How your investment portfolio could benefit from a UK homebuilding boom

The government has secured a £550 million commitment from three major investment managers to help address the UK’s housing shortage - and private investors may even benefit.

It comes after the government's flagship International Investment Summit this week.

The Treasury held a roundtable with asset managers this morning to discuss how to use impact investment to address the country’s housing crisis and get Britain building again.

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It is hoped that by building more homes, house prices will become more affordable due to more supply, making it easier to buy a property.

Asset manager Schroders is set to use a new £50 million allocation from Homes England, for its UK Real Estate Impact Fund 

Launched in 2022, the fund aims to deliver 5,000 homes to address inequality in the social and affordable housing sector.

Alternative investment firm Man Group, has also announced a further £100 million investment to deliver affordable and environmentally sustainable housing for communities across England, with 90% of homes to be designated as affordable housing. 

Social impact property fund manager Resonance has also announced an increase in investment – from £79m to £250m - into its initiative to tackle homelessness. This directly channels investment into residential property to help create routes out of temporary accommodation for individuals and families. 

Retail investors can’t invest directly into these funds as they are more aimed at institutional investors.

However, you may benefit if your pension fund is invested in these portfolios.

There are also other ways to gain exposure to the property sector.

How to benefit from a UK building boom

Labour has been talking about building 1.5 million homes since even before it won the general election.

You can’t directly invest in the latest funds now backing homebuilding in partnership with the government but there may be retail equivalents.

For example, Schroders has a Real Estate investment trust that is currently trading at a discount to net asset value of 20%.

There are other ways for the public to invest in efforts to get Britain building though.

Jason Hollands, managing director of Bestinvest, suggests the building sector may be one of the main potential beneficiaries of Labour’s policy agenda.

The most direct route for retail investors to is by investing in the shares of the UK’s listed house builders such as Persimmon, Taylor Wimpey and Barratt Developments, he suggests.

“There are reasons to feel a little more positive on housebuilders,” adds Hollands.

"Build cost inflation has moderated considerably and there are signs that costs should normalise from her. Another positive is that interest rates are now at the start of a downward trend, while real wage growth is positive too.”

Oli Creasey, property research analyst at Quilter Cheviot, says the firm is currently underweight on housebuilders.

“The sector is under pressure, with low sales volumes and low margins on those sales,” he says.

“Prices have held firm, but inflation has eaten into profits, and consensus estimates are for prices to remain steady and hence little margin improvement in the near-medium term. Mortgage rates are improving, but are still well short of previous affordability measures, meaning new buyers are still thin on the ground.

“We recognise that the government is focused on spurring new house building but are still awaiting details of how it will be catalysed.”

He says housebuilders have the land and cash to build but are missing the financial incentive and additional buyers to make it worth their while. 

Some analysts warn,  however,  that any gains for investors may already be priced into the markets.

Ben Yearsley, director at Fairview Investing, suggests looking more widely at brick manufacturing companies such as forterra or even the building suppliers including Travis Perkins and Marshalls.

He suggests Man GLG Undervalued Assets, which has 6% in construction and materials and JO Hambro UK Equity income, which has 10%. 

“Equity income funds are the hunting ground for these sectors,” says Yearsley.

He remains cautious though at whether the government will allow these companies to make excess profits.