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CMA To Investigate Eight House Builders Over Suspected Information-sharing

News26.02.2411.15 AM by James Riding

The Competition and Markets Authority (CMA) has launched an investigation into eight house builders after it found evidence that some developers may be sharing commercially sensitive information.

The CMA has launched an investigation after a study (picture: Alamy)

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The CMA has launched an investigation into eight house builders after it found evidence that some developers may be sharing commercially sensitive information #UKhousing

The competition watchdog will seek to determine whether the country's largest house builders have broken the Competition Act 1998 by sharing information with their competitors to influence the build-out of sites and the price of new homes.

Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey and Vistry will be subject to the investigation.

Although the watchdog does not consider such sharing of information to be "one of the main factors" in the UK's under-delivery of homes, it was concerned that it may "weaken competition" in the market.

It is understood that the possible data-sharing includes sales prices and discounts that are not publicly available, which could influence build-out rates and prices in local markets.

People who are found to have infringed the Competition Act can be hit with hefty penalties, including a fine of up to 10% of company turnover.

There is no statutory time limit on an investigation and it will likely take several months to complete, Inside Housing understands.

The investigation came after the CMA published its final report on the housebuilding market in Britain, which interrogated the "persistent under-delivery of new homes".

The report, which followed a year-long study commissioned by housing secretary Michael Gove, concluded that the UK's "complex and unpredictable" planning system was responsible for sluggish housebuilding, along with a reliance on "speculative private development" that did not meet the affordable housing needs of different communities.

Around 60% of all houses built between 2021 and 2022 were delivered by speculative private development, the watchdog said. This is when builders buy land, secure planning permission and construct homes without knowing in advance who will buy them or for how much.

This way of building has given developers "flexibility" to respond to changes in the market, but the country's "reliance on this model" has seen the gap "widen considerably" between what the market will deliver and what communities need. Private builders meet "demand" – the number of people who can afford to buy a house at market rate – rather than the underlying housing need of an area.

The report found 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 – for example by providing more affordable housing.

Planning systems are producing "unpredictable results" and often take a "protracted" amount of time for builders to navigate before construction can start. Many planning departments are under-resourced, while some do not have up-to-date local plans or clear targets and incentives to deliver the numbers of homes needed, the report noted.

Planners are also required to consult with a wide range of groups who often hold up projects by submitting "holding responses or late feedback" to consultations on proposed developments, it said. In addition, a complex planning system disproportionately disadvantages smaller and medium-sized developers that do not have the lawyers, consultants and expertise to navigate it efficiently.

Another focus of the report was the practice of landbanking, where developers buy land and do not develop it quickly. The CMA assessed more than one million plots of land held by house builders and found that the practice of banking land was high, but in line with the time it takes to get things through the planning system and maintain a pipeline of sites being built.

Landbanking was "more a symptom of the issues identified with the complex planning system and speculative private development", the CMA said, rather than a primary reason for the shortage of new homes.

The study also found concerns about estate management charges – where homeowners can face "high and unclear" charges for the management of roads, drainage and green spaces – and the quality of some new build housing after an increase in reported snagging issues over the past 10 years. There are weak incentives for house builders to compete on quality, the report suggested, while routes to redress for homeowners were uncertain and difficult.

The report recommended that councils require developers to adopt amenities on all new housing estates; government introduces enhanced consumer protections for owners on existing privately managed estates; and a New Homes Ombudsman is established "as soon as possible".

Proposed planning reforms included: ensuring local authorities put in place local plans and are guided by clear, consistent targets; streamlining the planning systems to significantly increase the ability of house builders to begin work on new projects sooner, while not watering down protections such as for the local environment; improving the capacity of council planning departments; and incentivising builders to diversify the tenures and types of homes delivered.

Sarah Cardell, chief executive of the CMA, said that housebuilding in Britain "needs significant intervention" so that enough good-quality homes are delivered.

With a "streamlining of the planning system and increased consumer protections", she said, "we would expect to see many more homes built each year, helping make homes more affordable".

But she added that, even then, "further action may be required to deliver the number of homes Great Britain needs".

On the investigation into suspected sharing of information, Ms Cardell said: "While this issue is not one of the main drivers of the problems we've highlighted in our report, it is important we tackle anti-competitive behaviour if we find it."

A Bloor Homes spokesperson said: "We have been transparent with the CMA throughout the year-long study and are currently reviewing the findings. We will continue to work with them throughout the course of the investigation."

