For U.K. Housebuilder Stocks, Election Is Still All About Brexit

For U.K. Housebuilder Stocks, Election Is Still All About BrexitFor U.K. Housebuilder Stocks, Election Is Still All About Brexit

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Uncertainty, uncertainty and more uncertainty. For investors in U.K. homebuilders, the word has been a bane for more than three years as the industry contends with the hit to consumer confidence caused by Britain’s prolonged departure from the European Union.

Now there is an election coming and investors in the sector are hoping for a Conservative victory to help solidify this year’s rally, which has seen big players like Barratt Developments Plc, Bovis Homes Group Plc and Persimmon Plc rise more than 30% amid the perception of progress towards a Brexit deal.

“We would expect some surge in the sector with a Tory win as Brexit looks more certain to be done,” Robin Hardy, an analyst at Shore Capital, said by email. While such an eventuality looks at least partially priced in, that isn’t the case should the opposition Labour Party gain power in the Dec. 12 poll, according to Hardy, an outcome he said would cause the builders’ stocks to drop, “possibly a lot.”

But as market watchers pore over the details of the party’s housing policies, it is still Brexit that “has the greatest potential to move the market for these companies in the short term,” said Davy analyst Colin Sheridan. “Clearly the probability is lower that anything negative happens, but it’s still an issue.”

Different Visions

The visions of the two main parties on the housing market are mostly as expected, albeit quite different. The Conservatives are broadly seeking more of the same, centered around support for first-time buyers, while Labour’s policies focus on building more social and affordable housing, with much greater government involvement in the market.

The Tory party’s pledges on housing were “slightly disappointing,” according to UBS AG analyst Gregor Kuglitsch, as they didn’t give a clear policy for the government’s Help-to-Buy program after it expires in 2023 and there was no reduction in stamp duty. Still, he sees no major impact to the listed housebuilders.

Labour policies would effectively transform local councils into major developers, which may put pressure on supply chains, increase costs and be negative for builders, Kuglitsch wrote in a note.

But the worst possible outcome might still be no clear outcome at all, according to Canaccord Genuity analyst Aynsley Lammin. A hung parliament, where neither party wins a majority, would just “lead to more uncertainty and logjam.”

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