Vistry Grp Share Price (VTY)

Londoner7 you have good insight. Thanks a lot for your comments.

As local authorities can't afford to build affordable housing there is a reliance on the private sector to provide a proportion of new build. Vistry is building on behalf of housing associations, grant -aided by Homes England, who then rent out or use the shared ownership model which can qualify as affordable. It's an interesting model whch seems to be working.

A recent report by Savills illustrates the growth in the Build to Rent market in 2023, “BtR Houses, otherwise known as Single Family Housing, saw £1.9 billion worth of investment, up significantly from £360 million in 2022. This represented 42% of total BtR investment, shattering the previous record of 8% in 2022.”

This statistic represents a significant movement to new development, rather than acquiring existing housing stock for the rental market.

The latest ONS construction report for Jan 2024 shows, latest 3 months on year earlier, public new housing up 5% versus private new housing down -20%. (Currently, public only represents 15% of all new housing)

Perhaps the Vistry CEO is correct in saying the time is right for the partnerships model.

I’ve been following Vistry’s progress towards the partnership model for a few years. I was invested in Galiford when Vistry (formally Bovis) acquired their partnership subsidiary. While I’ve been attracted to the partnership model as key to getting more homes built, addressing the societal need, from an investment perspective I’ve struggled to understand the barriers to the traditional builders moving to the model and negating any Vistry advantage.

I watched the recent results presentation by Persimmon.

I was surprised to see that partnerships accounted for 23% of Persimmon’s sales in 2023, up from 18% in 2022, but partnership volumes were still down 17%. The CEO acknowledged the need and likely trend towards an increase in the supply of affordable housing, particularly if Labour wins the next election. But I interpreted his comment as favouring the status quo with the return of a coalition if not Conservative government. Perhaps I over interpret the comments, but it encouraged me to believe that Vistry will get a clear head start in the partnerships sector, and that creates a moat over the traditional builders, albeit for a few years.

I see this as important because I expect the future housing market to be quite different from the market that has operated for the last 30 plus years. I think a potential reversal is illustrated in the house price to earnings ratio, which peaked in 1989 (5x), 2007 (6.3x) and most recently in 2020 (7.0x). Each push higher has its own stimulus and, in my view, the latest was due to:

Planning restrictions, supported by the emergence of the Nimby, which favoured the large builders over the small and medium builders which struggled after the 2008 financial crisis.

Low interest rates, which made higher house prices affordable to buyers.

A diminished desire for flats, following the cladding and lease issues, and Covid lockdown.

(and I’ll add, with lower conviction) A more constrained construction labour force following Brexit.

Today, because of the cost of housing, the marginal first time buyer remains in the private rental sector, and the marginal private sector renter has fallen back to local authorities for social housing. Key is that local authorities have a statutory requirement to support the lower tier, and it then becomes a government problem, which can no longer be ignored.

Assuming Labour form the next government, I’m doubtful it will achieve a substantial increase in the number of houses built, particularly given a continuing constraint on construction labour, but I’ve no doubt that tax funds will be directed towards the affordable housing market. The current CMA investigation should provide evidence of the impact of planning restrictions and Labour might implement a policy solution, which I doubt strengthens the hand of the dominant large private house builders over the affordable market or the small and medium sized builders.

Ghgo; think you've rather nailed the reason!

Dividends or buy backs both have their benefits but I suppose Buy backs make the Earnings per share look better and if the Directors bonus is linked to the increasing share price then.....