Homebuilding market study: questions and answers

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1. Why did you launch the study?
 
At the time, it appeared that customer satisfaction had not increased substantially since the Barker Review of Housing Supply looked at the reasons for the lack of supply and low responsiveness of housing in the UK. Its final report in March 2004 called on the industry to increase levels of customer satisfaction and develop a code of conduct for new house sales. It called on the OFT to conduct a review of the market if progress was unsatisfactory or if customer satisfaction levels did not rise substantially in the next three years.

We had further noted the concerns of various commentators regarding why homebuilders were not building more homes even when house prices were rising sharply. [see note 1] 

We were also aware of polarised views on landbanking and were alive to the belief in certain circles that homebuilders were hoarding land with planning permission, rather than building on it, in order to profit from rising land prices. [see note 2] 

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2. What are the main recommendations of the market study?

The main recommendation is that the Industry should establish a consumer code of conduct. The Industry has already agreed to implement a code which will address the following:

• Homebuilders should improve the information provision for homebuyers so that they have sufficient information to make choices before they commit any money.
• Homebuilders should better protect homebuyers' rights in their contracts especially concerning homes bought before construction is completed (eg to ensure that the design has not been changed without consultation and that where there are unreasonable delays homebuyers are able to cancel the purchase without financial loss).
• Homebuilders should address problems concerning faulty or unsatisfactory work and problems with contracts or the sales process through an independent consumer redress scheme, funded by homebuilders.

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3. What is the timeline for establishing the code of conduct?

December 2008: create the body which will administer the code of conduct.

March 2009: finalise and consult upon the detailed content of the code of conduct (and associated contract terms issues) and dispute resolution scheme(s).

September 2009: have in place the necessary administrative arrangements to support the code of conduct and dispute resolution scheme(s).

March 2010: system test and refine the various processes and provide communication and advice to the industry and other interested parties and formally launch the code of conduct.

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4. Who will administer the code?

The industry has agreed to put in place a self regulatory system which will address the concerns raised in this report, including a code of conduct and an independent means by which homebuyers can obtain redress for any failings in the process of buying a new home.

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5. Which organisations are involved in developing the code?

Construction Employers Federation (NI), Council of Mortgage Lenders, Federation of Master Builders, Home Builders Federation, House Builders Association, Homes for Scotland, LABC New Home Warranty, National House Building Council, Premier Guarantee, Retirement Housing Group and Zurich Building Guarantee.

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6. What happens if the Code fails?

We have made a further recommendation that should be activated automatically in the event that the industry fails to meet any one of four agreed milestones on the way to its proposed deadline of a fully operational code of conduct by March 2010. That recommendation is that Government should introduce a statutory redress scheme funded by way of a levy on the industry.

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7. Who will manage the statutory redress scheme?

This will be for DCLG/BERR to determine in consultation with stakeholders.

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8. What are the other recommendations in the study?

- Support homebuilding industry research and development, paying particular attention to providing support to smaller homebuilders and self builders. There needs to be a more coordinated approach to meeting the challenges of the Code for Sustainable Homes. In particular there needs to be increased coordination in:

• Planning of the R&D programme, including securing the funding for any centralised research.
• Sharing advances in technology.
• Trials of new technologies.

- Community Infrastructure Levy (CIL) timing.

In order to aid capital constrained small homebuilders, we recommend that consideration should be given to the timing of the payment for the proposed community infrastructure levy (CIL) for small homebuilders. Since profits are only realised at the end of the project, and the CIL paid at the beginning, this is likely to place extra pressure on small homebuilders.

Similarly, if the CIL is extended to self build developments, we would recommend that, in the event that self build homebuyers cannot borrow money from their self build mortgage provider to pay CIL, the CIL should be paid at the end, rather than the beginning, of a project. This may ease development funding pressure by reducing the up-front pre-mortgage costs faced by self builders.

- Support self builders to improve access to self building options for more people. In particular we recommend that:

• Local Authorities should examine the possibility that group self-build can help delivery of a proportion of their housing which would have potentially higher levels of consumer satisfaction.
• Local Authorities should be encouraged to make publicly owned land available to an 'enabler' who will control the overall design of the site (divide it into suitable plots) and provide project management support to any self-builders who require it.

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9. What did you find are the main reasons for landbanks?

It is useful to think of a landbank as a pipeline, a homebuilder will have land at a variety of stages in the planning process. Having a stock of land helps a homebuilder cope with fluctuations in the housing market and also helps to reduce risk. Before anything can be built on land, planning permission must be granted. The combination of these two factors may explain why homebuilders require a pipeline of land which is at different stages of the planning process to ensure they can build homes at a rate at which they will sell.

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10. Why did you drop the planning system aspect from the market study?

Throughout the study we worked closely with other government departments to ensure our work complemented rather than duplicated any other government work. This included discussions with the NAO about their study into the planning regime. In order to avoid an overlap with the NAO we have refined the scope of our homebuilding market study to omit any detailed examination of the planning regime. However we did consider the impact of the planning regime in terms of any effect on competition.

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11. What was the duration of the study?

The market study was launched in June 2007.

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12. What was the geographic scope?

The market study considered competition and customer satisfaction issues across the UK.

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13. Why didn't you look at affordable or social housing?

The OFT did look at affordable or social housing but only where it was linked to private sector development. The affordable or social housing sector is regulated. The Cave review examined how regulation in the sector could be modernised.

NOTES

1. See, for example, 'Hometrack, Housing Intelligence, June 2007, Where is the first rung of the housing ladder? Challenges and risks of a longstanding imbalance in housing supply' - download document (pdf 237 kb).

2. See, for example, 'Opening up the Debate Exploring housing land supply myths', a report based evidence given to the Callcutt review prepared by the Royal Town Planning Institute (RTPI) - download document (Word doc 313 kb), evidence to the Barker review submitted by the Chartered Institute of Housing - see webpage - and certain views expressed in 'Affordability and the Supply of Housing' - download document (pdf 419 kb).

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