Autumn Budget 2017: Housebuilders Fall On Hammond's Land Banking Review

In the Autumn Budget, Chancellor Philip Hammond announced £44bn will be committed to boost the housing market over the next five years, as the government also introduced planning reforms that will ensure more land is available for housing, and better use is made of underused land in cities and towns.

Autumn Budget 2017: Stamp duty boost for first time buyers

However, Hammond criticised the practice of 'land banking' - where land with planning applications remain unbuilt on - and said the government would be carrying out a review into the practice.

"There is a significant gap between the number of planning permissions granted and the number of homes built. In London alone, there are 270,000 residential planning permissions unbuilt.

"So I am establishing an urgent review to look at the gap between planning permissions and housing starts. And will deliver an interim report in time for the Spring Statement next year," Hammond said.

"And if it finds vitally needed land is being withheld from the market for commercial, rather than technical, reasons. We will intervene to change the incentives to ensure such land is brought forward for development. Using direct intervention compulsory purchase powers as necessary."

Should income investors back housebuilders?

As a result, shares in FTSE 100 housebuilding companies fell by around 2% to 3% in the hours following the Autumn Budget speech. Berkeley, Barratt and Persimmon all fell by more than 2%, while Taylor Wimpey fell by 1.5%. 

Analysts at Liberum said it was confident listed housebuilders should be unconcerned by the land banking review.

"We understand how the Chancellor's words on setting up an "urgent review" might cause concern, but we are confident that the fault does not lie with the listed housebuilders, who have been exonerated of "landbanking" in the past.

"We believe that the Budget should be seen as positive for the housebuilders, even if heightened expectations were not met. Investors were likely to have been disappointed by the lack of news on Help to Buy extension and erroneously spooked by the 'land banking' review, but the stamp duty exemption to first time buyers is genuinely helpful, especially as the boost is not being funded by an increase in stamp duty at the upper end."

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Russ Mould, investment director at AJ Bell, said: "This may reflect some disappointment with the structure of the Chancellor's £44bn housing package and the investigation into the pace at which permitted land sees houses actually built.

"The real secret sauce of being a profitable housebuilder is to buy land cheaply and even if all builders deny that they budget for any land or price inflation in their business plans there can be no denying that they get a margin boost if the value of the asset then rises over time."