REG - Competition and Mkts - CMA finds concerns in housebuilding market

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26/02/2024 08:15

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RNS Number : 4124E  Competition and Markets Authority  26 February 2024

CMA finds fundamental concerns in housebuilding market

·    Planning system and the limitations of speculative private
development have seen too few homes built.

·    Concerns around estate management charges and the build quality of
some new homes.

·    New Competition Act investigation opened into 8 housebuilders
following evidence suggesting information sharing.

The CMA has concluded its housebuilding market study in England, Scotland, and
Wales.

The Competition and Markets Authority (CMA) has published its final report on
the housebuilding market in Great Britain - finding that the complex and
unpredictable planning system, together with the limitations of speculative
private development, is responsible for the persistent under delivery of new
homes.

The study also found substantial concerns about estate management charges -
with homeowners often facing high and unclear charges for the management of
facilities such as roads, drainage, and green spaces. Concerns have been
found, too, with the quality of some new housing after the number of owners
reporting snagging issues increased over the last 10 years.

Sarah Cardell, Chief Executive of the CMA, said:

"Housebuilding in Great Britain needs significant intervention so that enough
good quality homes are delivered in the places that people need them.

"Our report - which follows a year-long study - is recommending a streamlining
of the planning system and increased consumer protections. If implemented, we
would expect to see many more homes built each year, helping make homes more
affordable. We would also expect to see fewer people paying estate management
charges on new estates and the quality of new homes to increase. But even
then, further action may be required to deliver the number of homes Great
Britain needs in the places it needs them.

"The CMA has also today opened a new investigation into the suspected sharing
of commercially sensitive information by housebuilders which could be
influencing the build-out of sites and the prices of new homes. While this
issue is not one of the main drivers of the problems we've highlighted in our
report, it is important we tackle anti-competitive behaviour if we find it."

HOUSEBUILDING IN GREAT BRITAIN

There are persistent shortfalls in the number of homes built across England,
Scotland, and Wales, with less than 250,000 built last year across Great
Britain - well below the 300,000-target for England alone.

The report identified a wide range of different types of housebuilders
operating in the market:  around two-fifths of the homes built between 2021
to 2022 were delivered by the largest, national housebuilders while more than
50,000 homes were delivered by thousands of smaller, regional builders.

Around 60% of all houses built in 2021 to 2022 were delivered by speculative
private development, which is when builders obtain land, secure planning
permission, and construct homes without knowing in advance who will buy them
or for how much. This way of building homes has given builders flexibility to
respond to changes in the market. However, the country's reliance on this
model has seen the gap widen considerably between what the market will deliver
and what communities need.

CMA FINDINGS

The report found that this speculative approach to building, coupled with
complex and unpredictable planning rules across the three nations, has been
responsible for the persistent under delivery of homes:

·    Planning Rules: the planning systems in England, Scotland and Wales
are producing unpredictable results and often take a protracted amount of time
for builders to navigate before construction can start. The report highlights
that many planning departments are under resourced, some do not have up to
date local plans, and don't have clear targets or strong incentives to deliver
the numbers of homes needed in their area. They are also required to consult
with a wide range of statutory stakeholders - these groups often holding up
projects by submitting holding responses or late feedback to consultations on
proposed developments.

·    Speculative Private Development: the report found another significant
reason behind under delivery of homes are the limitations of private
speculative development. The evidence shows that private developers produce
houses at a rate at which they can be sold without needing to reduce their
prices, rather than diversifying the types and numbers of homes they build to
meet the needs of different communities (for example providing more affordable
housing).

·    Land Banks: the CMA assessed over a million plots of land held by
housebuilders and found the practice of banking land was more a symptom of the
issues identified with the complex planning system and speculative private
development, rather than it being a primary reason for the shortage of new
homes.

·    Private Estate Management: the CMA found a growing trend by
developers to build estates with privately managed public amenities - with 80%
of new homes sold by the eleven biggest builders in 2021 to 2022 subject to
estate management charges. These charges are often high and unclear to
homeowners. Whilst the average charge was £350 - one-off, unplanned charges
for significant repair work can cost thousands of pounds and cause
considerable stress to homeowners. The report highlights concerns that many
homeowners are unable to switch estate management providers, receive
inadequate information upfront, have to deal with shoddy work or
unsatisfactory maintenance, and face unclear administration or management
charges which can often make up 50% or more of the total bill.

·    Quality: housebuilders don't have strong incentives to compete on
quality and consumers have unclear routes of redress. Analysis also suggests
that a growing number of homeowners are reporting a higher number of snagging
issues (at least 16). The CMA's consumer research and other evidence revealed
that a substantial minority also experienced particularly serious problems
with their new homes, such as collapsing staircases and ceilings.

 

INFORMATION SHARING

The CMA found evidence during the study which indicated some housebuilders may
be sharing commercially sensitive information with their competitors, which
could be influencing the build-out of sites and the prices of new homes.
 While the CMA does not consider such sharing of information to be one of the
main factors in the persistent under-delivery of homes, the CMA is concerned
that it may weaken competition in the market.

