Shortage Of Property Supply Will Continue To Boost Barratt Developments Plc, Persimmon plc And Bovis Homes Group plc

Barratt Developments plc (LON: BDEV), Persimmon plc (LON: PSN) and Bovis Homes Group plc (LON: BVS) should continue to build on their recent success, says Harvey Jones

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

It is customary for the UK house prices to see a seasonal summer slowdown, but there was little sign of that in the current overheated property market.

Prices leapt 3% between June and August, Halifax reports, and says the lack of a seasonal slowdown points towards strong autumn sales as well. An excess of demand oversupply is the main reason, and while that is bad news for first-time buyers, it is yet more good news for housebuilders.

Shortage of property supply spell busy times ahead for Barratt Developments (LSE: BDEV), Persimmon (LSE: PSN) and Bovis Homes Group (LSE: BVS). All three companies have thrashed the FTSE 100 this year. While the index fell 8%, Barratt leapt 72%, Persimmon grew 56% and Bovis grew 30%. Over five years the FTSE 100 returned 13% but these three builders soared 278%, 423% and 177% respectively.

The supply/demand equation is balanced firmly in favour of housebuilders. The truth is they can’t build homes fast enough. But is this favourable mathematics sustainable? Three factors could hit demand over the next few years.

1. Rates Will Rise

Record low mortgage rates have also helped to turbo-charge demand but they won’t stay low forever. At some point the Bank of England may finally act, and that will hit buyer sentiment. Yet the fateful day is regularly postponed, and even if rates do gradually rise, they will remain extremely low by historical measures.

2. Affordability Is Stretched

In 1995, the average earner spent between 3.2 times and 4.4 times their salary on a house, depending on where they lived, according to figures from The Guardian. By 2012-13, the last year for which complete data is available, that had soared to between 6.1 times and 12.2 times regional incomes. And prices have only shot up since then. Yet other figures suggest that once you take into account cheap finance, property remains historically affordable.

3. Buy-to-let Tax Crackdown

The buy-to-let market continues to boom as amateur landlords drive prices higher. Buy-to-let mortgage numbers soared 39% to 25,200 in the year to July, and 14% on June. The only cloud is Chancellor George Osborne’s forthcoming tax crackdown, which will gradually phase out higher rate tax relief from 2017. This could cost small-scale amateur landlords up to £2,000 per property a year, although larger investors can get round it by setting up a limited company. Buy-to-let should still battle on.

The Supply Side

These three factors will take some of the heat out of the housing market, and there are early signs of cooling in red hot prime central London, due to sky-high prices and costlier stamp duty at the top end. But even if UK demand does dip, supply shortages will continue to rage.

Just 125,110 homes were built in England in the year to March, but we need at least double that number. The National Housing Federation says there is now a shortfall of 500,000 homes. Cuts to housing associations budgets will only worsen the new-build shortfall. There aren’t enough trained bricklayers, carpenters and joiners to build them, as a quarter of a million quit the industry after the financial crisis. Barratt, which builds more than 14,000 houses a year, says the sluggish planning system is an even bigger obstacle. 

The supply/demand equation will continue to deliver the same answer: Britain needs to keep building. This suggests the sums will continue to add up for Barrett, Persimmon and Bovis Homes Group.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

These FTSE 100 stocks are making a joke of the S&P 500 — but I’m eyeing more ‘rational’ options

Many FTSE 100 stocks are soaring ahead of their S&P 500 rivals in 2025 but Mark Hartley’s looking for some…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

The Nvidia share price hit an all-time high this week. But could it still be a bargain?

The Nvidia share price has soared 1,466% in just five years. This writer reckons the best may yet be to…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How much does someone need to invest to target a second income of £15k – or £150k?

A second income from dividend shares? It's a well-worn path -- and this writer sees some attractions to the approach.…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could the stock market crash in the second half of 2025?

As the FTSE 100 hits a new high, could a stock market crash be coming? Our writer thinks there's a…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

Start investing this summer with a spare £250? Here’s how!

Christopher Ruane explains how an investor with a few hundred pounds to spare and no prior experience could look to…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Is Palantir stock the new Nvidia? Why UK investors should (or shouldn’t) care

Palantir stock’s the top performer on the S&P 500 this year. Should UK investors consider it amid a blistering AI-fuelled…

Read more »

Investing Articles

3 FTSE 100 shares I think look undervalued

The FTSE 100 may be hitting record highs but there are still bargains to be had on the index. I…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how to target £841 of passive income each month

Passive income plans don't need to be complicated. Our writer explains how someone could target a sizeable second income buying…

Read more »