This week saw new UK Chancellor Phillip Hammond deliver his first budget, or Autumn statement anyway. This may not have been the most exciting on record – they rarely are – but it did contain some reassuring nuggets of good humour and nonetheless impacted the share prices of an area of the stock market that clients love to trade – anything and everything that is property related.

First of all was a pledge to build more affordable houses. This is good news for the likes of housebuilders Barratt Developments (BDEV), Taylor Wimpey (TW), Persimmon (PSN), Redrow (RDW), Bovis (BVS), Berkeley Group (BKG) and Bellway (BWY).

There simply isn’t enough supply of affordable housing in the UK (especially down South) and so any efforts to correct this, knowing full well that it will never solve the problem entirely, offers the builders a chance to build more, and thus sell more at what are still high prices. Good news for profits and thus share prices and shareholders. So why are the shares down? Quite simply, all that Brexit uncertainty and house price growth beginning to cool as a result.

Still within residential property, in another attempt to ease the UK’s housing problem, the Chancellor had a pop at the rental sector. A shortage of properties means rents are high and banning administration fees (initial tenancy, contract renewal, etc) is designed to put an end to easy profits which inflate yields for landlords and estate agents managing their properties, especially in the key London market. This move is almost certain to hit everyone’s margins, making owning and renting out properties less desirable. This meant the likes of Foxtons (FOXT) and Countrywide (CWD) took a knock on Weds/Thurs, not helped by a Brexit-inspired profits warnings from the latter.

In terms of the army of individual landlords and buy-to letters out there, the Chancellor’s aim is to making buying to rent less desirable, encouraging investors to regard the potential rental yield as less attractive and to thus sell down their portfolio and deploy the funds elsewhere. The stock market? Housebuilder shares instead? This would hopefully result in more properties being put up for sale, preventing prices from rising and bringing home ownership that little bit closer.

However, a few problems for ‘spreadsheet Phil’ the diligent as he’s known in Whitehall;

1. The UK is an island, whose property market is biased towards the south meaning a resolution of the housing shortage will likely take generations. In which time it could also merely get worse, keeping prices and rents high.
2. With a UK interest rate hike likely still a way off due to Brexit, any increase in financing costs is probably not an issue meaning rental yields, even without admin fees, would remain attractive enough for landlords to keep hold of their many houses and flats. Property investments tend to be long-term (quasi-pensions for many) in which case the Brexit time-line may not even impact some investors thin.
3. If people can’t buy, they have to rent. If landlords want to keep yields high they can always put rents up, which would only make the situation on that side of the market even worse. Probably not what Mr Hammond wants to do.
4. Unless enough landlords are encouraged to sell their investment properties, and estate agents are flooded with sale requests that prices fall enough for renters to be able to buy, all this will do is reduce the number of available rental properties, thus keeping rents high. Again surely not what our man Phil really wants.

The sector is a favourite among clients and it’s understandable why with so many investors so actively involved. This is why we ask if the Chancellor really is focused on helping aspiring homeowners or investors? Whether he and the government is (or isn’t) is by-the-by. What’s for certain, however, is that related share prices will continue to move as a result or pledges for this that and the other as well as consumer confidence towards property.

This is why we cover Housebuilder and Estate Agent shares to highlight trading opportunities when they arise, as well as keeping clients abreast of news impacting the property sector. Why not join them and get access to our research now, helping you build on and profit your existing knowledge, thus boosting your returns.

Have a nice weekend!

Mike van Dulken, Head of Research, 25 Nov