There’s nothing like a loft hatch unexpectedly falling from the ceiling to serve as a wake-up call. Collapsing staircases can have the same effect, as can hands scalded because of a faulty boiler.
The Competition and Markets Authority cites all three real-life complaints about bodged work by housebuilders in its wide-ranging report into the sector, including why it has failed to build anywhere near enough new homes.
The highlight was, of course, the revelation of a new investigation into allegations that the big eight may have colluded in setting prices or timing new home completions. The level of detail provided by the CMA is thin, but with eight of the biggest players named, this seems to be more than just a few rival local managers conspiring to move together on new carpet incentives.
The CMA concludes that much bigger factors are at play to explain the shortfall in new homes, pointing the finger at the slow, cumbersome, undermanned planning system. There were no great surprises here, however, and little the regulator can practically do to intervene beyond making recommendations.
Things are going to get worse for a while, thanks to the decision to allow councils to drop mandatory targets and to higher interest rates.
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Land hoarding by developers is often seen as a prime cause of the housebuilding shortfall, but the watchdog disagrees, saying it is more of a symptom of the speculative way most homes are built.
The regulator has done well to point to a new curse plaguing the estates of Britain — the proliferation of estate management companies (EMCs). Until 20 years ago, the drainage, street lighting, play areas and road maintenance in estates was the responsibility of councils. But to save money, councils have refused to “adopt” new housing estate sites. Instead, developers have handed responsibility for this activity to EMCs. Homeowners on estates pay an average of £358 a year to EMCs and in some cases as much as £1,000.
Fees have doubled or even tripled in the space of a year and homeowners can be subject to large one-off levies on top. Maintenance standards have deteriorated over time and in most cases are already seen as of poor quality or patchy. In some cases residents cannot extricate themselves from these contracts and find it difficult to switch suppliers. Some EMCs have retaliated with threats to repossess properties in disputes over bills.
This is a burgeoning mini-industry which, without an urgent crackdown, shows all the signs of becoming a legalised racket. There are parallels with the “fleecehold” scandal — the unrelated problem of leaseholders being subjected to huge unjustified increases in service charges with no means of escape.
Surplus craze
Some eye-catching numbers from the Department for Work and Pensions. No fewer than 3,750 traditional pension schemes in Britain out of about 5,000 are now in surplus. That is a remarkable turnaround from a few years ago, when most were in the red.
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Another number was even more extraordinary. The aggregate surplus in those schemes in good health is £225 billion by one measure used by the Pensions Regulator.
Small wonder that employers are beginning to wonder whether they might be able to get their hands on some of it. It is an astonishing sum. For comparison, only £180 million, or 0.08 per cent, has actually been successfully extracted from schemes in the past five years. With ministers proposing to cut the tax on extractions from 35 per cent to 25 per cent, the idea becomes more enticing.
The chancellor has argued that those surpluses could be used by employers to make more capital investment in the UK. The tax cut also could be a signal to encourage scheme sponsors to switch to a more adventurous investment policy, investing in more productive assets rather than gilts.
But there are doubts and sensitivities here. No 1 is whether these surpluses will prove lasting. We’ve been here before in the 1980s, when employers were allowed to take pension holidays, only to be wrongfooted by later events.
No 2 is whether the spare cash should be used instead to bolster the pensions of members increasingly impoverished by cost of living pressures.
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No 3 is whether the liberated cash would actually go towards productive investment. Most employers with these kinds of defined-benefit schemes are mature companies that have more cash than they know what to do with and tend to use it for share buybacks, not capex.
No 4 is whether employers will really start to see their old defined-benefit pension funds as potential profit centres rather than tiresome legacies to be flogged off to an insurer at the first possible opportunity.
These surpluses, if lasting, will ultimately go to the stockholders, but ministers need to tread very carefully before moving to help to unlock them. A more immediate priority should be to increase the transparency of these mostly opaque and unaccountable schemes.
Symbolic win
Amazon yesterday replaced Walgreens Boots Alliance, the owner of Boots in the UK, in that exclusive club, the Dow Jones industrial average. This is of more symbolic interest than investment significance. Being a member of the 30-stock “Dow” still confers cachet, but professional investors ignore it because of its tiny sample size and weird methodology. A quick totting up of the big index funds in America shows a footling $1.8 billion of investors’ savings tracks the Dow, while $1.3 trillion tracks the upstart S&P 500 — 720 times more.
