The Labour Party’s ambitious plans to build 1.5 million new homes over the next five years have sent shockwaves through the UK property market. While some investors are hesitant, others see this as a golden opportunity to cash in on the potential housing boom.

A Housing Revolution

Let’s be honest, building 1.5 million new homes is a massive undertaking. It’s a target that hasn’t been met in over 50 years, and back then, local authorities were building nearly half of those homes. Today, those same authorities are struggling, with some even going bankrupt.

Then there’s the current economic climate, which is pretty rough. The Labour Chancellor, Rachel Reeves, has acknowledged that the UK is facing “the worst set of circumstances since the Second World War.”

But hold on! There are some positive signs too. Interest rates are expected to fall this year, making mortgages more affordable. The UK economy has started growing again. And with Labour putting such emphasis on housing in their plans, there’s a strong indication that the government will be serious about supporting the construction industry.

The Key to Success – Planning Reforms

One major hurdle is the current planning system. It’s so bogged down that fewer homes are getting planning permission than are actually being built.

“The system is understaffed, undermotivated and underfunded,” says James Dunne, head of operational real estate at asset manager Abrdn.

To make this housing revolution a reality, Labour needs to make some serious changes to the planning process. If they can streamline the system and make it easier to get permission to build, it could be a game-changer.

Don’t Forget the Demand Side

But it’s not just about getting planning permission. There’s also the question of demand.

Oli Creasey, property research analyst at wealth manager Quilter Cheviot, says, “There are many people who would like to buy a house, but far fewer who can afford to at current mortgage rates.”

So, even if Labour succeeds in boosting the supply of homes, there’s no guarantee that people will be able to buy them. This is a big factor that could hold back the housing market.

The Competition and Markets Authority’s Probe

Adding to the uncertainty, the Competition and Markets Authority (CMA) is investigating eight of the UK’s biggest housebuilders for possible anti-competitive practices. This could further dampen investor enthusiasm for the sector.

Opportunities Amidst the Challenges

Despite the challenges, there are still opportunities for savvy investors.

Housebuilders – Riding the Wave

For those who believe in the housing market, direct investment in housebuilders is an option. Vistry Group is one company worth looking at. Founded during a previous period of strong housebuilding, Vistry (formerly Bovis Homes) has seen revenues rise by 30% year-on-year and has joined the FTSE 100.

Vistry’s CEO has publicly supported the Labour government’s plans, and their focus on partnerships with public sector authorities puts them in a strong position to benefit from the upcoming construction boom.

Bricks and Beyond – The Supply Chain

For a less direct approach, consider investing in companies that supply the housebuilding sector. Brickmakers, for instance, are likely to see a surge in demand as the construction industry expands. Forterra and Ibstock, both domestic brick producers, are worth keeping an eye on.

Travis Perkins, a major supplier to the construction trade, is another interesting option, especially with their new CEO, Pete Redfern, who has a proven track record of turning around businesses.

And once those homes are built, they need furniture! DFS and Dunelm Group, which cater to first-time buyers and affordable housing, could see a boost in sales.

The Bigger Picture – A Wider Economic Impact

The impact of increased housing construction extends beyond the immediate supply chain.

Crispin Royle-Davies, of the Nuveen Global Real Estate Carbon Reduction fund, points out that “UK domestic equities as a whole could see an uptick as, according to a study by [the Confederation of British Industry] & Oxford Economics, for every £1 spent in construction UK GDP grows by £2.92.”

The Takeaway – A Time for Investment

Even with the challenges, Labour’s ambitious housing plans present a significant opportunity for investors. Whether you choose to invest directly in housebuilders, support the supply chain, or back the wider economic benefits, now is the time to be strategic and make your move. The UK housing market is poised for change, and those who position themselves correctly stand to reap the rewards.