The UK Competition and Markets Authority (CMA) has released its conclusive report on the housebuilding market in Great Britain. The study, launched in February 2023, points out the key factors contributing to the continuous under-delivery of new homes (including the shortcomings of speculative private development and complex and unpredictable planning systems). Substantial concerns have also been raised regarding (often high and unclear) estate management charges for the management of facilities such as roads, drainage, and green spaces. Additionally, concerns have been raised regarding the increased volumes of reports by homeowners for 'snagging issues’ and unsatisfactory maintenance work in new housing - this has not been helped by the lack of incentive for housebuilders to compete on quality.

Sarah Cardell, CEO of the CMA, emphasised the need for significant intervention, echoing the recommendations of the report to streamline the planning system and increase consumer protections, which could lead to more homes being built at a higher quality and more affordable rates.

The CMA has also launched a new investigation into suspected sharing of commercially sensitive information amongst housebuilders. If this behaviour is present in the market, it could weaken competition, leading to the prices of new homes and the build-out of sites being affected. 

CMA Findings

In 2023, less than 250,000 homes were built across England, Scotland, and Wales, falling significantly short of the 300,000-target set for England alone. Although the report identified a diverse range of housebuilders operating in the market (made up of both smaller regional builders and the largest, national housebuilders) around two-fifths of homes were delivered by the largest national homebuilders. The CMA believes a substantial intervention in the housebuilding market is necessary to address the issues its market study has identified.

The following findings of the CMA highlight some of the issues that appear to be responsible for this persistent under-delivery of homes:

• Speculative Private Development: The report found problems associated with speculative private development, whereby builders obtain land and planning permission and construct houses before knowing who will buy them. One such problem revolves around the rate at which private developers sell houses, which allows them to maintain prices without needing to reduce them, rather than diversifying the types and numbers that they deliver to align with the needs of different communities (such as providing more affordable housing). 
• Planning Rules: Complex and unpredictable planning systems, which are time-consuming for builders to navigate, were found to be partly responsible for the under-delivery of housing. According to the report, many planning departments do not have an appropriate level of resources or incentives to deliver the requisite number of homes in their area; some do not even have up-to-date local plans. Moreover, the requirement for these departments to consult with statutory stakeholders can cause holding responses and feedback on proposed developments to be delayed.
• Private Estate Management: The CMA also highlighted concerns about private estate management. About 80% of new homes sold by the eleven largest builders in 2021 to 2022 were subject to estate management charges, which are often high and unclear. It was revealed that homeowners, who receive inadequate information upfront, may be unable to switch estate management providers, and find themselves having to deal with unsatisfactory work and maintenance. 
• Quality: The state of the market means that housebuilders lack the incentive to compete on quality. The growing number of homeowners who are reporting snagging issues, paired with the unclear routes of redress for consumers, raises significant concerns about the current market.
• Land Banks: Although land banking by housebuilders is not a primary reason for the homes shortage, the report found that it is rather a symptom of the complexities of the planning system and the issues surrounding speculative private development. 

CMA Recommendations

The CMA has made the following recommendations: 

• Councils to adopt amenities on all new housing estates;
• Introduction of enhanced consumer protections for homeowners on existing privately managed estates, including the ability to switch to a more competitive management company with improved ease; and 
• The establishment of a New Homes Ombudsman to help homeowners pursue homebuilders over quality issues.

The CMA also proposes streamlining the planning systems to increase the ability of housebuilders to begin work on new projects sooner, however, it has stopped short of making specific recommendations to governments about how this should be done. Diversifying the types of homes delivered to increase the build-out of housing sites, and ensuring local authorities implement local plans and are guided by clear, consistent targets, are just a few of the measures suggested. The CMA has also urged policymakers to consider more fundamental interventions, such as a significant increase in non-speculative housebuilding led by local councils and housing associations.

What Next?

While the CMA’s recommendations will no doubt carry considerable weight, it is ultimately for policymakers to deliver change in this area through more fundamental interventions, with a strong potential for fiscal and policy implications. The CMA has expressed its recognition that it may be a complex matter to resolve, involving a wide range of factors, with trade-offs needing to be made between important policy objectives. However, the CMA has also expressed its readiness to engage with policymakers, housebuilders, and other relevant parties to provide its support and guidance for the implementation of its recommendations where governments decide to act on these.

If you need more information or further guidance in this area, please contact Dr Saskia King and Aimee Guzinska-Bowley.

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