If land banking is the main problem, here's how to make forty times your money

If land banking is the main cause of the UK housing crisis, here's how to make forty times your money.

The market thinks the assets of the 10 biggest UK listed housebuilders are worth about £41 billion.¹ Of course, that includes the value of the houses they've built but not sold yet, as well as the unbuilt land banks. So the value of their land banks can only be a fraction of £41 billion, if the market is right.

 is the market wrong by a factor of forty?

is the market wrong by a factor of forty?

But the total value of the scarce planning permissions that allow the current stock of UK housing to exist is about £3.7 trillion, as we explained in our previous post.

The top five or six housebuilders are vastly bigger than most of the rest. Even if the rest of the housebuilders have twice as much land between them as the top ten, that would mean those top ten housebuilders can solve one third of the housing crisis. If so their land banks are worth more like one third of £3.7 trillion, so £1.2 trillion.

All of the upside would go to the shareholders after paying off the liabilities of £13 billion. But the total value of the shares according to the market is only £28 billion.

So what the market thinks is worth £28 billion is actually worth about 44 times more.

If you're sure that's right, we assume you'll be betting whatever you can afford on the shares of the major housebuilders. Or perhaps land banking isn't the main problem.

 

 

1 Total equity market capitalization of Barratt, Taylor Wimpey, Persimmon, Berkeley Homes, Bellway, Redrow, Galliford Try, Bovis Homes, Crest Nicholson and Countryside at closing prices on 16th December 2016, plus total liabilities of approximately £13 billion based on last published balance sheets.