With the exception of Berkeley Homes which he counts as a "special case" (see feature, left), Mr Stewart has removed buy recommendations from every builder. Barratt, Bovis and Persimmon have been downgraded from buy to sell; Bellway, Redrow and Taylor Wimpey from buy to hold.
The reason? The combined impact of the and looming unemployment, which will dent buyer confidence. Coupled with a tough mortgage market, one housebuilding chief complains the combined effect is "sucking the life out of the industry".
Mr Stewart was also spooked by Bellway's comments at last Tuesday's results that the housing market has deteriorated markedly in recent weeks. He expects the next round of trading statements from the builders to "continue the flow of negative news" with the result that land prices will fall further, and structurally weaken balance sheets in the process.
For this reason, Investec has calculated "inferred net asset value" figures for all the builders, revaluing their land banks at what Investec considers "open market value" to reflect the risk that land values will collapse. "We believe that several housebuilders could be forced to make new waves of writedowns, when their view was that not only was the writedown cycle over, but that writebacks were now on the cards," he says.
Savills research into the residential land market shows polarisation is occurring. Smaller, "oven-ready" sites in affluent areas of the south-east are being chased by multiple purchasers, and prices for these have soared. But, overall, the volume of land transactions has slumped, and the market is very thin in the regions, where prices remain depressed. This is evidenced by housebuilders being offered "land for free" by certain local authorities to make development viable.
In Investec's inferred NAV test, Redrow scores the highest (Mr Stewart rates the current NAV of 140p as being on a par with inferred NAV). Barratt scores the lowest (with inferred NAV of 114p; this is 45 per cent lower than its last reported NAV of 208p).
His advice? Longer-term investors should use any price weakness to accumulate shares in Berkeley, Bellway and Redrow which he believes will emerge from the slowdown "in stronger shape".
But they may have a while to wait. Planning changes and the scrapping of housebuilding targets by the current administration are also casting a long shadow on the land market. This week, Scottish builder Cala Homes went to the High Court to challenge the government's decision to scrap targets, arguing it is unlawful because it requires primary legislation, and no alternative arrangements are in place.
The case centres around a development of 2,000 homes in Winchester, for which Cala has been refused planning permission. A public inquiry is due to begin in February, but Cala argues that an appeal will be pointless if there is no planning policy to judge it on. Nor is Cala the only builder to be caught in this loop; the National Housing Federation estimates that the development of 85,000 homes have been shelved as a result.
At the other end of the supply pipeline, housing analyst Robin Hardy of KBC Peel Hunt says his biggest concern is the winding down of the subsidy, which lends first-time buyers deposits on selected new-build homes. Research by the journal Social Housing shows private housebuilders secured £412m of shared equity funding in 2009-10, with some of the largest developers completing a quarter of sales using such products. This subsidy will not be repeated.
Of course, the housebuilders also offer their own shared equity products, but typically they can only afford to lend 10 per cent of purchase prices, and Mr Hardy notes that mortgage lenders are increasingly nervous about such schemes. "If you take a shared equity deal from a housebuilder, you're forced to pay the asking price," he points out. "Mortgage lenders are being asked to lend against what they consider to be fulsome valuations, rather than true market values."
What investors are left with is a conundrum - we may be heading for a housing shortage, yet few can afford to buy a house, and it looks like fewer builders will be able to afford to construct them.
