Britain is building but is it enough

The government last week published its well-worded press release on the UK housing market with Communities Secretary Eric Pickles confirming “Britain is building again”.

Britain is building but is it enough


Starts on new homes in 2013 were up 23% and at 122,590, were at the highest level since 2007. The government is claiming it has not only made headway to repair the ‘broken’ housing market inherited in 2010 but helped almost 58,000 households onto the housing ladder partly through Help to Buy and other shared ownership initiatives. And in the bad weather, no less.

Well done them.

But a closer look at the sector’s rising sentiment suggests a broader, more positive impact for UK investors and consumers in general, able to take advantage of opportunities in the housing sector.

John Baker, co-manager of the JPM £156m UK Dynamic Fund says he is retaining his overweight of 4% in UK housebuilders, which have responded well to the favourable environment with material gains seen in names such as Berkeley, Barratt Homes, Persimmon and Taylor Wimpey. He also notes the successful IPO of Crest Nicholson.

UK housebuilders are often seen as something of a bellwether of the state of the UK economy, but Julian Chillingworth, chief investment officer at Rathbones Unit Trust Management says it’s more accurate to view the sector as an indicator of consumer confidence, rather than economic strength.

While Chillingworth, who also runs the group’s £54m Blue Chip Income and Growth and £74m Recovery funds (as co-manager), admits he missed the nadir in the housing market and said the good names were now too expensive to enter, he has benefited indirectly by owning estate agents such as Savills.

Indirect benefits

He points to other ancillary sectors that will do well out of the rise in new homes being built as people put their existing homes on the market and then do DIY, fit new kitchens and the like.

Perhaps of equal importance to the housing stats are wage growth figures, with the VocaLink Take Home Pay Index showing real wage growth for FTSE 350 employees at its highest level for 18 months – but they are still significantly more than £120 worse off each month than in 2008.

So, many will feel rather more flush and Chillingworth suggests the feeling of having more money in our pockets will spur the recovery – with housing just one part of it.

Up, but from a low base

James Griffin, portfolio manager of the Fidelity MoneyBuilder Growth Fund also remains positive on the housebuilding sector.

“We have had a very benign backdrop for landbuying over recent years, as the lack of financing has limited competition. I believe this is likely to remain the case, and while the re-rating story is now largely played out, there is potential for margins to improve further and property prices to rise.

“My preferred stock in the sector is Taylor Wimpey. Although it has performed well over the past 12 months or so, it has lagged its peers and trades on an attractive valuation of 1.5 times book value. It has a sensible strategy focussed on margin improvement over volume growth and continues to take advantage of attractive prices to strengthen its strategic land bank.”

So, while the headline figures look promising, for investors, how long will they last it appears the divergence between supply and demand in the housing sector is not getting any better.

The higher demand is being met by greater supply, but behind the positive headline figures, are the wrong types of properties being built in the wrong places? Perhaps Help to Buy has created a false sense of affordability for first-time buyers and so risks inflating the housing market and leading to a housing bubble. Again.

But as a single woman in her mid-thirties on a decent salary, without access to the Bank of Mum and Dad, unable to get on London’s vast-reaching housing ladder, my view may be somewhat skewed. Sorry.


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