The competition regulator says that “significant intervention” is needed if Britain is to stand a chance of building itself out of the housing crisis.
Prompted by a request from Michael Gove, the housing secretary, the Competition and Markets Authority has been looking into Britain’s largest housebuilders for the past year, an investigation set against the backdrop of a worsening housing crisis, with the delivery of new homes repeatedly falling short of requirements. The government has a target of building 300,000 new houses every year, but it has never come close. In 2022, about 239,000 were built.
At the outset of its inquiry, in February last year, the authority emphasised that it would avoid looking into “fundamental aspects of the planning regime or government policy”. However, seemingly it could not ignore the effect of the planning system on Britain’s failure to build enough houses. In its final report, it has found that the “complex and unpredictable” planning system is probably the biggest reason why housing supply has always fallen short of the government’s target.
Alongside the publication of the report was an announcement that eight leading housebuilders — Barratt Developments, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey and Vistry — are being investigated for possibly sharing commercially sensitive data that might act to limit the supply of new homes and may keep their prices high. Excluding Bloor Homes, which is a private company, £400 million was knocked off the combined stock market value of the other seven builders after the CMA’s report was published.
In its report, the regulator has identified a “lack of predictability” in planning, particularly with regards to new policies, such as nutrient neutrality requirements, which developers have claimed are holding up the delivery of tens of thousands of flats and houses. That the planning process is often reformed and has become “increasingly politically contested” does not help, either, its says.
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Local authorities also have been scolded for not having up-to-date plans, which guide them on future development proposals. The regulator says that less than 40 per cent of local authorities in England have a plan in place that has been drawn up within the past five years. Developers claim that more than 60 local authorities have done away with their plans altogether since the government ditched mandatory targets last year.
The report highlights the length and cost of the planning process. Barely 10 per cent of applications are reviewed within the statutory deadline of 13 weeks, which the CMA has put down mostly to “resourcing constraints”. It has found that local authorities’ planning budgets are 40 per cent lower than they were a decade ago.
The extra time is adding to developers’ costs. The watchdog’s analysis shows that the direct cost of submitting a planning application can reach almost £1 million for the largest sites, plus the “substantial” internal resources that are needed. The excess time and cost mean that there is a “disproportionate impact” on smaller housebuilders.
While the regulator was reluctant to make firm recommendations on issues that it believes must be dealt with by politicians, it has offered some suggestions on how to fix the planning system, starting with forcing all councils to update their local plans. Despite the already high cost of submitting an application, the CMA also suggests an increase of up to 35 per cent to planning fees to help councils to beef up their planning teams and to process more applications.
Critics of the housebuilding industry have long accused developers of sitting on land as a way of controlling supply and, therefore, prices. However, the CMA has agreed with housebuilders that so-called land-banking is “more a symptom of the issues identified with the complex planning system”.
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The big builders are sitting on land on which 1.17 million homes could be built, but the regulator believes this is a “rational approach to maintaining a sufficient stream of developable land to meet housing need, given the time and uncertainty involved in negotiating the planning system”.
One builder said the CMA’s report “vindicated what the industry has been saying for years”.
The boss of another large developer said: “I think [the CMA has] picked on most of the right things. Planning is the issue and land-banking is a result of the need to navigate the planning and regulatory system that we’ve got, not as a need to just hoard land.”
However, the regulator is critical of the industry’s “reliance” on speculative housebuilding — when developers obtain land, secure planning permission and construct homes without knowing in advance who will buy them or for how much. About 60 per cent of all new homes last year were built this way.
Although the speculative model gives builders “flexibility”, it also means that there are not “the necessary incentives” for them to build houses as quickly as the government would like. Slowing building rates, for example, can help to keep prices higher when demand recedes, as it has done over the past 18 months.
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Developers have long argued that, as for-profit organisations, it is only natural that they never want to build more houses than they can sell. “If we did that, we’d all go bust,” one industry insider said.
In an effort to speed up the delivery of new homes, the CMA has suggested that developers be required to build either more affordable, custom or rental homes, which it says “could allow for more homes to be absorbed within the local market” without dragging on prices.
However, even if all of its proposals are taken on, the regulator accepts that “the market may still not deliver the quantity of homes that meets Britain’s housing need”. That comment will strengthen the argument of some in the industry who believe that the government must start building its own houses again to solve the housing crisis, rather than relying on the private sector.
Quality was another issue examined by the CMA, which has found issues to do with the long-term robustness of the houses being built. While the vast majority of those who bought a new home are satisfied after eight weeks of their purchase, there is said to be a “less positive picture” the longer people had lived in their homes.
A third of those who spoke to the authority nine months after their purchase had 16 or more snags that needed fixing. Most of those were “relatively minor” complaints, but some were serious. The regulator heard of stairs collapsing, ceilings falling down and new bathrooms having to be ripped out because of mould under the floorboards.
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To make it easier for homeowners to pursue their builder, the CMA has recommended that a new homes ombudsman is established “as soon as possible”.
The authority’s investigation also encompassed so-called unadopted estates. Historically, when a new development was completed, the roads, lighting and public spaces would be handed over to the council to look after. However, in recent years, councils have been reluctant to take on new estates, in part because of “concerns around the future ongoing costs” of providing those services.
As a result, developers have been handing them over to estate management firms to run for a fee paid for by residents on top of their council tax. The CMA hasfound that some homeowners on these estates are not receiving good value for money, while others cannot appoint another manager to oversee their neighbourhood.
“We were never very good at [estate management], none of the management companies are particularly good, either, and residents don’t particularly want to pay for high-quality maintenance. In the end, nobody is happy,” the chief executive of one large housebuilder said.
The regulator’s proposed solution is that local authorities must be forced to adopt the public amenities on new housing estates “outside of minor, well-defined exceptions”. The Home Builders Federation said it “wholeheartedly supports” such a recommendation.
