The final report from the CMA on housebuilding in England, Wales and Scotland has just been released.

The CMA launched its housebuilding market study a year ago to consider the supply of new homes in England, Scotland and Wales. This note sets out some of the key points arising from that report.

Potential drivers of problems in the market

Overall, the study found that the housebuilding market is not delivering well for consumers and has consistently failed to do so over successive decades. It identified several potential drivers of problems in the market:

• The CMA notes that "the nature and operation of the planning systems is a key driver of the under-delivery of new housing" and is "exerting a significant downward pressure" on the overall number of planning permissions being granted. Three key concerns limiting the system's ability to support the delivery of housing are:
• lack of predictability;
• length, cost and complexity of the planning process; and
• insufficient clarity, consistency and strength of local planning authority (LPA) targets, objectives and incentives to meet housing need.
• As for land-banking, the CMA concluded "we do not consider that competition in the land market, or the land banks held by different housebuilders individually or in aggregate either locally or nationally, is significantly distorting competition between housebuilders in delivering houses. While it is likely that the amount of land being held in housebuilders' land banks is above the level we would see in a well-functioning market, this is primarily a symptom of wider problems in the market, mainly driven by the time and uncertainty associated with obtaining planning permission. Artificially reducing the level of land banks without addressing these underlying drivers would be most likely to have a negative effect on the amount of housing that is being built".
• Private sector housebuilders are more likely to focus on housing demand (determined by the number willing and financially able to buy) rather than housing need (being the amount of housing required for all households to live in accommodation meeting prescribed standards).
• Build-out rates are consistent with absorption rates i.e. the rate at which houses can be sold without needing to reduce their prices.
• The CMA states it has seen evidence suggesting that some housebuilders may be sharing non-public information on sales prices, incentives and rates of sale which could potentially prevent, restrict or distort competition. The CMA has decided to launch an investigation into this suspected conduct under the Competition Act 1998.
• There is evidence of a range of limitations (such as the limited information available to consumers on quality) on how far competition drives quality in the market.
• Take-up of innovation and modern construction methods has been slow largely due to high upfront costs and the need for multiple stakeholders (e.g. lenders and warranty providers) to buy in.
• There is a growing trend towards the private management of public amenities on housing estates. Such arrangements (for example, unadopted amenities) often come with inadequate protections for consumers and create "significant detriment" for households over an extended period.

Four areas for intervention

The CMA's view is that intervention is required to:

• address the increasing prevalence of private estate management arrangements and the negative effects they have;
• improve the quality and redress routes for consumers;
• improve the planning system to counteract the time, expense and uncertainty associated with negotiating it and the effect this has on the number of planning permissions sought and granted each year; and
• deliver the number of homes required to meet targets which go beyond the level private housebuilders have an incentive to provide.

Recommendations/proposals

The CMA makes several recommendations and proposals to government, including but not limited to the UK, Scottish and Welsh governments working together to:

• implement mandatory adoption of public amenities on new housing estates (outside minor, well-defined exceptions);
• prohibit the establishment of new embedded management arrangements;
• develop and approve a single mandatory consumer code for all housebuilders operating in Great Britain;
• activate the New Homes Ombudsman Scheme; and
• ban drip pricing of all mandatory elements of a new home.

The CMA also puts forward various options for the UK, Scottish and Welsh governments to consider relating to the reform of their planning systems, including but not limited to:

• streamlining the planning system to significantly increase the ability of housebuilders to begin work on new projects sooner and bring forward marginal projects which may have previously been non-viable due to the costs of taking them forward;
• improving LPA capacity and resource by raising planning fees to a cost-reflective level and ringfencing those fees; and
• LPAs could require housebuilders to increase the diversity of the types of homes they build on larger sites.

(For the full list of proposals and recommendations, please see the final report).

The CMA acknowledges, however, that even if all proposals/recommendations are taken forward, that would not necessarily be enough to secure delivery of a sufficient number of quality homes. This is because, in addition to the factors the CMA considered, there are several external factors that influence how the market performs (such as interest rates) and the market is, by nature, cyclical. The CMA suggests that more fundamental interventions from policymakers may be required to, for example, encourage non-speculative housebuilding models or build on existing measures to further support increasing build-out rates.

Conclusion

Among the points made in the report, the following in particular stand out:

• that land banking is effectively a symptom of wider structural issues underpinning the market, notably, the difficulties of navigating the planning system, rather than being a root cause of under-delivery of housing;
• the need to provide greater support to the planning systems in England, Scotland and Wales to enable them to deliver streamlined and effective service. This echoes comments from Dentons' recent Real Estate Predictions Event of the need to prioritise resourcing rather than reform of the planning systems; and
• the problems caused by the private management of amenities on housing estates giving rise to problems for consumers. This reflects wider concerns about the service charges levied on new housing estates.

So, while the conclusions of the CMA may not come as a surprise, they do provide helpful additional impetus for stakeholders to reconsider what can be done to speed up housing delivery across England, Scotland and Wales.