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Don’t hate housebuilders who profited from Help to Buy. It wasn’t their fault

9 March 2019

9:00 AM

9 March 2019

9:00 AM

Was Help to Buy a timely market intervention with a valid social purpose or a political gimmick that unintentionally showered housebuilders with taxpayers’ cash? Or both: this isn’t a straightforward question.

‘This government supports those who dream of owning their own home,’ said a statement from Philip Hammond last week. So far the ‘equity loan scheme’ launched by George Osborne in 2013 and now extended until 2023 has underpinned 194,000 home sales, the great majority to first-time buyers in the provinces, while another 300,000 have been supported by a £3,000 savings top-up.

Meanwhile, housebuilders have upped their game as Osborne wished: annual new home numbers, having almost halved by 2013 from a pre-crisis peak of 200,000, climbed back to 184,000 in 2016/17. And politicos might claim that happy home-owners are more likely to vote Tory, another factor which doubtless weighed for the former chancellor: without Help to Buy, Theresa May would have looked even weaker after the 2017 election and the progress of Brexit would have been even more chaotic.

So much for the positives: the policy has given thousands a leg onto the property ladder, across the north-south divide, while bringing needed stimulus to the construction sector. But other consequences of Help to Buy are glaring: it has inflated new house prices and builders’ margins, resulting in huge dividends for shareholders in major housebuilding firms and a particularly eye-catching £1 billion profit for the sector’s pantomime villain Persimmon, already notorious for giant boardroom bonuses. That big number equated to £66,000 profit for every house Persimmon sold last year, half of them under Help to Buy.


Companies exist to generate rewards for investors and should not be vilified for making the most of ministerial wheezes that work to their advantage, so long as they deliver what ministers want — in this case, more houses. But it’s hard to describe such profits as anything other than windfalls, which a Labour government would be swift to tax. Would Hammond be best advised either to launch his own headline-grabbing tax raid on housebuilders while they’re in the doghouse — or to scrap Help to Buy before it creates more provocations and distortions? At a time when the property and construction sectors are teetering, now is not the moment to pull the plug. But the scheme needs a radical redesign, both to make its social purposes more explicit — facilitating home ownership for key workers within reasonable commuting distances, for example — and to recycle for public benefit a portion of the cream that has been too easy for builders to skim.

The UK Optimist Fund

My brethren on the Telegraph’s business pages have a pro-Brexit refrain which they chant con brio. Headlines this week included ‘Investment heavyweights pouring cash into UK assets’ and ‘Europeans double UK investment’, sandwiched around ‘eurozone recession fears deepen’. The picture they offer is one of a rising trend in UK asset purchases through merger and acquisitions, plus increased holdings of UK-listed shares by major institutions, in part reflecting negative sentiment towards alternatives offered by continental Europe.

Sceptics will say that UK companies, properties and blue-chip shares look relatively cheap to foreign buyers because the pound has fallen and Brexit risks are priced in; and that favoured blue-chips are not tied to UK prospects, but are London-listed multinationals whose global revenues look bigger when the pound is weak. But non-sceptics will endorse the view of Rupert Harrison — George Osborne’s former right-hand, now at the US investment giant BlackRock — that the UK also offers ‘long-term growth potential [and] high-quality businesses’ as well as bargain entry prices.

I sincerely hope he’s right and wonder whether anyone of his persuasion might be confident enough to launch a post-Brexit UK Growth Fund for the retail investor — the equivalent for the next decade of, say, Fidelity’s Asia Fund, which I hold and which over the past decade has been the best market punt I ever made. So I invite armchair stock-pickers to submit (to martin@spectator.-co.uk) a list of up to ten domestic shares with exciting prospects, and let’s build a model portfolio for what we might name the UK Optimist Fund.

I’ll be fascinated to see what you come up with. One wealth manager recently showed me a ‘balanced’ global portfolio which contained, among a long list of choices from around the world, just two UK shares: the ultimate multinational ‘sin stock’ British American Tobacco, and Admiral — the car insurer with the jokey television adverts that is Wales’s only FTSE100 company. I’m sure we can do better than that.

The other way is China

Or you might prefer to send your money to China. That’s what foreign investors have been doing to the tune of some $17 billion so far this year. ‘Domestic investors have been surprised by the strength of these inflows,’ says the FT, but in a sense it’s a similar story to our own. Chinese shares available to foreign investors took a pasting last year, underperforming global indices by more than 30 per cent, so today’s low entry prices already reflect well-known problems of consumer slowdown, excessive debt and trade friction with Donald Trump.

Announcing stimulus measures, Li Keqiang — China’s second most powerful man — said the country faces a ‘tough struggle’ but still expects growth of 6 per cent plus this year. Long-term admirers continue to believe China’s economic machine will bulldoze its way to prosperity however rocky the path — unless, as the economist Lord (Jim) O’Neill remarked rather casually on the Today programme, its problems intensify to the point at which ‘it destabilises in a vicious way’. Whatever our challenges, on balance at this stage I’d still rather bet on the UK.

 


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