Why We Don’t Build Enough Homes

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There are persistent shortfalls in the number of homes built across England, Scotland and Wales, with less than 250,000 built last year across Great Britain – well below the 300,000-target for England alone, a Competitions & Market Authority report has found.

The Competition & Markets Authority (CMA) has identified a wide range of different types of housebuilders operating in the market. Around two-fifths of the homes built between 2021 to 2022 were delivered by the largest, national housebuilders while more than 50,000 homes were delivered by thousands of smaller, regional builders.

 

Speculative build

Around 60% of all houses built in 2021 to 2022 were delivered by speculative private development, which is when builders obtain land, secure planning permission and construct homes without knowing in advance who will buy them or for how much. This way of building homes has given builders flexibility to respond to changes in the market. However, the country’s reliance on this model has seen the gap widen considerably between what the market will deliver and what communities need.

The report found that this speculative approach to building, coupled with complex and unpredictable planning rules across the three nations, has been responsible for the persistent under delivery of homes:

 

Planning Rules

The planning systems in England, Scotland and Wales are producing unpredictable results and often take a protracted amount of time for builders to navigate before construction can start.

The report highlights that many planning departments are under resourced, some do not have up-to-date local plans and don’t have clear targets or strong incentives to deliver the numbers of homes needed in their area. They are also required to consult with a wide range of statutory stakeholders – these groups often delay projects by submitting holding responses or late feedback to consultations on proposed developments.

 

Speculative Private Development

The report found another significant reason behind under delivery of homes is the limitations of private speculative development. The evidence shows that private developers produce houses at a rate at which they can be sold without needing to reduce their prices, rather than diversifying the types and numbers of homes they build to meet the needs of different communities (for example providing more affordable housing).

 

Land Banks

The CMA assessed over a million plots of land held by housebuilders and found the practice of banking land was more a symptom of the issues identified with the complex planning system and speculative private development, rather than it being a primary reason for the shortage of new homes.

 

Quality

Housebuilders don’t have strong incentives to compete on quality and consumers have unclear routes of redress. Analysis also suggests that a growing number of homeowners are reporting a higher number of snagging issues (at least 16). The CMA’s consumer research and other evidence revealed that a substantial minority also experienced particularly serious problems with their new homes, such as collapsing staircases and ceilings.

 

Private Estate Management

The CMA found a growing trend by developers to build estates with privately managed public amenities – with 80% of new homes sold by the eleven biggest builders in 2021 to 2022 subject to estate management charges. These charges are often high and unclear to homeowners. Whilst the average charge was £350 – one-off, unplanned charges for significant repair work can cost thousands of pounds and cause considerable stress to homeowners. The report highlights concerns that many homeowners are unable to switch estate management providers, receive inadequate information upfront, have to deal with shoddy work or unsatisfactory maintenance and face unclear administration or management charges which can often make up 50% or more of the total bill.

 

Information Sharing

The CMA found evidence during the study which indicated some housebuilders may be sharing commercially sensitive information with their competitors, which could be influencing the build-out of sites and the prices of new homes.  While the CMA does not consider such sharing of information to be one of the main factors in the persistent under-delivery of homes, the CMA is concerned that it may weaken competition in the market.

The CMA has therefore launched an investigation under the Competition Act 1998 into Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey and Vistry. The CMA has not reached any conclusions at this stage as to whether or not competition law has been infringed.

 

Picture: The reasons why Great Britain doesn’t build enough new homes have been identified in a report by the Competition and Markets Authority.

Article written by Brian Shillibeer
01st March 2024

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