The new Labour government has been quick off the mark to announce big hopes for housebuilding in the UK. The simplest point of view is that it would be great if everybody in the UK had affordable and safe accommodation where they wanted to live and work. Housing economics mixes with politics, local sentiment and laws in such a manner that as the Scottish bard observed, ‘The best laid schemes o’ Mice an’ Men, Gang aft agley.”
Labour wants to raise annual housebuilding to around 300,000 units from recent levels of around 200,000 (though it is running lower than that currently because high mortgage rates are deterring buyers). To achieve this they plan a range of measures including restoring house-building targets for each local authority, speeding up planning decisions by hiring more planning officers, intervening to push forward large developments currently stalled or moving slowly and opening up some green belt land for building. Housebuilders could benefit if these changes allow them to expand and/or lower their costs.
However, the devil is in the details with planning regulations as with so much else. For example, Labour is also keen to capture more of the ‘planning gain’ when agricultural land is given planning permission. An acre of agricultural land is typically worth around £10,000 (without any ‘hope value’ for development) but can be worth £1-2 million with permission for residential development. One way to capture the difference would be compulsory purchases of land at low prices but this would be resented and challenged. There are reports that, instead, the government will push for developers to provide more ‘affordable housing ‘ and other ‘development gains’ such as infrastructure. In turn developers would have to negotiate lower prices for the land. But this is not new and tends to slow projects down.
Investors will likely be watching to see exactly what government measures are announced (with some expected soon), how vigorously they are pursued against NIMBY objections and also, how soon interest rates come down.
On a chart view, the top chart (weekly with 13/50-week moving averages and our momentum/trend ranking model) is the FTSE 350 Household Goods and Home Construction index. The index has bounced since the election and is up over 7% from the late June 2024 lows. The bounce is testing a medium to long term pivot area (flat blue line near 14,500) which when regained should put the spotlight on further gains to 20,000+ again. Holding above the 50-week moving average would keep the focus on further upside potential for investors.
The index has eight members, Taylor Wimpey (18.1% weight), Berkeley Group (16.6%), Barratt Developments (16.4%), Persimmon (15.7%), Vistry (13.6%), Bellway (10.6%, Redrow (6.5%) and Crest Nicholson (2.1%).
The Taylor Wimpey chart (below) shows a potential recovery play that puts the focus on gains towards the 180p horizontal line and then 200p (falling line). Breaking above the latter would be a big chart signal of sustained investor optimism for the share, if seen. Support for the share is at the 13/50-week moving averages and rising line support.
Berkeley Group (chart below) has a completely different look on the chart as the share ran into sellers in May 2024. See if the 50-week moving average can offer support ahead of rising line support. Big gains above 5,000p have run into sellers in the past with 5,360p/5,552p key highs to clear.
Barratt Developments (chart below) shows a share price that may well trend in a sideways manner for a while. There is some scope for a push above falling line resistance near 545p to set up 880p further out, but holding rising line support near 440p will be important.
The Persimmon share price (chart below) is interesting as a potential base from the October 2023 low is forming. The key word of course is ‘potential’. Sustained gains above the 1,530p area (purple line) would suggest that gains towards 2,135p would be in play further out. Holding the 50-week moving average on dips would be important for basing hopes.
Vistry is worth watching (chart below) as the share price is up over 40% year-to-date. See if dips hold above rising line support near 1,200p and the 50-week moving average. A turn above the 1,492p 2020 peak will set up 2,000p as a long-term target on a simple swing measure.
Bellway (chart below) is consolidating after a run higher from late 2022. Falling line resistance near 2,820p is important to clear to leave 3,775p (horizontal orange line) attracting further out.
Redrow (chart below) needs to hold rising line support near 650p or a tumble to 600p/500p may follow. The share price doubled from late 2022 to the recent May peak, but if buyers continue to step up a run towards 850p and then 1,000p and 1,100p could be seen further out.
Crest Nicholson (chart below) may rally to test the 300p/320p flat and falling lines on this rally. Breaking above these will be critical to set up a bigger rally back to 460p/520p further out.
John Calverley, Chief Economist and Gerry Celaya, Chief Strategist
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