UK housebuilders lose £8bn in market value as Iran war hits costs and demand outlook

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UK housebuilders £8bn loss

Highlights

UK's six largest housebuilders have lost over £8bn in market value, more than a third of their capitalization, driven by rising costs and weaker demand since the Iran war began.
Vistry shares dropped over 60% and short interest surged from less than 3% to over 13%, as the company cuts spending, seeks supplier discounts, and targets net cash above £100mn by year end.
Short positions across UK-listed construction companies rose from 30 to 64 in three months, with Ibstock now Europe's most shorted stock at 15.3% of shares disclosed as sold short.

Share sell-off and funding pressure intensify

As first reported by the Financial Times, the six largest listed UK housebuilders have lost more than a third of their combined market capitalisation since the conflict started, with investors pulling back from the sector on fears that interest rates stay higher for longer and construction costs continue to rise.

The closure of the Strait of Hormuz is increasing the cost of oil-based construction products such as insulation and heating equipment. Higher energy prices are also feeding inflation, delaying expected rate cuts and pushing up mortgage costs, weakening demand for new homes.

Adrian Kearsey, analyst at Panmure Liberum, says mounting pressure on housebuilders makes it very unlikely that the industry gets close to the government's housing target. The pressure comes as the government continues to resist industry calls for tax breaks to stimulate demand from first-time buyers.

In recent weeks, companies in the sector have been issuing profit warnings, slowing developments and stepping back from land purchases. Even after sharp share price falls, hedge funds continue to build short positions on expectations that valuations have further to drop.

Vistry, Barratt Redrow and peers face deeper scrutiny

Vistry has been the hardest hit among major listed builders, with its shares down by more than 60% since the war began. According to S&P Global Market Intelligence data cited in the report, the proportion of Vistry shares on loan, a proxy for short selling, has climbed to a little over 13% from less than 3%.

The company, owner of Bovis Homes, is in cash preservation mode, with a person familiar with the matter saying it is seeking discounts on agreed contracts and delaying payments to suppliers. Vistry says it remains committed to paying subcontractors in line with contractual terms, and adds that it has a robust £4.5bn forward order book and is targeting net cash of more than £100mn by year end.

Trade body Finishes and Interiors Sector says its members have been squeezed by housebuilders, particularly Vistry, in recent quarters. One senior employee at a rival builder says delayed payments are prompting Vistry subcontractors to seek early payment elsewhere to ease cash flow strains.

Barratt Redrow has also lost nearly £1.8bn in market value since the conflict began, while the proportion of its shares on loan has risen from 1.5% to 8%. In April, the company says it is being even more selective on land acquisition and cuts guidance for land approvals for the year ending in June to 7,000 to 9,000 plots, from 10,000 to 12,000.

Taylor Wimpey has lost about £1.3bn in market value, with shares on loan reaching 10%, led by hedge fund Two Sigma. The company says last month that it is highly selective in buying land and that both its sales rate and order book value are down.

Short sellers target wider UK building chain

The European housebuilding and construction sector has seen the biggest increase in disclosed short positions of any industry in the region over the past three months, according to Breakout Point data. The total rises from 30 to 64 as of last Friday, with UK companies accounting for the vast majority of those positions.

Ibstock, the UK's largest brickmaker, has become the most shorted company in Europe, with 15.3% of its shares disclosed as sold short by firms including Citadel Advisors. The trend shows investor concern is spreading beyond developers to suppliers across the UK construction chain.

In our earlier article on cooling UK wage growth, we noted that median pay settlements eased to 3.0% in the three months to April, reinforcing signs that domestic labour-market pressure is moderating. We also explained that the Bank of England is weighing these softer pay signals against the risk that the Iran war pushes energy costs higher, complicating the inflation outlook and the path for interest rates.

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