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Fresh interest in the housing sector

Warren Buffet who founded the hugely profitable American investment company, Berkshire Hathaway, always says you should invest in businesses you understand – which is one of the main reasons your blogger’s modest portfolio focuses on building shares. That is to say I like to think, working for the country’s only national cosmetic repair specialist, I understand what makes house-building and construction tick. However, I’ve come to realize is that what makes their share prices move is more to do with confidence, rather than anything substantial like the price of bricks.

Last week pointed this out perfectly. Most of the big developers’ shares have been hovering well below their peaks of last year – though those remained well below pre-recession values: kept down by investors’ fears about the end of quantitative easing, Help-to-Buy and various other mutterings from our politicians.

Then up stepped Mark Carney, the Governor of the Bank of England who – since he arrived from Canada – has indulged in a new form of communication with the financial sector which he calls “Forward Guidance.” Admittedly he’s had to have several goes at it, but the idea is he calms speculation by telling everyone the factors he will have to see at work – like unemployment falling below 7% – before interest rates rise from their historic lows.

And because all those ducks seemed to be getting lined up in a row, the market had been expecting an interest rate rise soon; which would push up mortgages and depress demand for new homes. So Mr Carney then says there is still plenty of slack in the labour market and any rises are still some way off and will be very gradual.

Yeeee-haaaa: start buying those building shares again screamed the big investors and the major home builders such as Persimmon, Redrow, Taylor Wimpey and Barratt all leapt by five per cent or more; then rose again the next day. Great if you owned enough of their shares, but out on site it really didn’t make any difference at all for the blokes on the trowel. Well not immediately at least.

By coincidence, last Thursday also saw the BBC screen the last in the series of documentaries about businesses that are subject to booms, and this time the cameras were turned on house-builders. Interestingly they looked back at the history of the industry, right back to the 1930s when building homes was used as a stimulus to drag us out of the Great Depression, and the 1970s when Barratt featured a helicopter in all the adverts for its range which spanned from “Super Solos” to family mansions.

The over-riding message from the company executives interviewed was that house-building has to be ready to react to changes in demand: in terms of the land they buy as well as the speed at which they build and the numbers of people they employ. And everyone in the supply chain, including ourselves at Plastic Surgeon, has to do something similar.

What makes our business different from the Barratts and Persimmons of this world, however, is that when they want more brickies they just have to compete with each other on wage rates to hire them. Finishers very definitely don’t grow on trees, but we thankfully continued to train new operatives right through the recession which is why we have been able to meet the demands of our client base now that the industry is booming again.

We’re even continuing to meet the needs of the other market sectors such as social housing, facilities management and specialist leisure work that we moved into when building work was slack.

So while the pension fund managers can move millions of pounds at the press of a computer key, Plastic Surgeon’s investment is going to continue to be rather more long term – in our people, their training and the equipment they need to carry out an ever growing range of repair services.

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