A Redrow spokesperson said: "Redrow has fully co-operated with the CMA throughout its market study. We remain focused on the delivery of high-quality and much-needed new homes as part of our work to create thriving communities across England and Wales. We will continue to work with the CMA."

A Bellway spokesperson said: "We are reviewing the CMA's report. Bellway has engaged and co-operated fully with the CMA throughout its market study – and will continue to do so.

"Bellway is committed to exceptional customer care. We remain focused on the delivery of high-quality new homes that meet local demand and enhance the communities we build in as we work to increase the supply of UK housing."

A Taylor Wimpey spokesperson said: "The CMA's report identifies proposed changes to the market that we welcome, particularly around the planning process and recognition that housebuilders do not landbank. Taylor Wimpey notes the investigation opened today and we will cooperate fully with the CMA in relation to this."

Berkeley Group declined to comment.

Barratt, Persimmon and Vistry were also approached for a response.

Key Points From The CMA's Housebuilding Report

Today saw the publication of a year-long investigation by the Competition Markets Authority (CMA) into the state of the housebuilding industry in England, Scotland and Wales. The report concluded that "the housebuilding market is not delivering well for consumers and has consistently failed to do so over successive decades".

It also uncovered alleged breaches of the Competition Act by eight UK housebuilders and a subsequent inquiry has been launched into whether or not they shared sensitive information.

What's the background?

The CMA launched its study into housebuilding in England, Scotland and Wales on February 28 last year in response to a formal request from housing secretary Michael Gove.

Gove wrote to the CMA requesting a study into the housebuilding sector, highlighting the importance of ensuring that the market is working in the best interests of consumers. This followed comments in which Gove had accused housebuilders of operating like a "cartel".

The report published this morning includes a series of findings and recommendations.

Housebuilders are not hoarding land

One positive feature of today's report is the recognition that housebuilders are not unnecessarily land banking.

The report points out that 1.1 million plots of land are being held by the 11 biggest UK housebuilders and that land banks of major builders have expanded over the past decade.

However, in investigating the causes of land banking, the report finds that land banking practices are not unreasonable. The report seems to suggest the practice of land banking is perfectly rational given the length of time that it takes things to get through the planning system.

Last August in its interim industry report, the CMA warned it would clamp down on land banking.

Rather than suggesting the land banking is a deliberate tactic being used by housebuilders, the CMA's report describes land banking as a symptom "of the time and uncertainty associated with obtaining planning permission".

It also found that while SME housebuilders may face some disadvantages in being able to secure land, and that while larger housebuilders hold large amounts of land, this practice does not "distort the market" which remains "competitive."

Planning reform is top of the agenda

There was some suggestion from analysts when the CMA first launched its report last February that Gove was trying to steer the researchers away from focusing on planning.

In its initial scope for the report, the CMA said it would examine "structural and behavioural barriers to the market working well and the implications of these for customers, rather than fundamental aspects of the planning regime or government policy."

Today's CMA report is clear, however, that the biggest culprit in preventing the delivery of new homes is indeed planning. The report specifically highlights the need for local plans to be put in place by local authorities.

More than 65 local authorities have now withdrawn their local plans since Gove announced reforms to the National Planning Policy Framework last year.

The CMA report found that "the planning system is exerting a significant downward pressure on the overall number of planning permissions being granted across Great Britain".

It said over the long term the volume of permissions given has been "insufficient to support housebuilding at the level required to meet government targets and […] assessed need".

The report also finds that there is a "disproportionate impact on SME housebuilders".

Steve Turner, executive director of the Home Builders Federation, said: "The CMA report recognises the challenges the industry faces when looking to deliver homes.

"We welcome recognition that the planning system is a fundamental barrier to delivery and adds unnecessary delay and cost into the development process, and the need for local authorities to have plans in place and properly resourced planning departments.

Trend towards estate management fees

The report found that 80% of new houses being built by the largest housebuilders charge estate management fees.

Building understands that some of the information shared as part of the report research included letters to residents in management fee arrears threatening to repossess their homes.

The report reveals the estate management model had a detrimental impact on residents, both financially and psychologically. It uncovered evidence that such fees were often high and unclear to homeowners.

The average charge was £350, but one-off, unplanned charges for significant repairs could cost thousands.

