Homebuilding in the UK

Launched: June 2007

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Purpose of the study

To seek to understand constraints on the ability of the market to deliver sufficient quantities of cost effective high quality new houses, focusing on two principal areas:

1. How competition and the planning system affect the delivery of new homes including:

• the extent of competition and barriers to entry and expansion and whether available land is being effectively brought through the planning process in a timely manner, scarcity of key inputs and the effect of land banks and option agreements
  
  
• the level of consumer protection and redress, including the role of building regulation standards and new home warranties, and
  
  
• the extent to which consumers have power to drive competition.

2. Homebuyers' levels of satisfaction with the new houses they purchase.

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Findings

The OFT found little evidence of competition problems with the delivery of new homes in the UK. On the whole, barriers to entering the market appear low, and it is likely to be the case that homebuilders compete for sales against each other and existing homes. There is no evidence that individual homebuilders have persistent or widespread market power giving them the ability to restrict supply in order to inflate prices. However, the OFT found that homebuyers can experience a number of problems, including:

• delays in moving in
• faults in new homes, and
• issues around the sales process such as reservation fees, the clarity of information provided to homebuyers and potentially unfair terms and conditions in contracts.

The study also found no evidence that homebuilders have the ability to anti-competitively hoard land or withhold a large amount of land with planning permission on which they have not started to build. Instead, it is likely to be the case that 'landbanking' reflects the need for firms to have a pipeline of land at different stages in the development process.

The report also stresses the importance of maintaining a vibrant small and self-build sector. This includes recommending that the Government and the Welsh Assembly should help small homebuilders and self-builders meet the technological advances required by the Code for Sustainable Homes by enabling them to make use of 'off-the-peg' solutions. They should also consider assisting small homebuilders and self-builders to access the necessary technologies to overcome the zero carbon challenge.

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Recommendations

Representatives from across the sector have agreed to form a body to deliver a code of conduct and redress scheme for consumers, which it aims to have fully operational by March 2010.

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Action following market study

None

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Market study details and report

• OFT report OFT1020: Homebuilding in the UK - a market study (pdf 768kb) September 2008
  
  
• Erratum to report (pdf 35kb)
  
  
• Annexes of the report (all PDFs)
  
  Annexe A - List of consultees and contributors (70kb) 
  Annexe B - New homebuild consumer survey - report on findings (506kb)
  Annexe C - Mystery shopping exercise (311kb)
  Annexe D - Homebuilders' survey (263kb)
  Annexe E - Study investigating financing for homebuilders (542kb)
  Annexe F - Case studies (224kb)
  Annexe G - Review of legal framework (313kb)
  Annexe H - Review of alternative dispute resolution (212kb)
  Annexe I - Regulation affecting the industry (130kb)
  Annexe J - New home warranties (380kb)
  Annexe K - Review of the homebuying process (98kb)
  Annexe L - Comparison of consumer satisfaction levels (165kb) 
  Annexe M - Consultation with stakeholders (2.54Mb)
  Annexe N - Comparison of housing market areas and LPA boundaries (592kb)
  Annexe O - Calculation of residual land values (99kb)
  Annexe P - Planning permissions database (69kb)
  Annexe Q - Analysis of LPAs with high concentration (66kb) 
  Annexe R - Alternative development models (165kb)
  Annexe S - A planning appeal case study: Wealden (66kb)
  Annexe T - Homebuilding and land use (77kb)
  Annexe U - Land ownership databases (103kb)
  Annexe V - Land ownership data sources (78kb)
  Annexe W - Land ownership profiles by type of homebuilder (72kb)
  Annexe X - Glossary (87kb)
  
  
• Press release Homebuilding sector is broadly competitive 25 September 2008 
  
  
• OFT748 Competition in local homebuilding markets (pdf 512kb) a report for the OFT by Catherine Ball September 2008
  
  
• Read the updates to this market study
  

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Background information

• Press release OFT lauches groundbreaking study in to UK house buiding market 22 June 2007
  
• OFT748 Approved Codes of Practice (pdf 65kb).

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