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As confirmed by the King’s speech last week, Rachel Reeves is leading a planning revolution.
The Chancellor aims to deliver no fewer than 1.5 million homes during this term of office to revive the economy and address the chronic housing shortage.
The Government has pledged to be a “builder, not a blocker” and its hugely ambitious policies should enable hundreds of thousands of young people to realise their dream of getting on the housing ladder.
But will these innovative measures mean bumper profits for Britain’s best-known property developers, making their shares an essential purchase for your portfolio?
Or will the reforms be blocked by a series of challenges, including legal action by locals determined to safeguard the identity of their town or village in the face of a new housing scheme?
Here’s what you need to know about the plans, obstacles, but also the opportunities that could allow you to make the most of a future construction boom.
Chancellor Rachel Reeves has unveiled ambitious plans to build 1.5 million new homes
THE PLANS
The reforms risk opening up a chasm of dissent.
Pro-development group Yimby (yes, in my backyard) is preparing to take on those who fear the desecration of our countryside.
Even those who don’t consider themselves Nimbys (not in my backyard) will fear that the policies will allow for further urban sprawl, producing scores of poorly built homes without roads, schools, doctor’s offices, and other services vital to a community.
As the law firm Michelmores points out, the government intends to make “full use of its powers of intervention” to promote its commitment to be “builders and not blockers”.
Local governments will once again be forced to meet mandatory housing targets and will only be able to determine “how, not whether” homes will be built.
Ideally, housing policies would turn Nimbys into Slimbys (a logical thing in my community), confident that new homes will be beautiful, durable, and surrounded by plenty of amenities.
But winning hearts and minds does not seem to be the government’s priority.
A particular apprehension surrounds the proposal to create a series of new cities.
The Cambridge area is seen as a likely location for one of these new 21st century cities which aim to have “well-designed housing, green spaces, reliable transport links and busy high streets”. The Government will also look to “quickly approve and deliver high-density housing on brownfield sites”.
But not all plots of this type – which have been developed in the past – are in city centres.
Knight Frank, the property consultancy that has identified potential sites in England, says 4,612 (or 41%) are within the stretch of the Green Belt that encircles London, most of them in the north-west of the city.
Equally controversial is the aim of designating lower quality areas of the green belt as “grey belts” suitable for development.
THE OBSTACLES
The spectre of failed housing policies of previous governments looms over Reeves’s revolution. As one expert put it: “In 1997, Tony Blair’s deputy prime minister, John Prescott, promised seven millennium communities as part of his planning revolution. They didn’t come true, did they?”
The Nimbys can be blamed for the lack of new housing, but other factors are hampering development and will continue to do so. Politicians can talk about building housing and like to be photographed in hard hats.
But the actual construction is being carried out by large developers who will only start work if clients have the necessary finance. Aneisha Beveridge, head of residential research at estate agents Hamptons, says: “Developers will only increase activity if they know there will be buyers who are willing and able to buy.
‘And so Labour’s housebuilding ambitions also depend on interest rate decisions.’
Buyers continue to struggle with high borrowing costs, although interest rates could fall later this summer. The average cost of a five-year fixed-rate mortgage is 4.97%, down from a peak of 6.11% in July 2023. But in July 2021, the typical rate was 2.51%.
Meanwhile, Help to Buy, the taxpayer-subsidised scheme run by the previous government, has been withdrawn, even though it helped those who could not rely on the Bank of Mum and Dad.
New developments like this one face obstacles such as the sclerotic planning system.
Typically, a housing developer sells the affordable part of a large project to a housing association. These non-profit entities are responsible for the provision of social and lower-priced housing.
But as Richard Donnell, research director at property portal Zoopla, explains, housing associations are struggling with cash flow.
The outdated planning system is also a hurdle for housebuilders. The government plans to recruit 300 new planning specialists, but they will not replace the 3,000 staff lost in these departments over the past decade. Only 20% of planning applications are already processed before the 13-week deadline. There is also a shortage of staff on building sites.
Donnell says: “If you’re going to build, you need labour, and Britain’s bricklayers and other skilled workers are ageing.”
There are 42,000 bricklayers in Britain, but at least 33,000 more need to be trained and recruited if Reeves is to meet his target of building 1.5 million homes over the next five years, or 300,000 a year.
THE OPPORTUNITIES
Being cautious about the impact the planning revolution will have on your location is no reason to reject actions that stand to benefit.
Reeves sees the revolution as a way to “unlock economic growth in our country” as construction activity boosts brick makers, furniture dealers and other businesses. It is estimated that for every pound spent on construction, about three pounds of value is created for the wider economy.
Leading fund managers are taking positions in companies that could be winners. Alan Dobbie of Rathbone UK Income is holding onto his position in homebuilder Taylor Wimpey because it has a “quality land bank” – a ready supply of land on which homes can be built. Dobbie also likes the company’s 6.5% dividend yield.
His other pick is Persimmon, which “focuses on more affordable homes for first-time buyers.”
Job Curtis of the City of London hedge fund is another fan of Taylor Wimpey and Persimmon.
If you own other housebuilders such as Barratt, Berkeley, MJ Gleeson or Vistry, prepare for increased takeover activity as companies compete for a slice of the construction boom.
You could oppose construction in your area and still benefit from economic opportunities.
As Dobbie points out, Bellway is close to buying Crest Nicholson, while Cala, Legal & General’s housebuilding arm, is also up for sale. If the houses are built, people will have to furnish them.
On this basis, if you own shares in furniture chain Dunelm, they are worth holding. But management are also diversifying into construction-related businesses. Curtis says: “We have stakes in Ibstock, the brick manufacturer, and Marshalls, the UK’s leading supplier of paving and roofing products.”
Ben Yearsley of Shore Financial Planning also favours suppliers, citing equipment rental group Ashtead, building materials business Travis Perkins and Forterra, another brickmaker.
Yearsley favours these measures because he suspects that, although Labour needs housebuilders for its revolution, it could still legislate to ensure they do not make windfall profits.
Giving in to that temptation would be counterproductive, but Reeves could come under pressure to fund other projects as there will be many obstacles on the road to 1.5 million homes.
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