The UK Competition and Markets Authority (“CMA”) recently published its final report for the housebuilding market study in England, Scotland and Wales (the "Report"). 

The CMA’s market study was prompted by concerns of under-delivery of new homes and wider concerns around the state of the housebuilding market. In 2022-2023, less than 250,000 houses were built across Great Britain, which is significantly below the UK government’s target to deliver 300,000 homes per year in England alone. As a result, the CMA faced calls from industry bodies, MPs and the Secretary of State for the Department of Levelling Up, Housing and Communities to look into the housebuilding market. The CMA launched its market study into the housebuilding sector in February 2023 and published the Report on 26 February 2024. 

We cover some of the key findings and recommendations highlighted in the Report below.

Key findings 

The CMA found that the housebuilding market is not working well for consumers as the number of houses being built is below government targets (and impacting affordability) and there are concerns about low levels of innovation and the quality of new build homes. The CMA found that the main drivers of these poor outcomes include: 

1. Planning rules – The planning systems are often slow and produce unpredictable results. Many planning departments do not have clear targets or strong incentives to deliver the number of homes that are required in their area. Projects are often delayed by the wide range of statutory stakeholders that must be consulted.
    
2. Housebuilders’ incentives to supply new homes – Private sector housebuilders are likely to be more focused on building homes to meet demand rather than need, as demand will determine what and how much they can sell. As a result, the number of houses that housebuilders are likely to build is likely to vary according to the business cycle and housebuilders are likely to under-deliver housing relative to the socially desirable level, as the wider benefits of adequate housing are not captured by housebuilders (or other market actors).
    
3. Build-out rates and information-sharing – Evidence shows that private developers build houses at a rate at which they can be sold without having to reduce their prices, rather than diversifying their portfolios to meet housing needs (e.g. providing affordable housing). In addition, there was also evidence showing that some housebuilders may be exchanging commercially sensitive information (including sales prices, incentives, and rates of sale). The CMA does not consider this to be a main cause in the under-delivery of homes; however, it may weaken competition in the market.
    
4. Private estate management – Building estates with privately managed amenities is a growing trend among developers. In 2021-2022, 80% of new homes sold by the 11 biggest builders were subject to estate management charges. The Report raises concerns that many homeowners cannot switch estate management providers, are given inadequate information upfront, deal with low-quality services, and face large and unclear administration or management charges.
    
5. Quality and innovation – Consumer research and evidence showed that there is a lack of strong incentives for housebuilders to compete on quality and clear routes to remedies for consumers. There has been a growing number of reports of snagging issues by new homeowners, and a substantial minority of new homeowners also experienced more serious issues e.g. collapsing ceilings and staircases.

Next steps 

The CMA has made a number of recommendations to the government to help tackle the drivers of the  poor market outcomes. These recommendations include (inter alia): 

1. requiring councils to adopt amenities on all new housing sites;
2. prohibiting new embedded management arrangements;
3. introducing enhanced consumer protections for homeowners on existing privately manages sites, including making it easier for homeowners to switch management companies; 
4. establishing a New Homes Ombudsman; and
5. introducing a single mandatory consumer code so homeowners can better pursue homebuilders over quality issues.

Separately, due to the wider policy trade-offs and complexities of reforming the planning systems, the CMA has proposed options for consideration rather than recommendations to government. These options include (among other things) more objective and effective use of targets to ensure housing need is met and streamlining the planning system to allow housebuilders to begin work sooner. 

Ultimately, the CMA decided not to make a market investigation reference. However, as a result of the findings in relation to information sharing, on 26 February 2024 the CMA opened a new investigation into suspected breaches of competition law by eight housebuilders.

This post was co-written by Sandra Mapara and Tommy Yapp.