Policy paper

UK government response to the Competition and Markets Authority’s (CMA) market study into housebuilding

Published 22 October 2024

Applies to England, Scotland and Wales

Introduction

1. The government welcomes the Competition and Markets Authority’s important study on the housebuilding market in Great Britain. Housing is the bedrock of security and aspiration, and it is vitally important that the housebuilding market delivers for families.

2. The country is in the grip of an acute and entrenched housing crisis, with record levels of homeless households and children in temporary accommodation, nearly 1.3 million households on social housing waiting lists, and under 30s less than half as likely to own their own home as previous generations. It is clear that the housing market is failing to deliver high quality, affordable homes in the numbers needed.

3. The government agrees with the CMA that, overall, the housebuilding market is not delivering well for consumers and has consistently failed to do so over successive decades. Renters and homeowners face exploitation, unreasonable charges, inadequate systems of redress, and poor information with which to make informed decisions.

4. Many of the problems in the housing market are structural. It is over reliant on a speculative model of housebuilding that slows build out and constrains the supply of affordable homes. It contains barriers, such as slow and uncertain decision making in the planning system, that stifle SMEs and other market entrants and make it difficult for them to participate, limiting competition and innovation. Reform is essential to create a housebuilding market that delivers homes at the scale, pace, and level of affordability that we need.

5. The government is determined to improve outcomes in the housebuilding market. We have committed to boosting housing supply by building 1.5 million new homes in this Parliament and to delivering the biggest increase in social and affordable housebuilding in a generation. We have already taken decisive steps to achieve those objectives. In July, the government set out bold proposals to overhaul the planning system including a new approach to setting housing targets for councils; new requirements to review Green Belt and allow development on poor quality ‘grey belt’ land to meet local housing needs, with ‘golden rules, including a target of 50% affordable homes; and ensuring every area must have local housing plans – with government ready to take the tough decisions to step in if areas fall off track. Within the National Planning Policy Framework, we are consulting on a range of issues to support competition, including how the small site policy should be strengthened and how we can promote developments that have a mix of tenures and types. These measures tackle many of the CMA’s findings on the planning system head on.

6. While the market needs significant reform, we recognise the important role of larger developers and their contribution to housing delivery. We want to work with the development industry to ensure it delivers in the public interest, and welcomed the Home Builders Federation’s pledge in July to rapidly increase the pace at which homes are built, deliver the high-quality and affordable homes the country needs, provide skilled jobs and contributing to turbo-charging economic growth. Our focus is on creating a more balanced and competitive market by addressing the systemic barriers that prevent SMEs and others from delivering more homes. The government will work collaboratively with all stakeholders, including large developers, to ensure that the housing market better serves communities while encouraging innovation and diversity.

7. Alongside this, the government are legislating to give greater rights and protections to people renting their homes, including ending no fault evictions and reforming grounds for possession, and we will take further steps to restrict new leasehold flats and ensure commonhold is the default tenure, and tackle unregulated and unaffordable ground rent charges. The CMA has rightly highlighted some of the issues around private estates in particular, and the government are committed to tackle ‘fleecehold’ private housing estates and unfair maintenance costs.

8. The government are clear that fixing the housing market will take concerted effort from Government, local authorities, developers, landowners, and investors with all the levers at our disposal, providing certainty and clarity for consumers and developers. To that end, the government will publish a long-term housing strategy that will set out the changes we will make to ensure the housing market works in the public interest. We will work with the sector to do this, seeking commitments from our stakeholders and partners to bring about the change we need.

9. The CMA’s report made 11 recommendations, from the private management of public amenities on housing estates to the quality of new homes and the service provided by housebuilders. The report also suggested 11 options around the private management of public amenities on housing estates and planning, which the government will also consider. The government has set out changes to how we plan for the homes we need alongside a wider set of growth-focused interventions that will help us build more homes in the places that people want to live in, supported by the right infrastructure, as part of the consultation on proposed reforms to the National Planning Policy Framework launched on 30 July. We are considering the responses to the consultation, and a government response will be issued in due course.

