Labour may have pledged to build 1.5 million homes, but the shares of UK-listed housebuilders are still down in the dumps.

Over the past six months, Persimmon's share price has fallen by 27 per cent to £1,200 at the time of writing. That's down from a high of £3,201 in April 2021.

Taylor Wimpey has fallen 29 per cent over the past six months, with the share price down from a high of £190 in April 2021 to £115.

Barratt Redrow is down 18 per cent in six months, with its share price having almost halved from a high of £795 to £428.

Vistry Group has seen an even sharper decline of late with its share price down 55 per cent over the past six months. 

The housebuilders have voiced concerns over greater building cost pressures amid the disruption of the Autumn Budget and subdued economic instability. 

Despite this, their latest results tend to paint a slightly rosier picture - at least when compared to 2023.

York-based housebuilder Persimmon finished 10,664 properties in 2024, a 7 per cent rise on the previous year and ahead of market forecasts. 

Taylor Wimpey ended 2024 with an order book of 7,312 homes worth nearly £2billion, compared to 6,999 properties valued at £1.77billion in December 2023. 

Meanwhile, Barratt Redrow's statutory profits surged by 23.1 per cent to £117.2million over the six months to 29 December 2024 as overall home completions grew by 10.9 per cent to 6,846. 

Keir Starmer promised that Labour would back housebuilding from 'day one' to meet its ambitious target of 1.5 million homes over the next five years.

That means 300,000 homes will need to be built each year - more than double the amount built in 2022-23 and a target that has not been hit for more than half a century.

The Government intends to achieve this by cutting planning application delays, helping first-time buyers and building on 'ugly' green belt land.

One might expect these ambitious targets to translate into postivity around the housebuilding sector as a whole and rising share prices - but instead the opposite is true.

Alan Dobbie, co-manager of the Rathbone Income Fund argues that actions speak louder than words when it comes to housebuilding targets, particularly given the track record of previous Governments.

He says: 'Both Labour and the Conservatives had highly ambitious targets for building new homes included in their general election manifestos. 

'Given that the UK has failed to build at these rates for over 40 years, few in the market paid them much heed.

Dobbie does concede, however,  that recently some housebuilders are sounding a little more positive on the changes the Government is making. However, he argues that hitting targets won't necessarily translate into higher share prices.

'These changes will take time, says Dobbie, 'but the Government does seem serious about reform. 

'From a share price perspective, whether we actually hit the 1.5 million new homes target doesn't matter so much. 

'The direction of travel is clear and housebuilder valuations imply little improvement from the low build rates of recent years.'

Why are housebuilding stocks doing so badly?

Market uncertainty is a major reason for the poor performance of housebuiling stocks, according to Russ Mould, investment director at AJ Bell.

He says: 'Housebuilding stocks are sagging again, and the main reason is sticky inflation, because investors suspect that this, in turn, might mean the Bank of England does not cut interest rates as quickly as hoped. 

'That could mean mortgage rates remain higher for longer, too, and thus mean that housing affordability could remain a challenge for many.'

The average UK house price of just under £300,000, according to Halifax, currently represents 8.1 times the average annual wage.

'No bank is going to offer a mortgage of eight times salary, so buyers need big deposits and low borrowing costs to help them on their way – unless wage growth suddenly accelerates, house prices fall, or both,' adds Mould.

'Further complications include ongoing remediation costs for cladding, input cost inflation and soggy consumer confidence. 

'The go-go years of Help to Buy, with record profit margins and fat cash returns to shareholders, are therefore unlikely to be repeated in a hurry, even allowing for the Government's desire to cut red tape, accelerate planning permissions and drive construction volumes upwards.'

Should you buy or sell housebuilding stocks? 

Despite these challenges, Alan Dobbie says he is cautiously optimistic on the sector. 

'While the paths of interest rates and unemployment remain uncertain, valuations and dividend yields are attractive,' he says. 

'Planning reform is a slow burn, but it could yield significant rewards over time.'

