Real Estate

James Boxell is an editor with Bloomberg Gadfly. He worked previously at the Financial Times in a variety of writing and editing jobs. Before becoming a journalist, he helped launch a legal technology startup.

Anyone hunting for signs of sanity in the British housing market won't find much solace in Monday's trading statement from one of the country's biggest homebuilders.

Taylor Wimpey had tried to lower expectations in July by saying it expected sales to moderate in the second half after a bumper spring and summer. Yet CEO Peter Redfern was on Monday able to boast of a record order book as autumn proved an equally glorious season for flogging British homes.

Sign of subsidence?
Taylor Wimpey shares have slipped in recent weeks

Taylor Wimpey and its house-building peers such as Persimmon and Barratt Developments have suffered a recent decline in their share prices because of worries about rising costs and the potential for greater vigilance from regulators about how much they charge for new homes.

But this is Britain we're talking about, not somewhere with a track record of trying to damp down house prices. Taylor Wimpey did say that build costs have increased about 5 percent this year, as fought-over brickies and plasterers charge more. But this has been more than offset by sales price growth, and the cost increase is expected to ease in 2016.

Concern Building
Homebuilders are being hurt by rising costs and regulatory worries

For the second half of the year so far, Taylor Wimpey's sales rates are 22 percent ahead of the same period last year. Gross margins are expected to increase from 23.3 percent last year to 25.3 percent in 2015, and up to 27 percent next year, according to data compiled by Bloomberg.

Another reason for recent caution around the longevity of the homebuilder boom has been whether companies have enough access to land to keep developing at current rates. Britain is notorious for its lack of greenfield sites and tortuous planning rules. Taylor Wimpey does, however, have a relatively decent short-term landbank and ballooning house prices have helped it maintain returns on capital when buying plots.

Even for the wider industry, a structurally under-supplied housing market and new government stimulus plans such as the "Help to Buy" program will surely sustain growth. Mark Carney's caution over hiking interest rates is another support. England alone needs to build 312,000 homes a year for the next five years to solve a chronic housing shortage, according to a recent study by the Town and Country Planning Association.

The industry isn't cheap by historic standards after the election of a builder-friendly Conservative government prompted a jump in shares this year. The sector trades at 9.4 times this year's expected earnings, according to data compiled by Bloomberg. Taylor Wimpey shares trade at about 10.6 times earnings. Given the company's superior performance this year and expectations around the easing of planning regulations, both ratings have fairly solid foundations.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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