The Gov­ern­ment makes me ner­vous about in­vest­ing in house­builders

The Daily Telegraph - Your Money - - YOUR MONEY - Richard Dyson PER­SONAL FI­NANCE JOUR­NAL­IST OF THE YEAR

House­builders have been great win­ners for investors in the post-cri­sis years. If you held shares in any of Bri­tain’s big listed builders – which in­clude Redrow, Tay­lor Wim­pey, Gal­li­ford Try, Berke­ley, Crest Ni­chol­son, Bo­vis, Bar­ratt and Per­sim­mon – you would have at least dou­bled your money over the past five years.

In some cases your shares would have tre­bled in value. And there would have been div­i­dends on top.

Even if you didn’t own the shares them­selves, there is a great prob­a­bil­ity that if you in­vest your Isa or pen­sion money in a pop­u­lar fund that, in turn, owns Lon­don­listed shares, you prob­a­bly have some ex­po­sure to house­builders and have ben­e­fited.

The ride has been good – but it’s been volatile. House­builders’ shares might have rock­eted, but they are pre­car­i­ous enough to trem­ble at any of many per­ceived threats.

Brexit was one such per­ceived threat. In the wake of June 23 the sec­tor was one of the worst hit in the mar­ket, as doom-laden views of crash­ing con­sumer con­fi­dence and ris­ing job­less­ness caused shares to be dumped.

We still don’t know what Brexit will mean: what we do know now, but what the mar­ket could not see at the time through its fog of fear, is that the ref­er­en­dum re­sult in it­self didn’t in­stantly stop peo­ple from want­ing to own the roof over their heads. Most of the builders men­tioned above have re­gained their pre-ref­er­en­dum val­ues and many have lifted far be­yond.

Other vul­ner­a­bil­i­ties are more clearly prob­lem­atic. And they tend to clus­ter around gov­ern­ment pol­icy and ad­di­tional forms of mar­ket in­ter­ven­tion, all of which are sub­ject to change at lit­tle no­tice and many of which have far-reaching, of­ten un­in­tended, con­se­quences.

An abrupt with­drawal of Help to Buy, the con­tro­ver­sial scheme to in­crease hous­ing af­ford­abil­ity launched in 2013, is one ex­am­ple. The cur­rent Help to Buy ar­range­ments are due to run un­til 2021. Given that some house­builders sell as many as half their prop­er­ties in con­junc­tion with the scheme, a cliff-edge with­drawal could hurt.

Af­ter a ru­mour that the scheme would be jet­ti­soned af­ter 2021, which sent house­builders’ shares into sharp re­verse, the Depart­ment for Com­mu­ni­ties & Lo­cal Gov­ern­ment was quick to say that no news on the sub­ject was not at all the same as say­ing the scheme would come to an end: the Lon­don School of Eco­nomics is now un­der­tak­ing an in­de­pen­dent as­sess­ment of the scheme.

I’m not sup­port­ive of Help to Buy, but it is a great ex­am­ple of the dan­gers of in­ter­ven­tion: once some­thing has been un­leashed, there are yet more dan­gers to be ne­go­ti­ated in rein­ing it back in. Help to Buy is merely the start. Changes to in­come tax and stamp duty, rushed through pre­vi­ous par­lia­ments un­con­sulted upon and ill-con­sid­ered, have wreaked their own carnage in the hous­ing mar­ket – and will doubt­less do yet more. We can­not yet see how much stamp duty is in­hibit­ing down­siz­ing by older own­ers, for ex­am­ple, al­though re­duced trans­ac­tions across the piece paint a stark pic­ture of its neg­a­tive ef­fects. Plan­ning con­straints are an­other story – an­other cat­a­logue of sto­ries.

Mort­gage reg­u­la­tion, too, is an ad­di­tional form of in­ter­ven­tion that af­fects house­builders and the wider mar­ket. Help to Buy was, in part, a pol­icy an­swer to the bank­ing reg­u­la­tory in­ter­ven­tion that killed off loans to those with small de­posits. I have some sym­pa­thy with re­cent calls for mort­gages of 100pc or near-100pc to be rein­tro­duced, pro­vided that bor­row­ers can af­ford re­pay­ments and un­der­stand the risks, but reg­u­la­tion all but for­bids them.

Many house­builders are well man­aged, at­trac­tive busi­nesses. But they are at sea in a mael­strom of pol­i­tics and in­ter­ven­tion.

Going up, but for how long? Most investors have ben­e­fited from ex­po­sure to house­builders’ shares

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