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CMA Market Study into Housebuilding: key takeaways

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By Patrick Wetherall, Tom Bradley

18 Mar 2024 | 2 minute read
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Tasked by Housing Secretary Michael Gove in February 2023 with investigating the supply of homes to consumers in England, Scotland and Wales, the Competition and Markets Authority (CMA) last week published its final report into the housebuilding market in Great Britain. We look at the key findings from the study and what its recommendations could mean for developers and consumers in the future.

The study concluded that, as has now been the case for consecutive decades, the housebuilding market is not delivering for consumers both in number of houses and quality of homes. The CMA stated there is a failure to build enough homes in the areas needed most and that levels of innovation in the industry are "lower than expected in a dynamic, well-functioning market".

Whilst factors like demographic changes and the economic environment are impactful, the report highlighted the following areas as significantly contributing to the under-performance of the housebuilding market in Great Britain:

  • The planning system
  • The speculative approach and build out rates
  • Standards that should be met when processing the shared personal data
  • A data specification setting out the types of data to be shared between parties

The CMA’s report found the planning system not fit for purpose. The current system is unpredictable, complex and does not have clear targets for local planning authorities (LPA). This combination has led to the number of planning permissions granted by LPA’s being insufficient to support housebuilding at the level required to meet targets.

The report also found the planning system to be having a disproportionate impact on SME housebuilders when compared to Britain’s largest developers.

New homes in Great Britain are primarily delivered through the ‘speculative model’ which has not been conducive to meeting housing targets. The speculative model has seen developers build at a rate consistent with absorption rather than the needs of the area. This approach has allowed for both house prices and the profitability of housebuilders to remain high.

The report also highlighted certain housebuilders may be in breach of competition law by sharing non-public, commercially sensitive information. The CMA has launched, under the Competition Act 1998, an investigation into this alleged behaviour.

The quality of housebuilding and customer service provided by certain developers was found to be wanting. Concerns were raised over several ‘snagging’ reports, with those homeowners experiencing a greater number of snags, finding it more difficult to have them resolved.

Similarly, the CMA found there to be issues surrounding customer service received both pre and post completion. This was prevalent in relation to the transparency of information when customising homes prior and resolving snags. Alongside this, the study found the access to appropriate redress to be unsatisfactory.

The private management of estates was deemed unfavourable to consumers. Homeowners have faced detriment in the form of the types of amenities available, the quality of management services provided on estates and a lack of transparency regarding charges. The report also found there to be inadequate information on the management of the estate before homeowners purchase and that once in the property, homeowners struggle to switch management companies.

CMA suggestions

To address concerns identified in the report, the CMA has provided a number of recommendations to the governments in England, Scotland, and Wales to improve the housebuilding market. Three of the key changes are:

  1. A reform of the planning system – this will include a streamlined planning process to allow developers to begin building sooner and an improved target setting system for LPAs to help meet the need for new homes.
  2. A New Homes Ombudsman Scheme and single Consumer Code – the implementation of an improved Scheme and Code for the entirety of Great Britain would seek to provide a clear process of redress for consumers and help improve the quality of housebuilding.
  3. Estate Management – the introduction of common: standards, guidance, and consumer protections, for public amenities on housing estates. This is to be coupled with local councils adopting the estate management of future housing developments.

Conclusion

Whilst the CMA highlights the need to increase the number of homes produced, there is a particular focus on improving consumer protection for buyers. Developers are likely to be required to provide clearer, more comprehensive information pre-sale and increase their after-sale support, particularly when remedying snags.

Housebuilders are also likely to be required to improve quality standards more generally, with the CMA providing for greater consistency across the housebuilding market through a New Homes Ombudsman Scheme and singular Consumer Code.

If you require any advice on these issues, please contact a member of the team on the details below.

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