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CMA competition probe slams UK’s biggest housing developers

Posted: 08-03-2024

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    In recent blog posts, we’ve cited the lack of affordable housing as a key driver of keeping house prices high. But what if the insufficient building of new homes wasn’t entirely the Conservative government’s fault?

    What if the Competition and Markets Authority investigated new-build developers and found disturbing traits slowing down construction? Well, they did, and that’s exactly what they found.

    Now, the CMA is calling for ‘substantial intervention’ across the industry to address their findings. 

    The competition authority will also investigate a newfound concern across Britain’s biggest builders. It believes developers are sharing commercially sensitive information that influences both the build-out of sites and house prices.

    Here, we look at the details of the probe, and how it came about.

    The catalytic factors behind the initial probe

    The initial catalyst for the 12-month CMA report was reports of painfully slow progress in new-builds being built.

    From that probe, other factors uncovered were:

    • largest UK developers’ unchecked land-grab mentality
    • deliberately slow build-outs on sites across the country
    • homeowners paying excruciating maintenance fees for everything from drainage fees to woodland areas
    • uncapped fees rising alarmingly in successive years
    • disproportionate fees for work, even when it appeared no work was actually carried out

    But perhaps the most concerning outcome is the discovery of developers sharing information. Their new investigation will discover exactly how widespread the practice is embedded amongst UK homebuilders. 

    Should their investigation find such corroborative evidence, the CMA will build the case for the developers breaching competition rules.

    The complexity and limitations blamed for slow progress

    The Conservatives’ target for new dwellings per annum was 300,000. The Department for Levelling Up reports that the total of new homes built in 2023 was 212,570. 

    Despite abandoning their initial mandatory target in the summer, Michael Gove is aware of problems at a local level. In a speech in December announcing a new long-term plan for housing, he lambasted local councils, saying:

    “There is now no excuse for any local authority not to have a plan in place, no excuse not to ensure that homes are delivered swiftly and efficiently through that plan, and no excuse for leaving communities – and the next generation – without the homes they need.”

    Still, under target by a tad under 30% on this scale is huge. Is it just local councils? If not, what are the big building firms’ major failings?

    CMA: protraction, planning, and private sector unpredictability

    The CMA didn’t hold back when highlighting what it saw as the barriers to new home construction.

    Protraction and planning:

    Current planning rules lead to a ‘protracted amount of time’ ahead of construction companies actually beginning building.

    One of the biggest hurdles is the amount of stakeholders in the chain. Every single one has the opportunity to raise objections, compounding the opportunity for delays.

    But the issues here aren’t all external.

    The flow of up-to-date plans within planning departments needs to be improved, as many were without the current revisions. And whilst construction firms also bemoan the UK’s planning rules, much can be done internally to improve their output.

    Private sector unpredictability

    The CMA report found that developers weren’t incentivised to build homes in specific areas. You might think that statement doesn’t make sense. But, here goes.

    What developers did do was build certain types of homes, ignoring diversity. And you can perhaps see why.

    Four in every five new homes sold by the biggest construction companies came with supplemental estate management fees. The CMA described the small print covering this element of the purchase as ‘unclear administration or management charges’. 

    On average, those fees were £350. But the report noted some homeowners were issued four-figure bills for repairs and additional, one-off fees.

    No wonder the construction firms were quick to point out that payouts to their shareholders wasn’t a factor holding back production.

    Urgent intervention required

    It’s clear that Britain’s big business builders have a fallback position with the planning rules so convoluted. Following this report, CMA’s CEO Sarah Cardell would like to see a more streamlined route to construction as well as the building firms being accountable:

    ‘Housebuilding in Great Britain needs significant intervention so that enough good quality homes are delivered in the places that people need them.’

    To that end, CMA has recommended that:

    • a compulsory quality-assured code to protect buyers is produced;
    • the instigation of a New Home Ombudsman, to whom new homeowners can report issues in quality or workmanship or exorbitant fees, is created;
    • management of estate amenities passes to local councils rather than stay with the developers in perpetuity;
    • homeowners retain the right to choose a ‘more competitive’ way to manage their portion of the new estate upon which they find themselves living.

    Those actions can’t come soon enough, either. A joint research project between Mortgage Broker Tools and Pepper Money revealed that affordable first-time buyer mortgages were down 40% in 2023.

    Final words

    The CMA recommends urgent ‘intervention’ in the housing market. I’d say the whole industry needs a shake-up. Sadly, the Spring Budget did next to nothing to assist our industry. But I’ll leave you with this…

    I saw a rather disparaging and disconcerting quote in response to CMA’s findings and the new investigation the organisation is set to undertake into competition. Russel Mould, an investment director at investment firm AJ Bell, said,

    “A regulatory probe is the last thing the sector needs.”

    Really? Perhaps the issue lies with private stakeholders, after all.

    If CMA’s new report is as thorough as the last one, it could be just what the sector needs. 

    However, much will depend on whichever party gets in at the next election. At the end of the day, that will determine how much direct action we see implemented based on any research. 

    But, more affordable housing, levelled up across the country? Who wouldn’t want that?

    Author: John Yerou

    John Yerou is the owner and founder of the award-winning Mortgage Quest Ltd and its subsidiary brands.

    In 2004, John began his career in financial services as an independent mortgage advisor and broker. He's since been instrumental in negotiating bespoke mortgage underwriting criteria for professional contractors with many high street lenders.

    As such, John's one of the most respected and recognisable names in securing mortgages for the UK's flexible workforce, incorporating independent professionals and the self-employed.

    His recognition as the go-to mortgage expert has grown exponentially, reflected in citations and his own publications in both national and contractor-oriented press.

    Posted by John Yerou

    on March 8th, 2024 14:05pm in Latest mortgage news & opinions.