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House builders hit by Hammond's planning crackdown

Chancellor cracks down on house builders snapping up planning permissions but failing to build.

 
House builders hit by Hammond's planning crackdown
 

Update: Shares in house builders have slumped to the bottom of the FTSE 100 after chancellor Philip Hammond announced a clampdown on house builders snapping up planning permissions but failing to start building.

In his Budget speech, Hammond said the government could use ‘direct intervention compulsory purchase powers’ if it found that ‘vitally needed land is being withheld from the market for commercial, rather than technical, reasons’.

He said he was launching an ‘urgent review’, chaired by MP Oliver Letwin, to investigate the ‘significant gap between the number of planning permissions granted and the number of homes built’.

‘In London alone, there are 270,000 residential planning permissions unbuilt. We need to understand why,’ he said.

Barratt Developments (BDEV) fell to the bottom of the FTSE 100 on the news, down 2.7% at 616.5p, while Persimmon (PSN) was close behind, 2.2% lower at £26.17.

Berkeley (BKGH) fell 2% to £36.80 and Taylor Wimpey (TW) fell 1.6% to 193.8p.

Stephen Bailey, co-manager of the Liontrust Macro Equity Income and Macro UK Growth funds, said the sell-off was an overreaction.

'We believe investors have overreacted to Philip Hammond’s announcement of a review into the practice of "land banking" – housebuilders sitting on land where planning permission has been granted, without actually building new homes,' he said.

'While this practice does act as a friction in the property market, its prevalence has actually been on the decline. Land banks have levelled off over the last few years as housebuilders increasingly look to return excess capital to shareholders rather than allow it to be tied up in undeveloped sites.'

Anthony Codling, analyst at Jefferies, also downplayed the review. 'Oh dear, another landbanking inquisition,' he said. 'Once again, history has tauight us that histiory teaches us nothing. A new team and a new inquisition into landbanking.

'Every previous inquisition has found that landbanking is a myth, and we suspect that this one will too.'

The news outweighed a boost to the sector from a scrapping of stamp duty for first-time buyers for homes worth up to £300,000. In areas of high house prices like London, buyers will no stamp duty on the first £300,000 of the purchase price of properties up to £500,000.

That news did boost shares in estate agents, however. Foxtons (FXT) was up 6.6% at 72.3p while Countrywide (CWD) rose 3.2% to 114.5p.

On the FTSE 250, shares in house builders did not suffer as heavy falls as their blue-chip peers. Bellway (BWY) was down 1.4% at £35.17, McCarthy & Stone (MCS) dropped 1.2% to 166p, while Redrow (RDW) fell 0.9% to 589.5p and Bovis (BVS) traded 1% lower at £11.21.

The pound meanwhile rose against the dollar, reversing losses incurred as Hammond delivered his speech. Sterling was up 0.3% against the US currency at $1.327, having earlier fallen to $1.322.

That was despite downgrades to UK growth forecasts from the Office for Budget Responsibility (OBR). The OBR cut its 2018 estimate from 1.6% to 1.4%, while its estimates for 2019 and 2020 were both lowered to 1.3%, from 1.7% and 1.9% respectively.

The FTSE 100 built on the morning’s gains to trade 37 points, or 0.5%, higher at 7,448.

(10:28) Thomas Cook slumps on Spain squeeze

The FTSE 100 has edged higher ahead of the Budget, but shares in Thomas Cook (TCG) slumped after the travel group reported a drop in margins, hurt by tough competition in Spanish holidays.

The UK blue-chip index rose 20 points, or 0.3%, to 7,431, but the biggest movers were to be found in the FTSE 250.

Shares in Thomas Cook tumbled 10.7% to 108.7p, as the group reported a fall in full-year operating margins, from 23.4% to 22.1%.

The group has been hurt by a price war in Spain, amid an upsurge in popularity of holidays in the country given security concern in other countries like Tunisia and Turkey.

