UK competition watchdog opens investigation into eight housebuilders over information sharing – business live

Shares in some of the housebuilders being investigated by the CMA over the sharing of commercially sensitive information have fallen at the start of trading in London.

Persimmon are down 3%, followed by Taylor Wimpey (-2.2%). Barratt and Berkeley have both lost 1.5%.

You can read the CMA’s report into the UK housebuilding sector, here.

In it, the CMA points out that the profitability of the 11 largest housebuilders has been generally higher than we would expect in a well-functioning market, apart from during and after the financial crisis.

Profits in the period from 2013 to 2019 were particularly high, it says sternly.

However, the watchdog does not believe it should intervene, for three reasons:

• The housing market is highly cyclical and impacted by external factors, including the wider economic climate.

• Profitability during the 2010s is likely to have been boosted by supportive economic circumstances and temporary factors that are no longer in evidence, in particular a prolonged period of low interest rates and the Help to Buy schemes’ support for first-time buyers.

• There was significant variation in the performance of individual large housebuilders in our sample.

The CMA has made several recommendations for how to improve the UK housing sector.

They are:

• requiring councils to adopt amenities on all new housing estates.
  

• introducing enhanced consumer protections for homeowners on existing privately managed estates – including making it easier for homeowners to switch to a more competitive management company.
  

• establishing a New Homes Ombudsman as soon as possible and setting a single mandatory consumer code so homeowners can better pursue homebuilders over any quality issues they face.

But, the CMA adds, policymakes could make “more fundamental interventions”, which would have a significant impact on the quality and affordability of new homes being built.

It adds:

These interventions would include a significant increase in non-speculative house building that has previously been led by local councils and housing associations.

The Competition and Markets Authority are calling for a “significant intervention” from the government into the housing sector, so that enough good quality homes are delivered in the places that people need them in.

CMA chief executive Sarah Cardell has told Radio 4’s Today Programme that the regulator has three areas of concern.

First, the significant shortage of supply of new-build housing, partly because the planning process incredibly complex, long costly and unpredictable.

“That is a key contributor to the under-delivery of new-build housing across Great Britain,” Cardell says.

But there’s also too much reliance on speculative private development to provide the majority of new build homes the country needs

Secondly, the CMA is concerned about the “poor outcomes for new home owners”. Many face “high and unpredictable charges” for privately managed public amenities such as roads, sewers and green spaces.

Another poor outcome is the poor quality of some new homes, and the challenges faced by homeowners to get redress where quality issues arise.

And thirdly, the discovery that some major housebuilders are potentially exchanging confidential, commercially sensitive information relating to sales prices, sales rates. That finding has prompted today’s competition inquiry.

Cardell says:

It’s clearly critically important that all companies comply with competition law.

The CMA’s final report into the UK housebuilding market – released alongside news of the competition probe – highlights a number of problems with the sector.

Having conducted a year-long study into the sector, the watchdog has identified several areas where it is failing:

• Planning Rules: the planning systems in England, Scotland and Wales are producing unpredictable results and often take a protracted amount of time for builders to navigate before construction can start. The report highlights that many planning departments are under resourced, some do not have up to date local plans, and don’t have clear targets or strong incentives to deliver the numbers of homes needed in their area. They are also required to consult with a wide range of statutory stakeholders – these groups often holding up projects by submitting holding responses or late feedback to consultations on proposed developments.
  

• Speculative Private Development: the report found another significant reason behind under delivery of homes are the limitations of private speculative development. The evidence shows that private developers produce houses at a rate at which they can be sold without needing to reduce their prices, rather than diversifying the types and numbers of homes they build to meet the needs of different communities (for example providing more affordable housing).
  

• Land Banks: the CMA assessed over a million plots of land held by housebuilders and found the practice of banking land was more a symptom of the issues identified with the complex planning system and speculative private development, rather than it being a primary reason for the shortage of new homes.
  

• Private Estate Management: the CMA found a growing trend by developers to build estates with privately managed public amenities – with 80% of new homes sold by the eleven biggest builders in 2021 to 2022 subject to estate management charges. These charges are often high and unclear to homeowners. Whilst the average charge was £350 – one-off, unplanned charges for significant repair work can cost thousands of pounds and cause considerable stress to homeowners. The report highlights concerns that many homeowners are unable to switch estate management providers, receive inadequate information upfront, have to deal with shoddy work or unsatisfactory maintenance, and face unclear administration or management charges which can often make up 50% or more of the total bill.
  

• Quality: housebuilders don’t have strong incentives to compete on quality and consumers have unclear routes of redress. Analysis also suggests that a growing number of homeowners are reporting a higher number of snagging issues (at least 16). The CMA’s consumer research and other evidence revealed that a substantial minority also experienced particularly serious problems with their new homes, such as collapsing staircases and ceilings.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s competition watchdog has launched an investigation into Britain’s housebuilders, over concerns that they are sharing commercially sensitive information with each other.

The Competition and Markets Authority (CMA) had announced an investigation under the Competition Act 1998 into Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey, and Vistry, having seen evidence that some housebuilders may be sharing information.

Such behaviour could influence the build-out of sites and the prices of new homes and weaken competition in the housing market – an area where too few houses are being build – the CMA fears.

Sarah Cardell, chief executive of the CMA, says it is “important we tackle anti-competitive behaviour if we find it.”

News of the investigation comes as the CMA also publishes its final report on the housebuilding market in Great Britain.

The report blames the persistent under-delivery of new homes on the “complex and unpredictable planning system” and the “limitations of speculative private development” (where builders obtain land, secure planning permission, and construct homes without knowing in advance who will buy them or for how much).

Les than 250,000 new homes were built last year across Great Britain – well below the 300,000-target for England alone, the CMA points out.

The CMA also voices “substantial concerns” about estate management charges – where homeowners face high and unclear charges for the management of facilities such as roads, drainage, and green spaces.

The watchdog also found concerns over the quality of some new housing, an area where many owners have reported problems in the last decade.

More to follow….

Also coming up today

Trade ministers from around the world are gathering in Abu Dhabi for a World Trade Organization meeting.

The WTO hope to set new global commerce rules, but chief Ngozi Okonjo-Iweala struck a cautious tone ahead of the meeting, telling reporters:

“Politically it’s quite a tough time.

I’m hopeful we will still be able to pull out some of the deliverables.”

For the UK, Kemi Badenoch will be pushing for tariff-free trade, and holding talks with Gulf States to progress talks on a free-trade agreement, the Department for Business and Trade (DBT) says.

Israel’s central bank is setting interest rates, and is expected to cut borrowing costs as the war with Hamas hits its economy.

While in the US, Amazon is replaces Walgreens Boots Alliance in the Dow Jones Industrial Average share index.

The agenda

• 9am GMT: Bank of England holds its annual BEAR research conference:

• 11am GMT: CBI distributive trends survey of UK retail

• 2pm GMT: Bank of Israel interest rate decision