10. In the rest of this document, we have set out our detailed responses to these recommendations, as well as the other actions we are proposing in line with suggestions made as part of the CMA’s options, to continue to improve the market for consumers.

11. A number of the recommendations made by the CMA will require further work and consultation in order to ensure the best policy solutions are identified. The government welcomes further engagement with the CMA as it takes this forward

12. This is a response on behalf of the UK government. Many of the areas in the report are devolved matters and so are for the Welsh Government or Scottish Government to respond to. Property law is devolved in Scotland, so our responses on recommendations 1.1 - 1.5 apply to England and Wales only. We will continue to consult with the Scottish and Welsh Governments on our responses to recommendations 2.1-2.6.

Private management of public amenities on housing estates

Preventing the proliferation of private management arrangements on new housing estates

Recommendation 1.1: Common adoptable standards

• We recommend that the UK, Scottish, and Welsh governments each implement common adoptable standards for public amenities on new housing estates.

Department(s): Ministry of Housing, Communities & Local Government; Department for Transport; Department for the Environment, Food & Rural Affairs

and

Recommendation 1.2: Mandatory adoption

• We recommend that the UK, Scottish, and Welsh governments each implement mandatory adoption of public amenities on new housing estates (outside of minor, well-defined exceptions).

Department(s): Ministry of Housing, Communities & Local Government

Further work required

The government welcomes the CMA’s work in this area and its continued focus on ensuring that the housing market works in the best interest of consumers. As highlighted by the CMA’s recommendations, residential freeholders on housing estates with private management arrangements too often receive poor quality amenities and face unreasonable charges. 

We intend to consult publicly on the best way to bring the injustice of ‘fleecehold’ private estates and unfair costs to an end, gathering evidence to supplement the CMA report. Through this consultation, we will look to engage the full range of stakeholders, starting with residents themselves but also local authorities, developers, and existing estate management companies to produce meaningful solutions. This work will consider a variety of options for reforming this system in order to deliver reforms to protect homeowners. These will include looking at the quality of private amenities, what amenities should be adopted by local authorities, and improved consumer protections.

The government will be carrying out a review to fundamentally transform how our water system works. We will invite views from a range of experts covering areas such as the environment, public health, consumers, investors, engineering and economics and there will be a public consultation to test the proposals are robust.

These proposals are far reaching in their implications, with impacts on the supply of new homes and local authority budgets. Given these impacts, we must ensure that future policy decisions are informed by the best available evidence and the widest selection of views from across society. As such, it would be inappropriate to commit to specific solutions for reform in advance of this consultation.

Providing greater protection to households living under private management

Recommendation 1.3: Enhanced consumer protection measures

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, introduce enhanced consumer protection measures, underpinned by a robust enforcement regime, for households living under private management arrangements.

Department(s): Ministry of Housing, Communities & Local Government

Accept in principle

We accept this recommendation in principle. The CMA has highlighted several principles which it proposes should be followed to increase protection measures for residential freeholders living under private management arrangements. We welcome the CMA’s acknowledgement that measures introduced through Part 5 of the LFRA addresses the majority of these principles, particularly around transparency, accountability, redress and liability, and the onward sale process.

These include: increasing the amount of information that homeowners are entitled to receive to understand what they are paying for; introducing a right to challenge the reasonableness of estate management charges at the First-tier Tribunal (England) or Leasehold Valuation Tribunal (Wales); and giving homeowners the right to apply to a tribunal to appoint a manager in the event of serious management failure. These are extensive measures which, when taken together, will empower homeowners on managed estates and enable them to hold estate managers more to account for the money they spend. Secondary legislation is required to implement these measures, and we will carry out a public consultation on the detail.