The report highlights concerns that many homeowners are unable to switch estate management providers, received inadequate information upfront and had to deal with shoddy or unsatisfactory maintenance.

It adds that residents can face unclear administration or management charges which can often make up 50% or more of the total bill.

A source close to the CMA report told Building that "the imbalance of power" in examples of agency management fees, were comparable to those of leaseholders.

'Anti-competitive' probe could take a long time

As part of the study, the regulator said it had found evidence indicating alleged breaches of competition law by eight UK housebuilders. Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey and Vistry stand accused of sharing "commercially sensitive information".

A probe has been launched to investigate if any of the above have broken the law.

Market studies, such as the one the CMA published today, have a statutory timeframe of 12 months. Competition Act investigations, by contrast, do not have statutory time restrictions.

Building understands that the investigation into the eight accused housebuilders could take "quite a while" This is because the investigations are of a serious nature, with serious penalties if they are proven.

The accused housebuilders were issued with notifications regarding the investigations this morning and the CMA will be requesting further information and cooperation from them.

The CMA will be investigating whether the eight accused housebuilders have been "sharing non-public information on sales prices, incentives, and rates of sale".

It adds: "The sharing of commercially sensitive information has the potential to weaken competition between housebuilders by reducing strategic uncertainty in the market and influencing housebuilders' commercial decisions, including on output or prices."

The purely speculative model is not working

If government building targets are to be met, then there needs to be a greater focus on the delivery of non-speculative housing, the report suggests. It reveals that around 60% of homes built in 2021 to 2022 were delivered by speculative private development.

It defines speculative development as "when builders obtain land, secure planning permission, and construct homes without knowing in advance who will buy them or for how much."

The CMA found the largest 11 housebuilders provided around 40% of homes in 2021-22, the majority of which were through the speculative model.

England builds a higher proportion of speculative housing, and Scotland and Wales have a higher proportion of affordable housing.

The report points out that there were fewer than 250,000 homes built last year across England, Scotland and Wales, falling well below the 300,000-homes target for England alone.

Around a third of homes, meanwhile, are built on an affordable housing basis, meaning they are sold or rented at a discount to market price.

The CMA report found that England builds a higher proportion of speculative housing, and Scotland and Wales have a higher proportion of affordable housing.

The report's findings suggests the dominance of a speculative model, based on build-out rates and profitability, rather than building homes based on assessed needs in areas where housing might be cheaper, is not enough to help any of the three nations hit government housing targets.

Housebuilder profitability is 'better than expected'

Margins and profitability have been huge discussion points in the industry lately, with major firms from Stewart Milne to Inland Homes collapsing. But the CMA report says the profitability of the 11 largest housebuilders is "generally higher than we would expect".

It points out that profits in the period from 2013 to 2019 were particularly high.

The report adds however that the housing market is highly cyclical and impacted by external factors, including the wider economic climate. It says that profitability during the 2010s is likely to have been boosted by supportive economic circumstances and government-back incentive schemes such as Help to Buy.

No incentive to boost build-out rates

Whether or not the eight firms under scrutiny from the CMA have been sharing sensitive information, the CMA found evidence that builders tend to build homes at a rate which they can sell them without needing to reduce their prices.

It is arguable that building in line with local absorption rates is simply good business, but the report suggests that instead of building homes as quickly as possible, housebuilders construct them at a rate that they will be able to sell them.

The CMA highlights that the extent to which housebuilders can expand their supply in a local area is inherently limited by the extent to which they can get hold of further land with planning permission in the area.

It says: "Given that it is costly for housebuilders to have capital tied up in partly finished or finished, unsold homes, they are incentivised to control their build-out rate to a level that maintains selling prices."

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Comerica, Inc. Engages in the provision of financial services. It operates through the following segments: Commercial Bank, Retail Bank, Wealth Management, Finance, and Other. The Commercial Bank segment offers various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services, and loan syndication services. The Retail Bank segment includes personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination, and offers consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit, and residential mortgage loans. The Wealth Management segment offers fiduciary services, private banking, retirement services, investment management and advisory services, investment banking, and brokerage services. The Finance segment includes the corporation's securities portfolio and asset and liability management activities. The Other segment includes the income and expense impact of equity and cash, tax benefits, charges of an unusual or infrequent nature that are not reflective of the normal operations, and miscellaneous other expenses of a corporate nature. The company was founded in 1973 and is headquartered in Dallas, TX.

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