How to play the housebuilding revival

Chancellor Philip Hammond placed the UK’s chronic housing shortage at the heart of today’s Autumn Budget.

He reiterated a pledge that prime minister Theresa May made to the younger generation a few weeks ago that she would dedicate her premiership to fixing the housing problem. Hammond’s Autumn Budget announcement set out an ambitious multi-faceted plan to do this:

Here are some of the key announcements:

  • £44 billion to support the housing market over the next five years.
  • Financial incentives to deliver 300,000 net additional homes a year on average by the mid-2020s – representing the biggest annual increase in housing supply since 1970.
  • £2.7 billion committed to the Housing Infrastructure Fund.
  • A £1.1 billion fund to unlock strategic sites, including new settlements and urban regeneration schemes.
  • A review to look at the gap between planning permissions and housing starts.
  • A further £10 billion for the Help to Buy scheme.

Hammond’s so-called ‘rabbit in the hat’ moment of this year’s Budget was the announcement that stamp duty will be abolished for first time buyers. This will apply to property purchases up to £300,000 and the first £300,000 for a purchase worth £500,000. It equates to a stamp duty cut for 95% of all first time buyers and no stamp duty at all for 80%.

“When we say we will revive the home-owning dream in Britain. We mean it,” Hammond claimed.

Looking beyond the headlines

The news immediately sparked a sell-off in the UK’s biggest housebuilders – Barratt, Persimmon, Taylor Wimpey and Berkeley – as investors grew concerned about the review into ‘land banking’. This refers to housebuilding firms obtaining planning permission for developments but then failing to begin work. The government will consult on whether there should be tougher consequences if planned homes are not built.

In spite of the initial sell-off, I think the measures announced in the Autumn Budget will ultimately benefit housebuilders. I suggest looking beyond the headlines about land banking because no business would intentionally tie up hundreds of millions of pounds of capital into something that is doing nothing. Housebuilders are currently forced to do this due to our protracted planning process. Anything which changes this is a positive.

You do have to factor in that housebuilders have had an incredibly strong run recently and are looking quite expensive now, particularly when the economy is arguably quite weak.

The removal of stamp duty for first time buyers (up to £300,000), the determination to make more land available for housing and speed up the planning process, as well as the commitment to build more houses could give the sector and those companies linked to it a further boost.

How to play the housebuilding revival

1. Woodford Equity Income: star fund manager Neil Woodford  has positions in housebuilders Taylor Wimpey and Barratt Developments. Meanwhile, the fund’s holding in online estate agent Purplebricks should benefit from the stamp duty exemption announced for first time buyers.

2. Franklin UK Mid Cap: this fund holds Bellway, as well as brickmaker Ibstock, which could benefit from increased housebuilding activity. Other positions include Howden Joinery and HomeServe, a heating installation company.

3. Jupiter UK Growth: manager Steve Davies holds Taylor Wimpey, as well as Zoopla and Howden Joinery.

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