Another day, another housebuilding company reporting sparkling trading – in this case, Crest Nicholson Holdings PLC (LON:CRST).
The company announced a strong first-half performance, with sales per outlet week (SPOW) in the six months to the end of April running at 0.69, up from 0.46 in the same period of last year.
Revenue in the period shot up by around a third to £324.5mln from £240mln a year earlier, leading to a return to profitability, with a profit before tax of £36.3mln versus a loss in the same period 12 months earlier of £51.2mln.
The shares have risen 3.5% to 445.6p, dragging sector peers higher along with them, with Berkeley Group Holdings PLC (LON:BKG), up 2.0% at 4,724p, the pick of the bunch.
Robust market expected to last beyond the end of the stamp duty holiday period
There is little secret to why the housebuilders are doing so well.
Or more specifically, the stamp duty “holiday”, where homebuyers will not need to pay duty on the first £500,000 of a property’s purchase price.
This bung to homebuyers/voters runs (in England & NorthernIreland) until the end of this month, at which point the £500,000 freebie is reduced to the £250,000 level until the end of September, at which point it will go back to its pre-pandemic level of £125,000.
“Based on demand for homes which will complete after the 30 September 2021 stamp duty deadline, we are confident that the housing market will remain robust, and this transition can be managed smoothly,” Crest Nicholson said today.
They probably have a good reason for that confidence. For many Brits, their house is a useful addition to their pension plan; for some homeowners, it is their pension plan.
Woe betide any government (of any political hue) that attempts to attack the British voter’s nest egg, especially in the normally true-blue constituency of Chesham and Amersham.
It’s not true to say there are no votes in policies that deflate house prices because there are hundreds of thousands – possibly millions – of people trying to get on the property ladder who would like to see prices come down to affordable levels but a substantial proportion of those are young, and history shows that young voters are less likely to vote than pensioners.
Two decades ago, the average working family needed to save for three years to afford a deposit, whereas today the period of scrimping and saving has increased to a mind-boggling 19 years, according to the Resolution Foundation, which keeps track of house prices over successive generations.
Overegging the housing market
One could argue, however, that the government did not need to go quite as far as it has to boost the housing market as it has. Even policies, such as “Help to Buy”, that were meant to make it easier for first-time buyers to acquire a dwelling have just ended up inflating house prices, by some estimates by as much as 10%. Meanwhile, successive changes to legislation have encouraged the buy-to-let market to boom, pushing up prices further.
According to the English Housing Survey covering 2018-19, there were 495,000 dwellings in the UK classified as second homes, up from 279,500 10 years earlier.
The survey also found that 80% of those with a second home were aged 45 or over, up from 71% 10 years earlier. The survey revealed 8% of those with a second home had more than one additional home, although this was down on 9% in 2008-09. Some 27% of those who have a second home are retired.
The Ministry of Housing, Communities & Local Government survey reported that 10% of second homes are rented, compared to just 6% in 2008-09.
With the increasing popularity of Airbnb and the trend towards holidaying in the UK because of travel restrictions, it is likely that the trend towards owning (and renting out) a second home has increased.
The deck is clearly stacked in favour of the housebuilders and if you can hold your nose while calling your broker, the sector has enduring investor appeal.
Mention in the Crest Nicholson results of £1.9mln spent in the reporting period “across a number of buildings requiring further investigative costs, including balcony and cladding related works” is a reminder that the sector is not immune to setbacks such as the Grenfell Tower tragedy in 2017 but you will still struggle to find a broker that is bearish on the sector.
Buying shares in a housebuilder is as close as some millennials will get to home ownership for the foreseeable future
As for Crest, Liberum rates it as a “hold”, with the shares 10p above its target price. It prefers Bellway PLC (LON:BWY), where its price target of 4,100p is 615p above the current share price, and Redrow PLC (LON:RDW), where the current share price of 633p is 182p below Liberum’s price target.
Peel Hunt’s rating for Crest Nicholson is “add”, with a target price of 390p.
“The shares have been pan flat in the past month, a slightly better performance than the 3% decline seen across the sector,” the broker noted.