- Prices rise to 12-month high
- Affordability still an issue
- Labour promising 1.5 million new homes
Shares in residential developers started the week on the front foot after the latest survey by building society Nationwide showed average house prices continuing to rise.
Investors were also looking to Thursday’s general election and the prospect of a Labour win with the party promising in its manifesto to build 1.5 million new homes during the next parliament.
Shares in Barratt Developments (BDEV) rose 7p or 1.5% to 479p while Taylor Wimpey (TW.) shares rose 2p or 1.4% to 144p.
PRICES RISING BUT ACTIVITY MUTED
House prices were ‘broadly stable’ in June according to the Nationwide, with the average price up 1.5% compared with a year ago and the average house valued at £266,000, the highest level for 12 months but still slightly below the market peak in the summer of 2022 before rising interest rates impacted sentiment.
Housing market activity has been broadly flat over the last year with the total number of transactions still around 15% below 2019 levels.
Deals involving mortgages are down nearly 25% on 2019 levels as buyers struggle with high mortgage rates, while the volume of cash transactions is actually slightly higher than it was pre-pandemic.
‘While earnings growth has been much stronger than house price growth in recent years, this hasn’t been enough to offset the impact of higher mortgage rates, which are still well above the record lows prevailing in 2021 in the wake of the pandemic’, observed Nationwide’s chief economist Robert Gardner.
‘As a result, housing affordability is still stretched. Today, a borrower earning the average UK income buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 37% of take-home pay - well above the long run average of 30%.’
LABOUR TO UNBLOCK THE MARKET?
Many in the housing sector are hoping a Labour win will mean an end to the lengthy planning procedure and the removal of barriers to building new homes and even new towns.
In June, the party unveiled its plan to bring back national and local housing targets – which were scrapped by the current government – and reform the planning system ‘in favour of sustainable development’ to deliver the equivalent of 300,000 new homes per year.
Tougher requirements on affordable housing numbers would also be mandated with the party promising to ‘deliver the biggest increase in social and affordable housebuilding in a generation’.
All of which is music to the ears of the developers – and by extension shareholders – as it means they can start to think about increasing their output once again.
