Questor, The Telegraph’s investing column, takes a weekly view of the markets – what is moving them, what lies ahead and how all of this could affect your portfolios and financial goals.

The household goods and home construction sector is dead last out of all 38 industrial groupings that comprise the FTSE 350 index, and has already fallen 26pc in value since the beginning of the year.

The sector is also third from bottom of the pile on a one-year view, with a 31pc decline, and second from bottom over five years, thanks to a 56pc plunge.

That dreadful run suggests that there are long-term factors at work, and gloomy statements from Barratt Redrow, Berkeley and Taylor Wimpey over the spring – to name but three – are not helping sentiment, either.

All three announced cutbacks in purchases of new land for plots upon which they can build in the future, which suggests they are becoming less optimistic on the outlook. Now Berkeley is facing relegation from the FTSE 100 after nearly nine years as a member of the UK’s elite stock market index.

All of this begs the question of what has gone wrong and – since stock markets always look forwards and never backwards – what needs to go right for the builders to thrive again?

Another brick in the wall

The tale of woe for the builders is quite a long one, as their share prices suggest, and there are myriad causes.

Interest rates have finally gone up, after more than a decade at almost zero, and that means mortgages are more expensive to take out.

Hopes for interest rate cuts from the Bank of England this year have faded away, thanks to the potentially inflationary implications of the war in the Middle East, and financial markets have even started to price in interest rate increases.

Higher borrowing costs and interest bills for consumers lead to the next challenge for the industry, which is how house prices have risen – and stayed high – both in absolute terms and relative to pay.

According to the Office for National Statistics, the average UK house costs £268,000. The same source says that the average UK household wage is £745 per week, including bonuses, or just under £39,000 a year.

The average house thus costs 6.9 times the average pay packet, compared to 6.3 times at the time of the launch of the Help to Buy scheme in April 2013. No bank is likely to offer a mortgage equivalent to seven times pay, so affordability is a key issue.

Tax always plays a role, too. The holiday on stamp duty land tax during lockdowns ended in 2021 and subsequent reliefs, launched in 2022 on the lower tax bands, ended in 2025.

Rachel Reeves, the Chancellor, also increased stamp duty land tax surcharges on second homes and buy-to-let properties in 2024 and cut both the price thresholds for the nil-rate band and for first-time buyers in 2025.

Summer 2017’s fire at the Grenfell Tower in London ushered in a new round of regulations on building quality. Builders may treat the subsequent remediation costs as exceptional and exclude them from stated earnings, but the result is still higher build costs and tighter regulation, which could lead to planning delays for housebuilders’ land banks.

Input cost inflation, in the form of higher pay or raw material or energy costs, are also a challenge, especially as house prices look to be flattening out.

On top of all of that, there are company-specific issues, such as a litany of operational miscues at Crest Nicholson; how Vistry’s shift to a mixed-use partnerships model after 2022’s purchase of Countryside is not working out as planned; and how the Build to Rent model at Berkeley and others is proving more difficult to monetise than expected, particularly at complex brownfield sites.

The way ahead

By contrast, there is not much good news around right now, but that is just the sort of scenario which may attract contrarian hunters of deep value, who are prepared to research unloved stocks and wait patiently for things to get better.

One thing in the favour of the builders is that their shares are unloved: all of them, bar one, trade below one times tangible net asset, or book, value per share.

The builders also have net cash, in aggregate, on their balance sheets, unlike in 2007 when they walked into a terrible downturn with huge amounts of debt. In this respect, they can hunker down and wait for an upturn, even if they curtail land purchases, share buybacks or trim dividends to do so.

The issue then is what needs to happen for the cycle to improve. The opposite of the list of problems is the answer, and only investors can decide for themselves how likely interest rate cuts, new government incentive schemes, lower taxes, looser regulations, or a combination of all four really are.

Equally, it may just take a long time for wages to grow sufficiently for affordability to improve and allow demand to grow – unless land and house prices start to actually fall, in which case those discounts to book value will close not because share prices go up, but because asset valuations fall.