79/08    26 June 2008

The OFT has today published two new reports that it commissioned as part of its market study into the UK homebuilding industry.

Download Study investigating financing for homebuilders (pdf 648 kb)

Download New homebuild consumer survey (pdf 505 kb) 

The first, a report of a survey of purchasers of new homes, found that while many homebuyers experienced defects to some degree, these were often minor and were later fixed by homebuilders. However, for a small percentage of homebuyers the defects were more serious and costly.

A study into financing for homebuilders, meanwhile, suggests that the holding of ‘landbanks’ by firms reflects the need to have a pipeline of land at different stages in the development process, rather than a reluctance to develop or a desire to prevent competition. According to the report, homebuilders look to start work on site as soon as possible due to the holding costs of land.

The report by consultants KPMG also found that short-term demand for homes is significantly influenced by issues like consumer confidence, house price expectations and mortgage availability.

The OFT’s market study, due to be published in September, is reaching the end of its analysis-gathering phase. Today’s two reports have been published in draft in the interests of transparency and form a part of the OFT’s evidence base, alongside further detailed research and analysis to be released over coming weeks and in the final report. No final conclusions have yet been reached, and over the next three months the OFT will discuss initial findings with the homebuilding industry, consumer groups and other stakeholders.

Heather Clayton, Senior Director of Infrastructure, said:

‘These two reports form an important part of the picture on the market for new homes in the UK. The next step is to discuss these and other findings with our stakeholders, asking if they indicate that the market is broadly competitive and whether there is room for improvement in homebuyer satisfaction levels.’
 
The OFT has been working hard to ensure its study complements other reviews across government. To avoid any overlap with the separate study being carried out by the National Audit Office, the OFT refined the scope of its market study to omit any detailed examination of the planning regime. The main focus of the study remains on competition (for example, does supply increase in response to rising demand?) and consumer protection (homebuyers’ satisfaction with new homes).
 
NOTES

1. For its consumer study the OFT commissioned Marketing Sciences to survey 1,000 people in Great Britain who had bought a new residential home in the last two years.

2. The KPMG study, ‘Investigating Financing for Homebuilders’, was based on interviews with industry stakeholders and detailed research.

3. The OFT launched its homebuilding market study in June 2007. Today’s reports and further details of the study can be found on the market study area of this website.

4. The Barker Review of Housing Supply 2004, which was set up to look at the reasons for the lack of supply and low responsiveness of housing in the UK, called on the industry to increase levels of customer satisfaction and to introduce a code of conduct. It said that if they did not rise substantially in the next three years, the OFT should conduct a wide-ranging review of the market. The OFT believes the industry has not fully complied with this recommendation.

5. Possible outcomes of a market study include:

• giving the market a clean bill of health
• publishing information to help consumers
• encouraging firms to take voluntary action
• encouraging an industry code of practice
• making recommendations to the Government or sector regulators
• investigation and enforcement action against companies suspected of breaching consumer or competition law, or
• a market investigation reference to the Competition Commission.