Locations
In this special blog mini-series, Fieldfisher Competition and Regulatory Partner Jessica Gardner will, with the help of competition specialists from her team, take you through key insights relating to the UK's Competition and Markets Authority's (CMA) activities.
In this third edition, Jessica and Senior Associate James Groves have teamed up with Real Estate Partner Merle Wray to take a look at the CMA's Housebuilding Market Study Final Report ("the Housebuilding Report"), which the CMA published on 26 February 2024.
At the same time, the CMA also announced the launch of an investigation under Chapter I of the Competition Act 1998 ("the Chapter 1 Investigation") into suspected breaches of competition law by eight housebuilding companies, relating to concerns that they may have exchanged commercially sensitive information.
The Housebuilding Report
Market studies examine why particular markets may not be working well and culminate in the publication of a series of findings which can include recommendations to Government and signposts designed to encourage better self-regulation. Our previous blog on the CMA's market study into the housebuilding sector, which commenced on 28 February 2023, can be found here.
The findings of the final Housebuilding Report highlighted several areas for concern within the market in relation to which the CMA would like to see improvement.
1. Quality: housebuilders do not currently have strong incentives to compete on quality and consumers have unclear routes of redress. The CMA's recommendations include that the UK Government should develop and approve a single mandatory consumer code for all housebuilders and activate the new Homes Ombudsman Scheme.
2. Private Estate Management: there is a growing trend by developers to build estates with privately managed public amenities. The CMA makes recommendations designed to prevent the proliferation of such arrangements and to ensure that greater protections are afforded to households already living under them. The CMA also recommends that the Government implements mandatory adoption of public amenities on new housing estates.
In our experience, the reluctance of local authorities to adopt common areas and amenities on new estates has driven developers to set up private estate management schemes. It will therefore be interesting to see how the proposal of mandatory adoption will play out when local authorities are operating on ever tighter budgets
3. Speculative Private Development: private developers are producing houses at a rate at which they can be sold without needing to reduce their prices. The CMA recommends that the UK and Devolved Governments should take measures to increase the use of non-speculative models under which the buyer would commit to the purchase at an earlier stage, thereby reducing the incentive on the housebuilder to slow down the speed with which they deliver new homes.
4. Planning: planning systems are producing unpredictable results and it is frequently the case that development is being stalled because of inefficient processes. The CMA encourages the UK and Devolved Governments to take steps to address this, including streamlining the planning system and effectively enforcing deadlines for statutory consultees so as not to unnecessarily delay the planning process.
Market studies can lead to more stringent market investigations which entail a forensic examination of whether there is an adverse effect on competition in the relevant market. The CMA did consult on pursuing this route in relation to two particular areas of concern in the housebuilding market, namely: (i) weaknesses in the adoption process for roads and public open spaces resulting in responsibility for their maintenance being passed on to private companies that may have significant market power; and (ii) the large amount of developable land controlled by the largest housebuilders, which may be hindering the growth of smaller housebuilders. However, based on the consultation, it decided not to proceed.
The Chapter 1 Investigation
While distinct from the Housebuilding Report, the launch of the Chapter 1 Investigation is most probably borne out of information which came to the CMA's attention during the market study.
However, unlike the 'broad-view' taken by the market study, the Chapter 1 Investigation will be narrowly focused on the conduct of eight individual companies, with a particular emphasis on the question of whether or not they shared commercially sensitive information relating to the construction and sale of new build homes. If the CMA finds that that was the case, the potential consequences are severe, with the CMA having the power (among other measures) to impose fines of up to 10% of the companies' respective worldwide turnovers and to disqualify company directors.
Our Comment
The launch by the CMA of the Chapter 1 Investigation on the same day as the publication of its Housebuilding Report arguably comes as no real surprise. The rate at which new homes are being built in the UK and the processes that lie behind their construction and sale are controversial and accusations of the presence of an alleged housebuilding 'cartel' have been common political parlance in recent years. However, the CMA has to adhere strictly to the due process required by the Competition Act 1998. It will have to direct considerable resources in the coming months to gather the information needed to decide if it has a case worth pursuing.
Our next edition in this mini-series will be published in April and will look at the CMA's new Annual Plan.
You can find our first edition of the series, in which we made some predictions for the CMA's enforcement agenda in 2024, here. Our second edition, which looked at the powers of the CMA to search homes, is here.
If you would like to discuss any of the issues raised in this series, please get in touch with our team.