Feature article:

UK housebuilders

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A decade of disappointment

• One of the key pledges of the incoming Labour government in 2024 was to build 1.5m new homes over the course of its expected five years in office. Given recent figures, it seems inconceivable that this target can be met – even the government itself now concedes that the chances of doing so are slim.
• At the macroeconomic level, the latest inflation figures are disappointing, with the current rate being above 3% per year, and expected to rise: it is sharply above the Bank of England’s target of 2%. As such, the next moves in interest rates are likely to be upwards.
• The correlation between higher interest rates and higher mortgage rates is long-established. Many potential buyers, especially first-time buyers, will be put off by rising interest rates – not a welcome message for the UK’s leading housebuilders. However, recently, the Government announced its Your First Home scheme, with an indicative minimum 2.5% deposit for first-time buyers, which has buoyed the sector in the past few days.
• In fact, the sector generally boasts strong finances; in many cases, there are healthy net cash balances. Such a scenario was perhaps encouraged by the near collapse of Taylor Wimpey – its shares fell to below 10p in November 2008. Sector caution remains an enduring priority, especially with respect to land-bank policy, despite rising house prices over the longer term.
• During the past decade, the housebuilding sector’s share price performance ‒ after a boom during the lead-up to the credit crunch ‒ has generally been dire. Of the leading three volume housebuilders, Barratt Redrow – the latter was acquired by the former in 2024 – has seen a 29% fall since 2016. The figures are equally unimpressive for both Persimmon and Taylor Wimpey – down by 27% and 42%, respectively.
• However, shares in the Berkeley Group, operating primarily in London and the South East, have bucked this depressing trend by performing resiliently – the shares are up by 14% compared with their 2016 rating. However, other smaller sector members, including Vistry, have struggled, while the share price fall in Crest Nicholson has been 86% over the decade.

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