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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Effective politics identifies problems and implements workable solutions. Good luck to the new UK Labour government, picking the country’s dysfunctional housing market as an early priority. Promises such as reinstated housing targets for local authorities and planning reform are steps in the right direction. Such tweaks, however, are not going to spur a private sector solution to Britain’s housing crisis.
A rally in housebuilding stocks was practically the only reaction the market had to mark last week’s passing of the baton to Labour after 14 years of Conservative rule. Higher interest rates, build cost inflation and a cost of living crisis all continue to weigh on the sector. Britain’s biggest builder Barratt confirmed on Wednesday that it built just 14,000 homes in the year to June, about 3,000 fewer than it managed in 2023. It expects to build even fewer over the next year. The supply of buildable land has little to do with it.
Builders have few incentives to increase output when the housing market is depressed. They will satisfy demand only at prices and levels that allow them to maintain margins. The latter are largely a function of the cost of land when acquired. As profit-driven enterprises, this is what they should be doing. The shares, barely off their cyclical trough, remain good value.
Consolidation in the sector will only make things worse if you are a policymaker — or better if you are an investor. Land banks become more concentrated. After Barratt’s successful pursuit of Redrow, Crest Nicholson said on Wednesday it is minded to recommend a merger with Bellway.
The elephant in the room that most builders are happy to ignore is the overinflated value of land. This is in part to blame for average house prices in England sitting at just over eight times annual earnings, twice their level in 1999.
Vistry’s Greg Fitzgerald this week pointed out the hard way forward: a reset of land prices. His suggestion to increase the share of truly affordable housing in the development mix is a good one. But more action would be needed, including rethinking the “hope value” rules around compulsory purchase and the compensation that farmers get for land.
All this would be necessary for Labour to push ahead with its idea for new towns, mooted before the election, at least if it is to increase affordable housing supply without a huge cost to the taxpayer.
The builders might lose out should house prices fall. But the sector looks solid enough: it is not obvious who else would build all those new homes even if Labour can make it happen.
