CMA concludes year-long housebuilding market study

The Competition and Markets Authority (CMA) has concluded a year-long housebuilding market study, which was carried out to assess whether the supply of housebuilding services in England, Scotland and Wales had adverse effects for customers, and to assess what steps should be taken if so.  

Key takeaways

• The CMA has made significant recommendations to the relevant Governments to address the concerns identified, with an executive summary for each jurisdiction.
• As some of these areas are devolved, the respective governments may take different steps, or indeed none at all. The recommendations are not binding.
• From a Scottish perspective, the CMA has offered to support the Scottish Government on its plans to bring forward a consultation paper to accelerate the planning system.
• Findings include concerns about estate management charges, build quality of some new homes and the fact that too few new homes are being built. The findings recognise there are multi-factorial causes for the issues within the market, largely that: the planning system is a barrier, the system is over reliant on private developers, and there is a lack of incentive for competition on quality.
• The report notes that the profitability of housebuilders is generally higher than it would expect, but that it didn’t require intervention due to the cyclical nature of the market, and the recent changes (interest rates in particular).  Helpfully the report does conclude that the practice of land banking is as a result of planning issues, rather than a problem in itself.
• One of the firm recommendations is that the New Homes Quality Code, aimed at reducing private management arrangements on new housing estates and providing greater protection to households living under private management arrangements which is currently optional for developers to sign up to, becomes mandatory for all developers. For developers who have already signed up to the New Homes Quality Code and have activated, this move would help ensure fairness in the market by ensuring that all developers have a level playing field in respect of the efforts they need to make to protect their customers.
• Another firm recommendation is the establishment of a New Homes Ombudsman. If established this could have significant implications for the market, depending on the powers the ombudsman had. The set up of an ombudsman would take time – it’s unlikely to be put through Parliament before summer recess, so it will depend on whether a party adopts the policy pre / post an election. The ombudsman would enforce the single mandatory consumer code. However, given that the New Homes Ombudsman Service already exists under the New Homes Quality Code, then the approach may be to widen the remit of that service especially if the recommendation above in respect of mandatory sign up to the New Homes Quality Code is implemented.

Our market-leading multi-disciplinary housebuilding practice (which includes representatives from our public law and regulatory and competition teams) is on hand to assist you should you require advice on any aspect of the CMA study. Please get in touch with your usual Burness Paull contact, or contact Richard Goodfellow.