FTSE350: More of the same, but less of it for housebuilders

At the same time, the headwinds are gaining pace as house price inflation slows while input costs continue to rise. This doesn’t mean that margins and profits are about to take a hit, but it is more likely that positive progress will be at a more measured pace. Housebuilders appreciate this because no-one was happy with sharply appreciating prices because – the trend was unsustainable.

As ever, the health of the economy, consumer confidence and the outcome of Brexit negotiations will serve to influence demand for new houses. But at the bottom of everything there remains an indecent gap between supply and demand. We have lost count of the number of initiatives announced by the government to plug the gap, but so far there has been no meaningful increase in housing starts, and certainly not enough to meet demand. It’s difficult to identify a trend from just one month’s data, but in October there was an unseasonably large drop in site visits, while the use of sales incentives has risen to close on a five-year high. It could well be that people are less inclined to trudge around muddy building sites on the approach of winter and Christmas. So, how much has this trimmed off selling prices? The answer is nothing. House prices in 2017 rose by 2.5 per cent according to Nationwide and 4.5 per cent according to the Halifax.

However, it is a simple matter to go out tomorrow and buy a house; the problem is that most of the prices are out of the reach of ordinary people, especially first-time buyers. So the latest initiative to help them onto the first rung of the housing ladder – abolishing stamp duty on the first £300,000 – will only serve to help those in areas where prices are already out of reach. Buying a cheaper house for, say, £150,000 will represent a saving of just £500; not exactly a game changer.

Housebuilders build houses where they expect they will be the easiest to sell, and not always where they are needed most. This leads us to perhaps the biggest change in the year ahead, and that is build-to-rent. The Conservative government has been a keen advocate of home ownership, but the number of home owners is in decline. Younger people entering the property market are leaning more and more towards renting. The obvious advantages are mobility, freedom and affordability. In much of the country it is cheaper to buy a house than to rent it, whereas in property hot spots, where a lot of the jobs are, such as London, the opposite prevails. Build-to-rent is already starting to gain momentum, and while the government would like everybody to go out and buy a house, the reality is that they won’t or can’t. On that basis, build-to-rent is here to stay.

Building affordable homes in areas of high density, where land prices are relatively high, may not seem attractive, but there are areas where really affordable homes can be built, predominantly outside the south-east of England. MJ Gleeson (GLE), for example, builds new houses in the north of England with an average selling price of around £122,000, which means that two people paid the national minimum wage could afford to buy one. It’s also worth noting that even before the chancellor’s budget largesse houses at this price attract no stamp duty. The key to maintaining margins is solved by working with local authorities and buying unwanted patches of land inhabited by supermarket trollies and weeds. Plot costs here could be as low as around £11,000.

Local authorities and government bodies such as the Ministry of Defence are sitting on huge tracts of land, some of which sits cosily in urban areas. Releasing this at a realistic price would certainly see the major housebuilders take an interest.