The Competition Markets Authority CMA has concluded its housebuilding market study in England, Scotland, and Wales and has reported it has fundamental concerns about the housebuilding market.
The regulator raised concerns 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
The CMA said it found 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 and highlighted several areas of concern:
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.
Next Steps
The CMA believes a substantial intervention in the housebuilding market is necessary to address the issues its market study has identified, and called for changes to ensure delivery of:
- more homes overall, and particularly in the areas of highest demand, in turn reducing pressure on affordability;
- consistently better outcomes on new-build quality, with consumers having an effective route to redress; and
- reduced detriment to consumers arising from the private management of public amenities on new-build estates.
The CMA made the following recommendations to governments in those areas where it sees opportunities to improve market outcomes without significant trade-offs with other policy objectives. These include:
- requiring councils to adopt amenities on all new housing estates.
- 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.
- 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 said it 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:
- 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.
- 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.
- introducing measures to increase the build-out of housing sites by incentivising builders to diversify the tenures and types of homes delivered.
While the CMA believe these 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.
A spokesman said:
“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.
Brian Berry, Chief Executive of the Federation of Master Builders (FMB) welcomed many of the findings, but raised concerns that the voice of micro-house builders had been lost in the investigation, saying: “The Competition Markets Authority (CMA) investigation into the state of housebuilding is right to highlight the planning system as a problem slowing down delivery of new homes.
“Resources are desperately needed by planning authorities to help small builders through the planning system. The CMA findings are a step forward, especially with an acknowledgement that SMEs are disproportionally affected by the planning system. These findings will hopefully give the Government renewed impetus to resolve these long-standing issues which the FMB has been highlighting for many years.”
Berry concluded: “It is concerning, however, that the report does not provide enough nuance in such a complex market. The report has a very broad definition of SMEs with very little definition given to the range of house builders within the SME market, such as micro developers, custom house builders and new entrants. There are also few international comparisons and where they are included, the findings are fairly tepid, with little realisation for the potential of areas such as custom build, which could be an area of growth for UK builders. In similar countries, such as Germany, they are much further ahead on custom build properties accounting for a much higher percentage of overall housing delivery, which means less reliance on a small group of major housing developers and more diversity of design.”
