Housebuilding Market Study: where might the CMA be heading?

As the Competition and Markets Authority ("CMA") progresses its housebuilding market study, it has published three 'Working Papers' covering land banking, planning and estate management. These provide a useful indication of what the CMA's final report might conclude and of possible interventions it might recommend.

Progress to Date

The CMA formally launched its market study in February 2023, having announced its intention to do so in January. Following the release of initial questions for interested parties, it provided an update in August detailing the market features it had identified as giving rise to potential concerns.

In its final report, due in February 2024, the CMA may:

1. determine that no further action is required;
2. make non-legally binding proposals on how to meet consumer needs, including to government; or
3. refer any identified feature for a market investigation, following which it could impose legally binding remedies (which could include regulating behaviour and/or requiring the breakup of market players).

Land banking, planning and estate management are three of the market features that had been identified as potential causes for concern. Together, the working papers published on these issues suggest the CMA's final report is likely to conclude that further action is required, and so to make recommendations for change.

Land Banking

The CMA's working paper on land banks (i.e. portfolios of land held by developers for the purpose of future development) identifies 26 geographic areas as meriting further investigation – 19 in England, six in Scotland and one in Wales. Its initial research has suggested that there may be a concentration of control of developable land in those local areas, which is causing harm to consumers. A consultation on the working paper is open until 6 December, and invites comment on whether the CMA has identified the right areas.

Of the three working papers published, this one provides the least detail on the solutions the CMA might be considering. Housebuilders holding land within any of the 26 identified areas may therefore wish to consider responding to the consultation with views on the CMA's methodology and the accuracy of its conclusions. Otherwise they may need to prepare for the possibility of future regulatory intervention, perhaps even including the forced divestment of some banked land.

Planning

The CMA has previously identified the failure of the housing market to produce a sufficient number of homes as a key area of concern. A well-functioning market should in theory respond to demand through allowing and incentivising new entrants into the market to increase supply, which will then regulate prices. However, the housebuilding market has seen a decline in the number of developers who are small and medium enterprises ("SMEs") and a decrease in their collective share of total output. The CMA has identified the planning system as one potential barrier to entry and expansion.

While recognising the value of planning in balancing the number and type of new buildings with the promotion of other legitimate societal goals, the CMA's working paper notes that it is considering whether the design and operation of the planning system could be reformed to better support the aggregate level of housebuilding.

Following consultation with market participants, the CMA identifies three issues relating to the planning system as potentially requiring reform:

1. a lack of predictability;
2. the cost, length, and complexity of the process; and
3. insufficient clarity, consistency, and strength of Local Planning Authority ("LPA") targets and incentives.

The working paper identifies several potential changes that could address these issues across the short, medium, and long-term. These include greater support by government and LPAs for SMEs to navigate the planning process, a defined list of those with whom LPAs must consult when considering planning applications, and the introduction of a rule-based, non-discretionary system for determining planning applications. The paper indicates the CMA is also considering recommending reforms to the method by which housebuilding targets are set, limiting government discretion to adjust the number calculated, and options to improve the enforcement of local plans based on those figures.

Estate Management

The CMA's working paper on estate management identifies that the practice of local authorities adopting communal amenities on new housing estates (including roads, sewers and public spaces) is in decline. Increasingly, owners of properties in new estates are instead required to pay a charge for these amenities to be privately maintained but are then given very limited control over the cost, quality and level of service.

The CMA takes the view that this could be addressed through measures aimed at one or both of:

1. greater protections for households currently living under such arrangements; and
2. a reduction in the prevalence of such arrangements.

On the first point, the CMA is considering recommending statutory reforms to improve the transparency of charges, create greater accountability for service providers who fail to meet an agreed service level, and give households the ability to switch providers if dissatisfied by the service or its charge.

On the second point, the CMA considers that it may be appropriate to create common standards for public amenities and to mandate their adoption by local authorities in certain circumstances.

In relation to both sets of proposals, the CMA has suggested that recommending legal reforms that can be made by the UK, Scottish and Welsh governments may be quicker and more effective than a referral to a market investigation that would enable the CMA to take action itself.

Looking Forward

As we approach the 27 February 2024 deadline for the CMA's final report, its likely content is coming into view. Though subject to change, the working papers provide a very clear insight into the CMA's current thinking and the shape of possible legislative and other reforms. For those likely to be affected, there is still an opportunity to influence the CMA's thinking and otherwise to start preparing for future change.

If you would like any advice or support relating to any of the issues raised in this blog, including help with a response to the current consultation, please contact Charles Livingstone, Jamie Dunne or your usual Brodies Housebuilding team contact.