Competition regulator to probe deeper into landbanking by housebuilders

The competition regulator is to look deeper into landbanking and estate management charges as it considers whether to launch a full-blown investigation into the housebuilding sector.

The Competition and Markets Authority (CMA) said in a progress update on its market study into the housebuilding industry that it was consulting on launching a full regulatory “investigation” into the sector, which could lead to the imposition of remedies on firms guilty of blocking competition.

However, in a positive sign for developers, the body said it had reached no firm conclusions on land-banking, backed concerns over planning rules hindering delivery of homes, and said the market nationally “does not appear to be particularly concentrated”.

The interim report of the market study carried out by the CMA found that the land banks of major builders had expanded over the past decade, and it was “concerned that competition may be being distorted if land is held for longer and in larger quantities than is necessary”, cutting out smaller housebuilders, and allowing slower build out rates.

However, it also said that “some level of land holding is unavoidable for housebuilders to manage the necessary timescales for identifying and procuring land” and that “reforms to the planning system may be the most appropriate way of addressing any problems in the market that we identify”.

It said that if this was the case, the CMA would not launch a market investigation, but would instead make recommendations to the government to reform the planning system.

The CMA launched its study on February 28 following a formal request from housing secretary Michael Gove in November last year. This followed Gove last March accusing housebuilders of operating like a “cartel”, 

The CMA said it had uncovered evidence around estate management charges that a “significant number of new housing estates built over the last 5 years” have not been “adopted” by their local authority, leaving buyers paying fees to private maintenance companies on top of council tax charges.

The regulator said it had concerns on this issue about high or uncapped charges for owners and the quality of work carried out in maintaining these amenities.

While the CMA said it was issuing a consultation on starting a full-blown market investigation into the sector, it also made pains to state this was a formality based on the fact case law meant it would be legally prevented from launching a market investigation at a later date if it didn’t consult at this point. It said: “Our decision now to consult on a proposal to make a market investigation reference should not therefore be taken as indicative of the final outcome of the market study.”

Developers are likely to take heart from the CMA’s comment around the planning system, which echo their own concerns, and particularly their conclusion that there is not a concerning market concentration amongst the largest builders. It said that: “Our analysis of the housebuilding market so far suggests that national shares of supply do not appear to be concerning”. However, the CMA said it was “continuing to examine concentration within smaller geographic areas and the implications of this structure for market dynamism”.

Sarah Cardell, chief executive of the CMA, said: “The CMA alone can’t resolve the problems in the UK housing market.

“In housebuilding, we’ll press on with our investigation of the 5 areas that are the focus of our market study so that we can get to the bottom of any potential competition concerns. Once complete, we will consider what actions the CMA can take to tackle any concerns identified or whether there are more effective ways to deal with those concerns such as through recommendations to government for legislative change.”

After completing the market study, the CMA will consider a range of options to best address the issues it has identified, which could include recommending legislative changes to the UK, Scottish and Welsh governments, or launching a market investigation.