The CMA has therefore launched an investigation under the Competition Act 1998
into Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor
Wimpey, and Vistry. The CMA has not reached any conclusions at this stage as
to whether or not competition law has been infringed.

More information can be found via the CMA's housebuilding investigation case
page
(https://www.gov.uk/cma-cases/investigation-into-suspected-anti-competitive-conduct-by-housebuilders)
.

NEXT STEPS

The CMA believes a substantial intervention in the housebuilding market is
necessary to address the issues its market study has identified.

The CMA would like to see a housebuilding market that delivers:

(1)     more homes overall, and particularly in the areas of highest
demand, in turn reducing pressure on affordability;

(2)     consistently better outcomes on new-build quality, with consumers
having an effective route to redress; and

(3)     reduced detriment to consumers arising from the private management
of public amenities on new-build estates.

·    The CMA is making recommendations to governments in those areas where
it sees opportunities to improve market outcomes without significant
trade-offs with other policy objectives. These include:

o  requiring councils to adopt amenities on all new housing estates.

o  introducing enhanced consumer protections for homeowners on existing
privately managed estates - including making it easier for homeowners to
switch to a more competitive management company.

o  establishing a New Homes Ombudsman as soon as possible and setting a
single mandatory consumer code so homeowners can better pursue homebuilders
over any quality issues they face.

 

·    Given the wider policy trade-offs and complexities that are inherent
in the design and operation of the planning system, the CMA does not consider
it appropriate to make specific recommendations to governments in this report
about how those trade-offs should be made. However, given the vital role that
the planning systems play in shaping market outcomes, the report sets out
proposed options for consideration. These include:

o  ensuring local authorities put in place local plans and are guided by
clear, consistent targets that reflect the need for new homes in their area.

o  streamlining the planning systems to significantly increase the ability of
housebuilders to begin work on new projects sooner - while not watering down
protections such as for the local environment. Measures to improve the
capacity of council planning departments would also enable them to process
more applications.

o  introducing measures to increase the build-out of housing sites by
incentivising builders to diversify the tenures and types of homes delivered.

While the recommendations and options above will significantly improve
outcomes for homeowners and the housebuilding market, the evidence shows that
the market may still not deliver the quantity of homes that meets Great
Britain's housing need.

It is open to policymakers to deliver change through more fundamental
interventions, often with fiscal and policy implications, that go beyond the
way in which the market itself works but would have a significant impact on
the quality and affordability of new homes being built. While it is not for
the CMA to offer recommendations or specific policy proposals in this space
now, the report sets out areas of potential intervention.

These interventions would include a significant increase in non-speculative
house building that has previously been led by local councils and housing
associations.

More information - including the full final report - can be found via the
CMA's housebuilding market study case page
(https://www.gov.uk/cma-cases/housebuilding-market-study) .

-ENDS-

NOTES TO EDITORS

1.   The final report marks the end of the CMA's market study.

2.   The housebuilding market study examined housebuilding in England,
Scotland, and Wales. The CMA launched the market study
(https://www.gov.uk/government/news/home-building-and-renting-probed-to-help-buyers-and-tenants)
on February 28 2023.

3.   The CMA launched a consultation on 25 August 2023 on whether to make a
Market Investigation Reference, based on concerns to do with weaknesses in the
adoption process for roads and public open spaces resulting in responsibility
for their maintenance being passed on to private companies that may have
significant market power, and the large amount of developable land controlled
by the largest housebuilders, which it was feared could be hindering the
growth of smaller housebuilders. The CMA has decided not to launch a Market
Investigation Reference at this time, for reasons set out in the final report.

4.   The Chapter I prohibition of the Competition Act 1998 prohibits
agreements, concerted practices, and decisions by associations of undertakings
which have as their object or effect the prevention, restriction, or
distortion of competition within the UK or a part of it and which may affect
trade within the UK or a part of it unless they are excluded or exempt. The
CMA may launch an investigation under the Competition Act 1998 if it has
reasonable grounds to suspect that there has been an infringement of
competition law.

5.   There is no legal deadline to complete inquiries under the Competition
Act 1998. As with all its work, the CMA will progress this investigation at
pace whilst ensuring a robust and detailed review is conducted and parties'
rights of defence are respected.

6.   The CMA launched its consumer protection project in the private rented
sector
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.gov.uk%2Fcma-cases%2Frented-housing-sector-consumer-research-project&data=05%7C02%7CJohn.Bayliss%40cma.gov.uk%7Ce4a5893f3f74413ee3a608dc346db6de%7C1948f2d40bc24c5e8c34caac9d736834%7C1%7C0%7C638442893034145999%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=ykJ%2F%2BJqljJtvJem6YpjU53t5YxA2mZl1pi1KyfY%2BPGw%3D&reserved=0)
in 2023. As previously announced, the current focus is on investigating
so-called 'event charges' in the retirement housing sector with other work
paused until the government implements its Renters Reform Bill and the Digital
Markets, Competition and Consumers (DMCC) Bill which are currently going
through Parliament.

7.   For media enquiries, contact the CMA press office on 020 3738 6460 or
press@cma.gov.uk (mailto:press@cma.gov.uk) .

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