The Chancellor of the Exchequer’s eagerly anticipated remedies for the housing sector left investors feeling jittery, as markets took his threats to compulsory purchase land not being used by builders, a practice he referred to as “land-banking” to heart.
“We are generating planning permissions at a record rate, much faster than we are generating homes,” he said.
“It’s house builders banking land, it’s speculators hoarding land, it’s local authorities blocking development. Let’s get to the bottom of it once and for all to report publicly on what is causing this gap.”
He also reiterated the government’s commitment to building 300,000 homes per year to help tackle the nation’s housing supply problem, contributed another £10bn to the Help to Buy Scheme and scrapped the stamp duty on property values below £300k for first time buyers.
“When we say we will revive the home-owning dream in Britain, we mean it,” he said before Parliament. “We do not underestimate the scale of the challenge, but today, we have made a substantial downpayment.”
Taylor Wimpey’s shares were trading 2.1% down at their lowest point, while Barratt Development’s slid nearly 3% lower to £6.15 per share and shares in The Berkeley Group sunk 2.6% to £36.56.
Persimmon’s shares, which derives 55% of its sales from the government’s Help to Buy Scheme, were similarly wobbly on the day, down as low as £26.10 per share at one point.
Leading up to the Budget, the investment industry has hotly debated the prospects of the major housebuilders, with naysayers worried about Brexit’s impact on the domestic sector.
However, Liontrust’s Stephen Bailey argued the housebuilders’ share price weakness in the immediate aftermath of Hammond’s speech “presents a good opportunity to buy into a very positive longer-term story.”
“We believe investors have overreacted to Philip Hammond’s announcement of a review into the practice of ‘land banking’ – housebuilders sitting on land where planning permission has been granted, without actually building new homes,” the co-manager on the Liontrust Macro Equity Income and Macro UK Growth funds said.
“While this practice does act as a friction in the property market, its prevalence has actually been on the decline. Land banks have levelled off over the last few years as housebuilders increasingly look to return excess capital to shareholders rather than allow it to be tied up in undeveloped sites.”
Instead, Bailey said he was focusing on Hammond’s promise of £44bn worth of additional investment and loans over the next five years and initiatives to assist first-time buyers climb onto the property ladder.
“This will benefit listed housebuilders which have significant non-prime exposures as well as building materials stocks such as Forterra, Ibstock and Marshalls,” said Bailey.
While Anthony Lynch, manager of the JP Morgan UK Equity Core Fund agreed that Hammond’s commitment to greater volumes will be a boon for materials suppliers, he was less certain whether the Chancellor’s agenda would tackle the greater problems plaguing the sector.
“While the £44bn of funding and loans remains largely ‘carrot’ for housebuilders, the Chancellor did raise the potential ‘stick’ of a review into land banking, highlighting the gap between planning approvals and new housing starts,” said Lynch.
“From our point of view we believe that any changes to incentive structures would be at the margins as house builders are clearly incentivised to build out volume on sites where the demand is there and indeed such a review could highlight to the government the labour skills shortage that is currently the main constraint on volume growth.”
