The CMA's Housebuilding Sector Investigation

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In February 2023, the Competition and Markets Authority ("CMA") launched a market study into the housebuilding sector in England, Scotland and Wales.
UK Antitrust/Competition Law
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1. The market study

In February 2023, the Competition and Markets Authority ("CMA") launched a market study into the housebuilding sector in England, Scotland and Wales. As discussed here, they sought to understand how the market is structured, the relationships between key participants, and other aspects of the way the industry operates at each key stage of the housebuilding process. Their goal was to explore whether there are distortions in the housebuilding sector that are harming consumers, for example: because prices are higher, profits are higher, or quality/innovation is lower than if the market worked well.

2. The update report

In their update report in August 2023, which we wrote about here, the CMA reported on its preliminary findings and launched a consultation on its proposal to refer the sector for a full market investigation. It set out its two main areas of concern in the UK's housebuilding sector in the competition law context:

Land banking

The CMA wanted to examine whether land ownership at the local market level was concentrated among a small number of market players, both in terms of ownership of developable land, as well as in terms of the holding of permissions to build – and what implications this had for competition to supply new homes in local markets. However, based on the views on some stakeholders, the CMA was concerned that the amount of 'strategic' land held by the largest housebuilders could be restricting the availability of developable land, and/or the transparency of ownership or control of land in a given area, and therefore acting as a barrier to entry for small and medium sized housebuilders.

Estate management

The CMA was concerned about problems in the way in which common amenities in new-build housing estates (such as roads, lighting and public open spaces) were managed by estate management companies. Key issues included a lack of transparency for consumers about the way in which a newly built estate would be managed, including the actual costs/charges involved; the significant market power conferred on estate management companies by housebuilders because of the small number of such companies, the high barriers for consumers to switch estate management companies, combined with the reluctance of local authorities to adopt such common areas; and the inadequate rights and protections for freeholders facing unsatisfactory freehold management arrangements.

3. The final report

In February 2024, the CMA issued its final report. It concluded that the main reason for the shortfall in the delivery of new houses is the planning system, which does not deliver enough planning permissions to deliver the required number of new homes. The CMA also identified problems with a lack of predictability in the outcomes of an application; the length, cost, and complexity of the planning process; and a lack of clarity, consistency and strength of targets, objectives and incentives within the planning system. The CMA is, however, no longer concerned about land banking, seeing this as a "symptom" of the problems with the market rather than a cause, given, for example, the length of time that it takes to obtain a planning consent.

The CMA detected consumer detriment as a result of the ways in which public amenities on housing estates are managed by private management companies, including some households being unable to switch managing agent; unacceptably high and non-transparent charges; poor quality amenities and management services; and disproportionate sanctions for any outstanding charges.

It concluded, however, that a market investigation is not the most effective way to address its concerns in the housebuilding sector. Rather, recognising the complexity and sensitivity of the sector as a policy issue, the CMA considers Government action to be a more appropriate and comprehensive response to the market-wide issues that the CMA has identified in the sector. As explored in our briefing here, the CMA has confirmed that it stands ready to engage with policymakers, housebuilders, and others to explain its recommendations, options and wider considerations for the sector. The outcome will therefore be policy led – with implementation required by Government – rather than a competition led process run by the CMA itself.

Separately, but based on evidence found during the market study, the CMA has also opened a new competition law investigation into whether eight of the largest housebuilders have been exchanging information in an anti-competitive way. The CMA suspects that some housebuilders may be sharing competitively sensitive information about sales prices, incentives, and rates of sale with each other, and that this could be influencing the build-out rate of new sites and the prices of new homes. Although the CMA does not consider the suspected exchanges to be one of the main factors behind the sector's disappointing build rates, it has decided to launch an investigation under the Competition Act 1998 on the basis that the suspected conduct may weaken competition in the market.

4. Conclusions

In terms of the Competition Act investigation, it will be several months (or longer) before the CMA has gathered all of its evidence and reaches a view on whether it provisionally considers competition law to have been broken (if it does, then at this point a 'statement of objections' would be issued to the parties under investigation, who would then have the opportunity to provide further representations to the CMA on the case). The parties to that investigation, and interested third parties who may be contacted by the CMA to provide information relevant to the investigation, will want to take specialist competition law advice.

Investors and housing providers which have purchased completed housing units from any of the eight housebuilders in question may have concerns that they have been harmed (for example through artificially inflated prices) if the seller has indeed been distorting the market through anti-competitive exchanges of information with its competitors. Those who consider they may have been harmed (if anti-competitive behaviour is ultimately proven) should consider their options now, including the potential for seeking redress through the courts.

The CMA's report was very critical of the way in which some private management companies have been managing housing estates with shared amenities. Agents working in this area will already be preparing for the changes set out in the forthcoming Leasehold and Freehold Reform Bill, discussed in our briefing. They should also consider how best to voluntarily meet the recommendations for consumer protection set out in the CMA's report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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