying flood then a drought, are behind them, while interest rates are coming down.
As for house prices, they are relatively stable, which helps ease buyers’ affordability concerns. Last month Nationwide’s home prices index recorded a 0.5 per cent rise while rival Halifax’s fell 0.4 per cent. FTSE 250 developer Bellway reported on Tuesday a 2 per cent rise in its estimated average selling price, but that was due to its product mix, not prices.
That fairly benign state explains the housebuilders’ valuations. At about 13 times forecast earnings, the FTSE 100 four are off their heady peaks of about 16 times in the wake of Starmer’s 2023 pledge, but above their 11 to 12 average of the past five years. It seems about right.
Yet while reports of cheaper government-backed financing, potentially alongside the spending review, are welcome, they will not help ease other existing constraints on skills and materials. Bricklaying apprenticeships are covering only about half the industry’s needs and bricks themselves are an issue too, driving Barratt Redrow, the largest of the UK foursome, to produce more homes with wooden frames to limit their use.
Politicians are as impatient as off-plan homebuyers to see the fruits of their investments. Developers, however, will only build what they are confident they can sell, and recent comments suggest caution as they wait for reforms to take effect. Should planning get easier, expect each to begin building on more sites — but only from late 2026, estimate analysts. Reality is still built one brick at a time.
jennifer.hughes@ft.com
