A little over a year ago now, a new government swept to power, setting ambitious claims targets for building new homes. Those of us with the shares in housebuilders like Persimmon (LSE: PSN) were paying close attention to statements like the UK building as many homes as we did in the 1960s. Some were drawing comparisons with the boom years of the 2010s where the shares in housing firms enjoyed a purple patch, Persimmon itself up 600% over the decade.
With that target of 1.5m homes to be built over the life of this government’s still ringing in the ears, how are the housebuilders getting on? How are these housing companies finding this new era?
Spoiler alert: not great.
Down and down
Rather than get a timely boost from a mandate to get Britain building again, the share price has actually been falling instead! While it’s hard not to feel a little displeased by Persimmon shares being down 23% since the election, the metric to keep an eye on here is planning applications.
These applications are a proxy for the number of homes that are going to be built. They’re more of a forward indicator than homes completed, which is a lagging indicator. Housebuilders put a lot of effort into not wasting time on unsuccessful applications that will get blocked by red tape or local objections, so it gives us a pretty good idea of how many homes will be built in the future.
So how are the numbers looking? In short, not good. Recent data shows the number of applications in the year since the election was around 216k against that government target of needing 500k. That number is down on the year before and the year before that too.
The reality is that, lofty target of doubling the number of houses built in the country aside, there are many factors working against housebuilders at the moment. A weak economy and low confidence among first-time buyers have both been cited. Throw in a few problems like higher wage costs and it’s looking like a tough time. Put simply, when costs are high, fewer applications are submitted.
On the plus side…
One large caveat to the above numbers is that reforms have only come in recently. The Planning and Infrastrcuture Bill, a piece of legislation Deputy PM Angela Rayner said would “unleash seismic reforms” to help “get shovels in the ground quicker”, was only introduced in March. We likely won’t know the true impact of its red-tape slashing promises for a year or two.
There are positives to Persimmon stock too. Persimmon trades at only 13 times earnings now and offers a market-beating 5.59% dividend yield. Interest rates are falling, albeit slower than was previously thought. Tariff talk is less relevant for such a UK-focused company. There’s even a chance stamp duty might be abolished in the near future.
Even taking all those plus points into account however, I’m less optimistic than I once was. I wouldn’t place Persimmon as one of my stocks to consider as we speak. As for whether Angela Rayner is going to save Persimmon shares or any other housebuilder? The jury is still out on that one, but the early signs aren’t encouraging to me.
