The Competition and Markets Authority ("CMA") has launched its market study into the housebuilding sector. This reflects concerns that the sector is not meeting the demand for high quality, affordable homes. We previously wrote about the CMA's exchanges with the UK Government on the sector, including setting out what a market study involves and the potential outcomes.

The launch of the market study and consumer-protection project illustrates the CMA's continued focus on the housing sector, with CMA Chief Executive Sarah Cardell commenting that "the quality and cost of housing is one of the biggest issues facing the country". The CMA will also be starting a separate project aimed at helping landlords understand their obligations towards their tenants under consumer protection law.

Scope of the market study

The CMA has published its Market Study Notice, confirming that the study will consider the extent to which aspects of the market for the supply of new homes to consumers (i.e. how it defines "housebuilding") in England, Scotland and Wales may have adverse effects on consumer interests, and if so whether remedial action is possible.

The CMA uses the term housebuilding to encompass all aspects of the process of constructing and sale of new accommodation, including securing land (greenfield or brownfield) for future development and obtaining planning permission, in addition to the construction and sale process itself.

The scope excludes conversions or changes of use of existing buildings, as well as the repair, renovation, and remodelling of existing housing stock.

In its accompanying Statement of Scope the CMA confirms that it will utilise its information gathering powers to enable it to (i) understand the nature and functioning of the housebuilding market, across different parts of the supply chain; (ii) establish whether there may be specific competition issues; and (iii) consider how any issues identified may lead to consumer harm.

The Statement then identifies three overarching potential issues that it proposes to investigate:

  • whether the behaviour of any market actors leads to unnecessary costs or distortions in the market;
  • whether buyers at different stages in the housebuilding process can exercise effective choice; and
  • whether there is effective competition between housebuilders.

The CMA's press release summarises four key areas of focus:

1. Quality of housing: The CMA will examine whether and how the sector is meeting the demand for the kinds of homes that communities and buyers need. This will include considering whether there is effective competition between housebuilders and whether barriers to entry are preventing smaller developers from entering the market. The CMA will also examine whether estate management fees charged for unadopted roads and amenities are set fairly.

2. Land management: The CMA will examine whether the practice of "banking land" (before or after planning permission is granted) is anti-competitive.

3. Local authority oversight: The CMA will explore how local authorities oversee the delivery of homes, including how developers negotiate affordable housing requirements.

4. Innovation: The CMA will consider whether any factors may be discouraging builders from adopting new building techniques or from building more sustainable, net-zero homes.

As we noted in our previous post, market studies will scrutinise how government policy or legislation might be negatively affecting market functioning, not just the conduct or structure of the market participants. The impact of Government regulations and policy on competition and consumer interests will therefore be within the scope of the study.

Market study process

The consultation process for the market study is now open, and anyone wishing to make a representation has until 20 March 2023 to do so. The consultation (set out at part 3 of the Statement of Scope) is something of a hybrid, in that it not only seeks views on the proposed scope and areas of focus set out in the Statement of Scope but also proceeds to ask for respondents' views on the substantive issues on which the study proposes to focus.

The substantive questions relate to both general and specific issues relevant to the market study, and include requests for views on issues such as:

  • any local areas that might make a good case study;
  • how competition within the market can be strengthened generally;
  • how the functioning of the market can be improved generally;
  • key differences between Scotland, England and Wales (the CMA has excluded Northern Ireland from the scope of the study, but does seek views on that decision);
  • the operation of the market, including:
    • the role of land promoters and land agents;
    • the planning process and how it's changed over time, including variations resulting from development or applicant size;
    • barriers to the provision of affordable housing;
  • the process of identifying and securing land for development;
  • market interactions such as:
    • how land promoters and agents compete to secure contracts
    • between local planning authority objectives and their relationship with housebuilder objectives
    • the implications of planning agreements being negotiated after rather than before outline planning permission is granted;
    • the barriers preventing public amenities from being adopted;
  • whether any participants in the housebuilding market have significant market power, including what drives this and whether and how they exploit it;
  • the factors that influence the size of developer land banks;
  • changes over time to the concentration of housebuilding at local level, the size of land banks, the rate at which new properties are built-out and the propensity for land with planning permission not to be built-out;
  • the key factors that determine the incentive and ability for developers to build-out new sites at a certain rate;
  • barriers to entry and expansion, including
    • the differences between small, medium and large developers in terms of the types of development or land they develop;
    • the key challenges for small and medium sized developers in securing sites, securing planning permission and building-out sites; and
    • differences between different sizes of developer in terms of the type, quality, speed and diversity of their work.

Getting involved, and next steps

Parties who want to get involved in the market study (or who think they are very likely to be involved regardless, such as large housebuilders) should provide responses to the CMA's consultation questions. The initial responses the CMA receives will guide its work and inform the theories it will investigate through the study process. It is therefore important that all those with an interest in the sector respond in order to provide a balanced range of perspectives.

Once it has those responses, the CMA is likely to issue detailed questionnaires to those who it regards as key players in the sector – whether or not they responded to the consultation.

The CMA will then take account of the responses it has received in order to confirm (by 27 August 2023) whether it intends to commence a more detailed market investigation – see our previous post in relation to this and other potential outcomes. This will involve determining whether there are reasonable grounds for suspecting that features of the market are preventing, restricting or distorting competition. The CMA must then publish its market study report by 27 February 2024, setting out its findings and the resulting actions (if any) to be taken.

We are happy to help with the drafting and submission of a response to the consultation or, in due course, with responding to a CMA questionnaire. For any assistance with the process, please contact Charles Livingstoneor your usual Brodies Housebuilding team contact.