The collusion of housebuilders to keep the price high

The competition regulator will be launching a new investigation into eight of Britain’s largest housebuilders amid fears that they may have been working together to limit supply and keep prices high.

The Competition and Markets Authority has found evidence that suggests that developers are sharing “commercially sensitive” information. It is concerned that this could influence the speed at which new homes will be built and their prices.

Sarah Cardell is the chief executive officer of the authority. She said that while information sharing was “not the main driver” of Britain’s Housing Crisis, it “is important to tackle anti-competitive behavior if we discover it”.

The regulator launched an investigation against Barratt Developments as well as Bellway, Berkeley Homes, Persimmon Homes, Redrow Homes, Taylor Wimpey and Vistry. The eight companies together delivered approximately two fifths (250,000) of the new homes that will be built in 2022.

Sarah Cardell, the head of CMA, said that the regulator was tackling “anticompetitive behavior”

Michael Gove, housing secretary, had asked the competition authority to investigate the housebuilding sector for the last 12 months. Gove has previously described the large housebuilders as “cartels”. The competition authority has published its final report which highlights “fundamental issues” in the housebuilding industry.

The report cites two reasons for the failure to meet the government’s goal of building 300,000 homes per year: the “complex, unpredictable” planning system, and the fact that developers only build homes at a pace at which they are able to be sold, without having to lower their prices.

Developers believe that the planning system wasn’t good before the pandemic, but it has gotten worse since. CMA agreed that many planning departments were under-resourced. The government no longer has any “strong incentives” to meet the number of homes required in the area, even when processing an application.

Gove wanted the competition watchdog also to investigate the issue of land banking. Critics of the industry claim that builders hoard land in order to limit supply and maintain high house prices. Developers claim that the complex and slow planning process means they must have a lot of land in their records to guarantee they have a place to build homes in a year or so.

The regulator ruled in favor of housebuilders and agreed that land banking is “a symptom of issues with the complex planning systems”. Developers have been criticized for “relying” on private speculative development. This is when they acquire land, obtain planning permission, and build homes without knowing who will purchase them or how much. This was the way that 60 percent of new homes were constructed last year.

CMA claims that this model gives builders “flexibility” as the market and demands change, but also notes that the “gap between what the community needs and what the market can deliver has widened considerably”. The CMA has, for example, found that builders slow down their construction rates in order to avoid oversupply, which allows them to maintain prices.

The regulator has also criticized the industry’s quality, noting that “companies don’t have strong incentive to compete on the basis of quality and consumers are left with unclear avenues of recourse”.

Michael Gove, housing secretary, described the large housebuilders previously as a “cartel”.

The research shows that a growing number have at least 16 “snagging issues”. A “substantial majority” of homeowners have also experienced serious problems in their new homes. These include collapsing stairs and ceilings. The watchdog called for the creation of a home ombudsman as soon as possible in order to assist homeowners who are pursuing builders.

Although it acknowledged the “broader policy trade-offs”, the regulator did not make formal recommendations.

According to the report, “clear and consistent targets” set by local authorities, along with “streamlining” the planning system to allow builders to arrive on site earlier, would boost housing supply. The report also believes that builders could increase their build rate by providing incentives to diversify types of housing and tenures they provide.

Cardell stated that “Housebuilding needs to be significantly influenced in Great Britain so that there are enough homes of good quality in places where people need them.” If [our proposals] are implemented, we expect to see more homes being built every year and making homes more affordable.