What a housebuilding boom might do for your money

Is a housebuilding boom on its way? Difficult to say… Housebuilding has never quite equalled our passion for the end product in Britain. We love houses. We obsess over prices. We renovate furiously. We decorate beautifully. But – as a nation – that passion is lacking when it comes to building. If the government can tackle the housing crisis and enable the building of enough new homes, how might it affect your wealth? We don’t have a crystal ball – but evidence says you might be quids in.

A housebuilding crisis

Big things usually take time.

The Government’s intention to, “deliver 1.5 million more homes – tackling the most acute housing crisis in living memory,” is about as large as they come.

In the quarter before Labour took office – March to June 2024 – we managed to start building around 32,000 homes and finish nearly 60,000. That’s, say, 240,000 completions a year.

We need at least 300,000 a year to get to 1.5m over five years.

As you can see in the chart below, which we created from the Government statistics website, you have to go back to the first Thatcher government to see meaningful volumes of housebuilding.

After that, housebuilding plodded along, until 2008, when it fell off a cliff (with the gorilla of greed and several banks) and hasn’t really recovered since.

And that’s one of the reasons we have a housing crisis.

There seems to be a broad acknowledgement of the issues. Homelessness charity Crisis says, “not enough homes are being built to replace those being taken out of the social housing stock.” The National Housing Federation says, “millions of people are being let down by a failing system.” The Trust for London adds, “The human impact of the housing crisis is clear. It’s holding London’s economy back, too.”

Housing and your money

This affects both economy and society – and your portfolio too.

A housing crisis can deplete economic growth. Solving it can boost economic growth. It’s common knowledge, but it’s important to recount.

Researchers draw a direct line between where you live and the job you do. If you’re in squalid conditions, miles from an economically valuable job you could do easily, and limited transport between the two … you’re not ‘productive’. And if you can’t move closer, because there isn’t living capacity, this exacerbates the issue. There’s a useful summary of this thinking here.

Productivity is crucial to economic growth. The brilliant economist, Paul Krugman once said, “Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

And economic growth is related to stock market performance. It’s a complex , intense and sometimes fraught relationship – maybe a bit like a marriage! This American chart shows a few things, including the two lines tending to go up and down in tandem, most of the time.

So, to follow the line of argument logically … more housing means more productive workers, means more economic growth, means better stock market returns.

Probably … because nothing’s guaranteed. But it’s a reasonable expectation, given historical data.

The impact

The housing market will affect your wealth in several ways.

More homes can lift GDP, and this should lift the stock market indices your money tracks. That’s the general impact on your wealth.

Stocks

You may have a portfolio with stocks directly linked to the housing market. These tend to rise on positive sentiment. UK housebuilder share prices jumped after the election – though they’ve since fallen. Might they rise again when (if?) housebuilding gets underway in earnest?

Bonds

Housing could help any allocation to bonds. These are funny things. The main thing is the yield – which moves in the opposite direction to their price– and the higher these are, the riskier they become. In the main, the more stable the public finances, the healthier economic performance, and the better your bonds perform.

Property

Then there’s your actual property: your homes, second home and rental properties. If they followed the national average, they’ll have risen about 4.7% over the last year. Estate agents don’t see much that can dent more upwards growth at this stage – apart from the inevitable dampening impact of any rise in borrowing costs.

We’re similarly optimistic. We have no idea if we’ll get 1.5m homes by the next election but we need to build more and that can only be good for your money.

If you’d like to discuss your wealth, please call us on 020 7467 2700 or email us at hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.