We share the underlying concern raised by the CMA that homeowners are not fully aware of charges they may be liable to pay before they purchase a new build home. We recognise that the process for buying and selling homes in England and Wales can be expensive, time-consuming, and stressful. Through the LFRA, we will cap the turnaround time and cost of sales information requests for ongoing sales for leasehold properties and properties on managed estates. Work is ongoing with industry to improve the availability of essential property information (such as tenure and the time remaining on leases) and drive digitalisation of the sector. We will monitor and continue to build on the reforms introduced through the LFRA and ensure that the findings of the CMA report are taken into account as we further develop our policy, including through our announced consultation on these issues.

Recommendation 1.4: Prohibition of new embedded management arrangements

• We recommend that the UK, Scottish, and Welsh governments each prohibit the establishment of new embedded management arrangements.

Department(s): Ministry of Housing, Communities & Local Government

Further work required

We consider that further work is required on this recommendation. The government recognises that homeowners have no say in the initial estate management arrangements that are created on each estate and notes the CMA’s view that the private estate management company reinforces the imbalance of power that exists between companies and homeowners. These issues will be considered through our announced consultation on ending the injustice of fleecehold estates.

Any measure to mandate a specific type of estate management company on future estates will require primary legislation. How estates are managed in the near future will depend largely on the approach to, and timing for, taking forward recommendation 1.2 on future adoption. We will consider whether any short-term measure is required as part of this wider discussion and monitor how the measures in the LFRA bed in to determine if we need to be more prescriptive in prohibiting embedded management companies.

Recommendation 1.5: Guidance for residents’ management companies

• We recommend that the UK, Scottish, and Welsh governments each provide guidance to members and directors of residents’ management companies to support and enable them in effectively managing the amenities on their housing estates.

Department(s): Ministry of Housing, Communities & Local Government

Accept in principle

We accept this recommendation in principle. We agree with the CMA that households living under residents’ management company (RMC) arrangements may face significant challenges in managing their estates, such as residents not having sufficient support to manage or commission services – including appointing a managing agent, difficulties in coordinating residents and managing the duties and requirements placed upon RMC directors.

We also share the CMA’s views of the limitations of existing guidance and support and will consider the use of the Leasehold Advisory Service (LEASE) as the body to publish this information. We will explore options to provide advice to homeowners living on managed estates and, when appropriate, work with LEASE (or another appropriate body) to identify the necessary information to provide in guidance that will most benefit homeowners living under RMC arrangements.

Quality of new homes produced, and service provided by housebuilders

A single mandatory consumer code and the New Homes Ombudsman Scheme

Recommendation 2.1: A single mandatory consumer code

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, develops and approves a single mandatory consumer code for all housebuilders operating in GB.

Department(s): Ministry of Housing, Communities & Local Government

and

Recommendation 2.2: New Homes Ombudsman Scheme

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, activates the New Homes Ombudsman Scheme.

Department(s): Ministry of Housing, Communities & Local Government

Accept

We accept these recommendations. Earlier consultations identified a clear need to improve redress and strong support for the introduction of an ombudsman with an accompanying code that can investigate complaints and make determinations.

This is why we are working with the devolved governments to implement the statutory UK-wide New Homes Ombudsman (NHO) scheme, and we will bring forward secondary legislation in due course. In the meantime, we have also supported the development of a voluntary Ombudsman scheme to improve consumer protection ahead of the statutory scheme’s launch. The New Homes Quality Board was established, independent of government, in November 2022, with around 200 developers on board.

Eliminating drip pricing and providing greater clarity to buyers regarding the true cost of their new home

Recommendation 2.3: Prohibition of drip pricing

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, establishes a specific banned practice on the drip pricing of all mandatory elements of a new home, as well as other charges that are presented as ‘optional’ but which it is reasonably foreseeable that most consumers would have to pay, even if others could avoid them.