Russ Mould, investment director at AJ Bell says some investors may be attracted by how cheap housebuilder shares currently are. 

'If there is any good news, it is that share prices are already depressed and reflect the marked change in backdrop in this decade compared to the last one,' he says. 

'As such valuations may be more attractive, at least to patient contrarians who use the old rule of thumb that builders look interesting when they trade on one times book, or net asset, value or less, and less so when they trade toward two times or more.'

Which housebuilder stocks are a buy?

Alan Dobbie co-manager of the Rathbone Income Fund thinks there is a strong case for holding Persimmon's shares.

'We own Persimmon in our Rathbone Income fund,' says Dobbie. 'Compared to industry peers, Persimmon's sales are a little more skewed towards first-time buyers. 

'This should mean they would benefit more than most when the housing market recovers. 

'On top of this, following a few weak years, the company has significant scope for improving its profit margins as revenues rise.'

However, not everyone is won over. Anthony Codling, head of European housing for investment bank, RBC Capital Markets, says: 'On a longer-term view - Persimmon trades at a 22 per cent premium to the sector, and we continue to expect it to underperform its peers in the year ahead.'

Charlie Huggins at Wealth Club thinks Berkeley Group is the most attractive way to gain exposure to the sector. 

'Berkeley is significantly more exposed to London than the other listed builders, where the housing shortage is most acute. 

'It also has a unique business model. It is the only listed housebuilder able to deliver large, complex urban regeneration projects at scale. 

'The complexity of these projects reduces competition and means Berkeley can deliver higher profit margins and returns than its peers.'  

Dan Coatsworth, investment analyst at AJ Bell prefers Crest Nicholson, Vistry Group and Barratt Redrow, although he concedes that each comes with its own risks.

He says: 'If Crest Nicholson can fix its well-documented operational glitches, then it may be very cheap, but you can only assume that Bellway walked away from its proposed bid for good reason,' he says. 

'Meanwhile Barratt Redrow needs to prove the merits of the merger and Vistry needs to show it is on top of 2024's project problems. 

'If so, all three could prove cheap, providing interest rates go down and housing demand gets a boost at some stage.'

However, Coatsworth thinks that investors who fear an ongoing economic malaise in the UK may prefer to look elsewhere.

'A gloomier economic outlook and the prospect of a wave of job cuts in the UK could dampen consumer sentiment and stop certain people from moving house for various reasons,' he adds.

'Some people might be worried about their job and don't want to commit to a house purchase in this environment. 

'Others might want to get on the property ladder but are sitting tight, hoping that the bleak outlook will make homes more affordable later in the year. That clouds the demand picture for housebuilders.

'And on the supply side, these companies are having to deal with cost inflation again, be it their labour force or materials.'

A further negative sign is that short sellers are betting on a barrage of bad news from the sector.

Short selling is a trading strategy that aims to benefit from the fall in the price of a share, a bond, a commodity, a currency or a stock market index. 

Vistry, Persimmon and Taylor Wimpey are among the most-shorted housebuilders.

'Vistry looks the most vulnerable because it has already issued a succession of bad news,' says Coatsworth. 

'In December, the housebuilder issued its third profit warning in as many months, taking the shares to a two-year low. It has been hit by development delays and understated costs.

'The fact short positions in Vistry subsequently increased after three profit warnings implies that certain investors think more bad news is coming.'

For income hunters, Anthony Codling of RBC Capital Markets thinks Taylor Wimpey is worth considering. 

He says: 'The shares trade at a discount to book value and offer a yield of more than 8 per cent. 

'We appreciate that growth in 2025 is hamstrung by planning, but planning is changing for the better [and] the scene is set for recovery, a recovery not yet priced into the shares in our view.'

Codling also appears to like Bellway. He says: 'The robust performance of the group is at odds with its subdued share price performance. 

'The underlying housing market appears to us to be stronger than investors think it is. 

'Mortgage rates have ticked up since Bellway announced its two-year growth plans, but customer demand has remained firm, and Bellway remains confident about delivering on its growth expectations for the full year.'