Property shares negative on ramp in housing spend version two

Investors sold shares of housebuilders and some estate agents hard on Wednesday despite the announcement of one of the biggest spending packages aimed at boosting home building in decades.

The FTSE 100’s largest residential property names, Barratt Developments, Persimmon, Taylor Wimpey and Berkeley Group gathered at the bottom of the index soon after Chancellor of the Exchequer Philip Hammond’s speech. The latter part of it was dedicated to a raft of measures intended to stem Britain’s chronic shortage of ‘affordable’ homes.

Some of the highlights from our perspective are below:

• £44bn commitment to help the property industry build 300,000 homes a year from 2020
• 100% council tax on empty properties
• £630m for a so-called ‘small site fund’
• £1.5bn expressly to support small and medium-sized building firms
• £8bn of financial guarantees for private housebuilding and other measure

Big changes for smaller builders

Whilst the announcement of support for SME homebuilders might have been expected to lift the better-known names in that category, any benefit was fleeting and slight. Shares in Crest Nicholson, a £1.7bn developer based in Surrey, rose more than 1% whilst the Chancellor was detailing the housing measures, but the stock eventually traded barely 0.3% higher. Shares in Galliford Try, which has a £1.28bn market capitalisation, as well as a handful of rivals of similar size, turned red as investors pored over the details of the housing moves.

Not enough?

The share price reaction suggested scepticism that the announcements would be sufficient to stimulate the amount of new housing generally regarded as necessary. We can even read doubt that the stated measures will work at all. For one thing, a relaxation of stamp duty with a £300,000 house value threshold opened the Chancellor to immediate potential derision from anyone who has looked at average house prices in London and much of the South East. Regarding the centrepiece of the package, £44bn in capital funding to ensure 300,000 homes are built a year, the thumbs down from investors probably hinged on the horizon expected before that pace is reached—by the ‘mid 2020s’. The time line suggests less urgency than the homes shortage warrants.

Another review

Elsewhere, the Chancellor commissioned a former policy minister from the David Cameron government, Oliver Letwin, now a backbencher, to chair a review to speed up planning permission. That move is likely to be broadly welcomed by homebuilders, many of which have been lobbying for changes in planning and consent laws for years. However the lack of any comments addressing specific and even straight forward recommendations backed by larger developers eclipsed the mildly positive news about a review.

A let down for large developers

The government has thereby demonstrated that it is still wary of appearing to be too responsive to the established housing sector, a circumspect attitude that is perhaps understandable. Unfortunately though, the constricting effect of Britain’s consents regime on developers’ ability to meet demand is genuine enough. To be sure, developers would have the most to gain even if only tweaks were made. For instance, if on a case by case basis, a higher density of dwellings than standard became permissible in specific sites. On the other hand, such moves and more are exactly what are needed to raise the average number of dwellings from around 170,000 a year currently completed in the UK, to at least the 250,000 a year level widely regarded as minimum to address the shortage.

Missing the mark

Overall, whilst large and comprehensive, the Chancellor’s homebuilding measures have still managed to miss the mark from the point of view of both developers and the market. With shares of many residential property developers up this year in double-digit percentage amounts, their declines on Wednesday afternoon show a lack of new impetus as well as disappointment.