Department(s): Department for Business and Trade

No longer required - The Digital Markets, Competition and Consumers Act (2024) has legislated on mandatory dripped fees

The government agrees that mandatory fees should be presented upfront to consumers rather than dripped throughout the purchasing process. The new Digital Markets, Competition and Consumers Act (2024) will prohibit the drip pricing of mandatory fees by requiring traders to include all fixed mandatory fees that a consumer must pay in the headline price when there is an invitation to purchase, and to disclose the existence of any variable mandatory fees and how they will be calculated. The omission of material information from an invitation to purchase carries criminal liability, meaning that traders who engage in the drip pricing of mandatory fees will be committing a criminal offence. This prohibition applies to all traders, regardless of the sector they operate in, and so it would be duplicative to introduce a new banned practice that addresses mandatory dripped fees during the purchase of new homes.

Recommendation 2.4: Disclosure of optional extras

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, requires that where housebuilders present consumers with genuinely optional extras as a part of the purchasing process, these optional extras and their prices are prominently and fully disclosed alongside the headline price.

Department(s): Department for Business and Trade

Further work required

We recognise the potential for harm when optional extras are used misleadingly or designed to deceive consumers. We will continue to monitor the use of optional fees across sectors to ensure they are presented fairly to consumers before deciding whether any intervention is required.

Developing an independent single consumer satisfaction survey and publishing key quality metrics

Recommendation 2.5: Single consumer satisfaction survey

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, requires an independent body to develop, maintain and undertake a single consumer satisfaction survey on the quality of new homes and the service provided by all housebuilders.

Department(s): Ministry of Housing, Communities and Local Government

and

Recommendation 2.6: Publishing key quality metrics

• We recommend that the UK government, in consultation with the Scottish and Welsh Governments, requires housebuilders to participate in the survey, display their key quality metrics to consumers, and share this information with an independent body for public dissemination

Department(s): Ministry of Housing, Communities and Local Government

Further work required

The government recognises the points made by the CMA regarding the existing system and agrees on the importance of consumers having access to reliable information on quality in the market. Not all developers participate in the existing Home Builders Federation (HBF) star rating system, they are not required to disclose their rating, and the survey is completed eight weeks after purchase, which often is too early to spot problems and snags with new build houses.

However, we also want to consider the most effective way to deliver this recommendation, whilst also minimising undue regulatory burdens, particularly on small and medium-sized housebuilders (SMEs).  We will continue to consider our options and engage with the sector and the CMA on how best to improve outcomes.

We are encouraged to see the recent improvements that the HBF have made to their star rating system. However, we will continue to work with the sector to monitor the changes made and stand ready to take action should performance transparency of housebuilders not improve. We will consider a variety of options including working with the HBF, who are already significantly improving their star rating system to be more comprehensive and delivering this transparency through the NHO. We will continue to work with the CMA on this.

Options for consideration

The CMA report also included 11 options for consideration, recognising that there will be trade-offs required. Though we do not address these individually in this response, we have highlighted below some of the actions that have already been taken by government or that are in train to help with these.

Private management of public amenities on housing estates

As detailed above, the government acknowledges the problems that residents living under estate management arrangements can face and is taking significant steps to improve their situation.

We will monitor the effectiveness of our interventions for current residents and focus on preventing the proliferation of new arrangements before coming to a decision about any action on existing arrangements.

Reforming the planning systems

We agree with the CMA that the planning system needs significant reform, and the importance within this of providing the housebuilding sector with greater certainty, reducing disproportionate impacts on SMEs, and setting clear expectations around the role of statutory consultees.

The timing of the report has allowed us to consider its findings in detail and inform ongoing policy development to provide certainty to the sector.

As a first step, the government has committed to revising the NPPF in order to achieve sustainable growth in our planning system and a consultation was launched on 30 July 2024, closing on 24 September 2024.

Through this consultation we are also seeking views on a series of wider policy proposals in relation to increasing planning fees, local plan intervention criteria, and appropriate thresholds for certain Nationally Significant Infrastructure Projects.

