CMA consults on deeper British housebuilding market investigation

In an update (70-page /989KB PDF) published on 25 August, concerning the market study in the housebuilding market in England, Scotland and Wales that it opened earlier this year, the CMA said that its initial findings indicate two areas of potential concern that could merit a deeper competition investigation: housebuilders’ practice of holding ‘land banks’; and private management of public amenities on new-build freehold housing estates.

The CMA’s housebuilding market study was originally prompted by “concerns that builders are not delivering the homes people need at sufficient scale or speed”. The CMA has powers to refer features of a market for a more in-depth market investigation if its findings from a market study give it reasonable grounds for suspecting that those features or combination of features of the market prevent, restrict or distort competition.  A market investigation is initiated by the making of a MIR.

The CMA said representations and information it received to-date as part of its market study suggest there are restrictions on the availability of developable land as a result of volume housebuilders holding land banks, and that this may act as a barrier to entry, particularly for small and medium sized housebuilders.

The CMA said its information-gathering also points to there being a concentration in certain local markets within Britain in the control of a significant proportion of developable land by a small number of housebuilders. If this is confirmed by evidence, it said, it “may lead to poor outcomes for purchasers of new homes and for the housing market at large, including lower quality or less diverse new homes, and slower build-out rates”.

However, the CMA said it is “exploring whether aspects of the planning process mean that the holding of large tracts of land is important for the efficient management of risk and cost” and said it is “mindful that there are sound operational reasons for housebuilders to secure access to land for future development” and would consider those reasons against any evidence that land banks and concentration in land ownership may impede the functioning of the market before ultimately deciding whether to make a MIR.

“We welcome evidence from stakeholders as to the effect on small and medium sized housebuilders of the existence of such land holdings, how the size of land holdings has been influenced by changes in the planning regime and other drivers of the size of land holdings,” the CMA said.

At this stage of its market study, the CMA has said that it also considers making a MIR relating to the private management of public amenities on freehold housing estates. Issues relating to the charges imposed for managing roads, parks and street lighting, among other amenities, as well as the quality of the work undertaken, have been raised with the CMA in its market study.

Stakeholders have until 5pm on 18 September 2023 to feed into the CMA’s consultation.

Following a recent judgment of the Competition Appeal Tribunal (CAT) in the case of Apple v CMA, where the CMA considers at the six-month stage of a market study that it has identified some concerns that may justify a MIR, it must at that point open a consultation and include, in the context of that consultation, information about the circumstances that may lead the CMA to decide not to make a MIR. Opening a consultation does not necessarily mean the CMA will ultimately decide to make a MIR.

The CMA does not have to finally decide whether to make a MIR until the market study is completed in late February 2024. By this time, the CMA will have gathered and analysed further evidence and considered the results of the consultation. It could decide then that a MIR is less appropriate than other options to address any potential concerns it may ultimately identify in its final market study conclusions.

The MIR consultation runs in parallel with the CMA’s ongoing market study. The CMA will further analyse the land banking and estate management issues as part as the market study, as well as further exploring other initial areas of concern relating to planning rules, competition between housebuilders, and barriers to entry for new businesses wanting to build homes.

The CMA has also provided an update on a separate consumer protection initiative relating to the rented housing sector. Unlike the housebuilding market study, this project is being conducted using the CMA’s consumer law enforcement powers. The CMA has been undertaking research examining the end-to-end experience from a tenant’s perspective, including finding somewhere to live, renting a property and moving between homes, and evaluating the relationship between tenants and landlords, the role of intermediaries, such as letting agents, and identifying any consumer protection issues that arise.

In its update (38-page / 539KB PDF), also published on 25 August, the CMA confirmed that, in the next phase of its work, it intends to review and revise is guidance for letting agents “to reflect recent changes in the law and to ensure that market practices, which may reflect conditions of supply and demand, but which are contrary to consumer protection law, are understood”. It said it also has plans to further investigate the nature and marketing of ‘zero-deposit’ schemes; sham licences; unlawful discrimination; the scope of guarantees; and retirement housing fees. It said it could issue “more specific guidance and advice” or take enforcement action, depending on what its further investigations uncover. The CMA is aiming to provide a further update on its rented housing work before the end of 2023.