Cash for Builders

Millennials Versus the Housing Market

British house-builders are flush with cash, while young buyers struggle for deposits.

For young Brits, getting the cash together for a house can feel like pushing a rock up a hill. Just as you think you're there, another steep climb looms into view.

The average price of a U.K. house rose 7 percent to 220,000 pounds ($274,000) in the year to December (the London average is more than double that). This means for every month someone spent saving for a deposit, their dream home became 1,250 pounds more expensive. Meanwhile, low interest rates have pushed up prices while reducing the returns savers get on their cash for that deposit.

Out of Reach

House prices have continued their upward surge, despite Brexit

Source: ONS

Millennials can be forgiven for feeling they've been stitched-up. In contrast, investors in British homebuilders are making a tidy return from their shares, especially when compared with those near invisible bank rates. On Tuesday, Taylor Wimpey Plc became the latest to offer its shareholders some pretty tasty payouts. Dividends totaled 356 million pounds in 2016 (a 6 percent yield at current prices) and they’re set to rise to 450 million pounds in 2017 (implying a yield of almost 8 percent). 1

On Monday, rival Persimmon Plc hiked capital returns thanks to a balance sheet flush with 913 million pounds in net cash. While U.K. housebuilder shares have made up much of the ground lost after the Brexit vote, they still yield about 6 percent, according to Bloomberg’s dividend per share estimates for this fiscal year.

Brexit Bounce

U.K. homebuilder stocks have almost returned to pre-Brexit levels

Source: Bloomberg

This is a show of confidence from the housebuilders and as I’ve written before, there are reasons to think they will be O.K. While London’s top-end market has slowed and prices have fallen, elsewhere a shortage of supply, low-cost mortgages and government home-equity subsidies (called “Help to Buy”) keep the market frothy. 

Prices Power Profits

Taylor Wimpey's margins have shown steady improvement

Source: Taylor Wimpey

2016-2018 is the average the company aims to achieve over that period

Help to Buy played a part in almost 40 percent of Taylor Wimpey’s home sales in 2016, while at Persimmon the figure is closer to half. The policy's critics complain that its biggest achievement is to inflate home prices ever higher, which benefits sellers more than struggling buyers.

So, yet another reason to begrudge the builders. One conclusion might just be for the young frustrated home seeker to buy themselves some shares in Taylor Wimpey and others to try to beef up that deposit. But I'm not in the business of giving investment advice. And nor is it particularly sensible to bet your future home on the stock market.

Still, if you want to understand millennial resentment about being locked out of the asset-owning classes, this is a fine example.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. This is subject to shareholder approval

To contact the author of this story:
Chris Bryant in Berlin at

To contact the editor responsible for this story:
James Boxell at

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