'With destinations in the Eastern Mediterranean out of favour following political unrest, holiday providers are dashing headlong into Spanish resorts,' said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

'The increased competition is a double whammy for Thomas Cook, pushing up the cost of beds while piling the pressure on pricing as well.'

Qinetiq (QQ) was meanwhile the biggest 'mid-cap' riser, up 9.2% at 220p, after an upgrade from Berenberg analyst Charlotte Keyworth, who raised her rating on the defence and security business to 'buy' from 'hold'.

'Qinetiq's stock has been disproportionately affected in the past week following Ultra Electronics' profit warning and the subsequent readacross to wider UK defence market weakness,' he said.

'Qinetiq now screens attractively on valuation, cash flow visibility and balance sheet strength, both within the sector and in a wider market context.'

7 comments so far. Why not have your say?

Micawber

Nov 22, 2017 at 16:21

The most boring budget I've listened to for years. But probably that's a good thing.

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Briesmith

Nov 22, 2017 at 17:52

OK so "every previous inquisition has found that landbanking is a myth, and we suspect that this one will too.' yet the markets have marked builders down savagely. The power of myths eh? Or do they know that, perhaps, it isn't such a myth?

Anyway, the government are still being stupid. All this latest round of pseudo builder bashing will do is discourage the practice of seeking outline or even full planning permission in advance of any agreed construction start date.

I remember Labour trying to manage this problem back in the 60s when they got nowhere. The government could try taxing unbuilt-on land but all the builders will do is come along, dig a hole or two then bugger off until they are ready.

The only thing that would really frighten them, really change their behaviour, would be more land coming onto the market than they could afford to buy up. This would reduce the cost of land and reduce the value of their land bank forcing them to start construction before their balance sheet losses became unsustainable. But this will never happen under the Tories because their voters, who would see their homes lose value and have to watch building on their precious greenbelt, won't stand for it.

And Hammond was a developer remember.

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Miss Tearious

Nov 22, 2017 at 18:15

A friend in the planning business tells me there are vast amounts of brownfield undeveloped particularly down the Thames Valley where there are good transport links because builders make much more profit on Green belt sites. If this is true then anything which would correct this would be wonderful.

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Hank Elvis Dobbs (texan)

Nov 22, 2017 at 19:41

Err...Where are all the brickies ..? also.. it is the planners that need a kick up the arse...Some idiotic trading today (as usual) ...why on earth aren't building material manufacturers soaring ...given all this prospective work?..Builders are a screaming bargain

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Hank Elvis Dobbs (texan)

Nov 22, 2017 at 21:59

To all fund managers who read this (yeah right) the majority of so called planning permissions will be 'outline consents' confirming the principle of consent.Then the trouble starts ..obtaining 'reserved matters approval' which is just an absolute joke .. a beaurocratic nightmare causing endless delays.What makes me laugh is that these public servants always moaning about pay are shooting themselves in the foot delaying all that revenue stream and any hope of a pay rise...

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alan franklin

Nov 25, 2017 at 09:41

Property development, which we have done on a small scale for decades, is a nightmare of red tape, especially if, like us, you tackle a Grade Two listed building. Far more aggro than the end result was worth. Lime plaster and the like, the forbidding of modern damp course treatments- I could give a long list of utter stupidity.

Abolish Grade Two listing. People who buy property do what makes sense and do not need overpaid council officials, who have never made anything but trouble, to tell them what to do.

Likewise, sack all useless eaters like tree preservation officers, most of whom don't know a weed tree from a good specimen. They cause endless problems and cost.

People should be able to do more or less what they like with their own land. Now there's a good Conservative policy that the idiotic government will never think about....

Most of the places generally regarded as featuring good architecture, like Bath, were built long before Town Hall meddlers got in on the act.

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In the Dark

Nov 27, 2017 at 09:09

Sentiments shared, scrap the town and country planning act. Build houses that people want not what the bureaucrats think we nee.

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