The Government makes me nervous about investing in housebuilders
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