How to profit from the Rachel Reeves planning revolution – these are the companies to invest in as Labour rips up planning rules to build 1.5 million homes

As last week’s Speech from the Throne confirmed, Rachel Reeves is revolutionizing planning.

The Minister of Finance wants to deliver no fewer than 1.5 million homes during this parliamentary term to revive the economy and solve the chronic housing shortage.

The government has promised to be ‘builders, not blockers’ and its highly ambitious policies aim to ensure that hundreds of thousands of young people can realise their dream of home ownership.

But will these groundbreaking measures lead to huge profits for well-known British property developers, making their shares an essential purchase for your portfolio?

Or will the reforms be blocked by a series of challenges, including legal action from local people who want to protect the identity of their town or village from a new housing plan?

Here’s what you need to know about the plans, obstacles, and opportunities to help you make the most of a future construction boom.

THE PLANS

The reforms threaten to create a divide of disagreement.

The pro-development group Yimby (yes, in my backyard) will be targeting those who fear the desecration of our countryside.

Even those who wouldn’t call themselves Nimbys (not in my area) will fear that the policy will lead to more urbanisation, creating countless poorly built houses without roads, schools, GP surgeries and other amenities vital to a community.

As law firm Michelmores highlights, the government plans to make “full use of intervention powers” ​​to deliver on its promise to be “builders, not blockers”.

Local authorities are again required to meet mandatory housing targets and can only determine ‘how’ homes are built, not if.

Ideally, housing policies should turn NIMBYs into Slimbys (a commonplace in my backyard), with the confidence that the new homes will be beautiful, sustainable and surrounded by a wealth of amenities.

But winning hearts and minds does not seem to be the government’s priority.

There is particular concern about the proposal to create a series of new cities.

The area around Cambridge is seen as a likely location for one of these new 21st century cities, which will have ‘well-designed homes, green spaces, reliable transport links and busy high streets’. The government will also seek ‘rapid approval and delivery of high-density housing on urban brownfield sites’.

But not all plots developed in the past are located in city centers.

Knight Frank, the property consultancy that has identified likely locations in England, says 4,612 (or 41%) are within the Green Belt around London, with the majority to the north-west of the city.

Also controversial is the aim to designate lower quality areas of the green belt as ‘grey belt’, which are ripe for development.

THE OBSTACLES

Hanging over the Reeves revolution is the specter of the failed housing policies of previous governments. As one expert put it: ‘In 1997 Tony Blair’s deputy prime minister John Prescott promised seven millennium communities as part of his planning revolution. They didn’t happen, did they?’

NIMBYs may be blamed for the lack of new housing. But other factors are holding back development and will continue to do so. Politicians may talk about building houses and want to be pictured wearing a hard hat.

But the actual construction is done by big housebuilders who will only break ground if customers have the money. Aneisha Beveridge, director of residential research at Hamptons estate agency, says: ‘Housebuilders will only scale up if they know there are buyers who are willing and able to buy.

‘And so Labour’s housing ambitions also depend on decisions on interest rates.’

Buyers continue to struggle with high borrowing costs, though interest rates could fall later this summer. The cost of the average five-year fixed-rate mortgage is 4.97%, down from a peak of 6.11% in July 2023. But in July 2021, the typical rate was 2.51%.

Meanwhile, Help to Buy, the taxpayer-funded scheme subsidised by the previous government, has been withdrawn. However, it did help people who could not rely on the Bank of Mum and Dad.

A homebuilder usually sells the affordable part of a large project to a housing association. These non-profit organisations are responsible for the delivery of social and affordable housing.

But as Richard Donnell, research director at property portal Zoopla, explains, housing associations are struggling financially.

The sclerotic planning system is also hampering housebuilders. The government plans to hire 300 new planning specialists, but they will not replace the 3,000 staff lost in such departments over the past decade. Already, only 20% of planning applications are processed before the 13-week deadline. There is also a shortage of staff on site.

Donnell says: ‘If you’re going to build, you need a workforce, and Britain’s brickmakers and other skilled workers are getting older.’

Britain has 42,000 bricklayers, but at least 33,000 more need to be trained and employed if Reeves is to reach her target of 1.5 million homes in the next five years, or 300,000 a year.

THE POSSIBILITIES

Just because you’re concerned about the impact of the planning revolution on your location isn’t a reason to ignore stocks that could benefit.

Reeves sees the revolution as a route to “unlocking our country’s economic growth” on the basis that construction activity stimulates brickmakers, furniture sellers and other businesses. It is estimated that for every £1 spent on construction, almost £3 of value is created for the wider economy.

Leading fund managers are taking positions in the companies that could be winners. Alan Dobbie of Rathbone UK Income is holding on to builder Taylor Wimpey because it has a “quality land bank” – a ready supply of sites on which houses can be delivered. Dobbie also likes the company’s 6.5% dividend yield.

His other choice is Persimmon, which ‘focuses on affordable homes for starters’.

Job Curtis of the City of London investment fund is also a fan of Taylor Wimpey and Persimmon.

If you own other housebuilders such as Barratt, Berkeley, MJ Gleeson or Vistry, be prepared for more takeovers as companies compete for a share of the construction boom.

As Dobbie points out, Crest Nicholson is about to be bought by Bellway, while Cala, the housing arm of Legal & General, is also for sale. When the houses are built, people will have to fit them out.

On this basis, shares in furniture chain Dunelm are worth holding. But managers are also diversifying into businesses linked to construction. Curtis says: ‘We have stakes in Ibstock, the brick manufacturer, and Marshalls, the market leader in British paving and roofing products.’

Ben Yearsley of Shore Financial Planning also prefers suppliers, citing equipment rental company Ashtead, building materials company Travis Perkins and Forterra, another brick manufacturer.

Yearsley favours these options because he suspects that while Labour needs the housebuilders for the revolution, it can still introduce legislation to ensure they do not make above-average profits.

Giving in to such a temptation would be counterproductive. But Reeves could come under pressure to fund other projects — because there will be plenty of bumps on the road to 1.5 million homes.