The CMA identified that the planning system could be reformed through a more objective and effective use of targets to ensure that housing needs are met. Through the NPPF consultation, we have set out a proposed new approach to assessing housing needs based on 4 principles for reform, which broadly align with the CMA findings:

• to support the government’s ambition to deliver 1.5 million new homes over the next five years
• to provide greater certainty to the sector through more stable and predictable housing numbers
• to achieve a more balanced distribution of homes across the country, by directing homes to where they are most required and least affordable, and ensure that all areas contribute to meeting the country’s housing needs
• to be straightforward to understand and apply so that the method can be easily replicated, be updated in line with the most recent publicly available data and speed up plan making

We are also proposing reducing the scope that local planning authorities currently have in assessing housing needs by making the government standard method the default approach.

The government is also committed to strengthening the existing system of developer contributions to ensure new developments provide necessary affordable homes and infrastructure.

The CMA also identified the need for measures to support SME housebuilders, ensure more small sites are brought forward, and require greater diversity of tenures. Within the NPPF consultation, we seek views on potential measures to strengthen small site policy within the NPPF. We are also consulting on measures to promote the delivery of mixed-use sites, recognising the benefits mixed tenure development brings to the timely build-out of sites and in creating more diverse communities.

Alongside changes to national planning policy, we have also outlined our plans for a Planning and Infrastructure Bill, which will seek to accelerate the delivery of high-quality infrastructure and housing by streamlining the planning process. The Bill will look to modernise planning committees, improving the decision-making process, and increasing local planning authorities’ capacity. The Bill will also reform the compulsory purchase process to help speed up the delivery of developments which benefit local communities. Furthermore, the Bill will, if required, provide legislative underpinning to enable development to fund nature recovery where both are currently stalled.

In addition to this, we will complete our set of planning policy changes through consulting on National Development Management Policies; we will boost the capacity and capability of the planning system and support local planning authorities by funding 300 additional planning officers (through an increase to the rate of the stamp duty surcharge paid by non-UK residents); and we will consider whether additional measures could be introduced to help address concerns about slow build-out rates, particularly on larger sites.

Recommendations summary

Private management of public amenities on housing estates

Preventing the proliferation of private management arrangements on new housing estates

Recommendation 1.1: Common adoptable standards We recommend that the UK, Scottish, and Welsh governments each implement common adoptable standards for public amenities on new housing estates.	Further work required
Recommendation 1.2: Mandatory adoption We recommend that the UK, Scottish, and Welsh governments each implement mandatory adoption of public amenities on new housing estates (outside of minor, well-defined exceptions.	Further work required

Providing greater protection to households living under private management arrangements

Recommendation 1.3: Enhanced consumer protection measures We recommend that the UK government, in consultation with the Scottish and Welsh Governments, introduce enhanced consumer protection measures, underpinned by a robust enforcement regime, for households living under private management arrangements.	Accept in principle
Recommendation 1.4: Prohibition of new embedded management arrangements We recommend that the UK, Scottish, and Welsh governments each prohibit the establishment of new embedded management arrangements.	Further work required
Recommendation 1.5: Guidance for residents’ management companies We recommend that the UK, Scottish, and Welsh governments each provide guidance to members and directors of residents’ management companies to support and enable them in effectively managing the amenities on their housing estates.	Accept in principle

Quality of new homes produced, and service provided by housebuilders

A single mandatory consumer code and the New Homes Ombudsman Scheme

Recommendation 2.1: A single mandatory consumer code We recommend that the UK government, in consultation with the Scottish and Welsh Governments, develops and approves a single mandatory consumer code for all housebuilders operating in GB.	Accept
Recommendation 2.2: New Homes Ombudsman Scheme We recommend that the UK government, in consultation with the Scottish and Welsh Governments, activates the New Homes Ombudsman Scheme.	Accept

Eliminating drip pricing and providing greater clarity to buyers regarding the true cost of their new home

Recommendation 2.3: Prohibition of drip pricing We recommend that the UK government, in consultation with the Scottish and Welsh Governments, establishes a specific banned practice on the drip pricing of all mandatory elements of a new home, as well as other charges that are presented as ‘optional’ but which it is reasonably foreseeable that most consumers would have to pay, even if others could avoid them.

No longer required

Recommendation 2.4: Disclosure of optional extras We recommend that the UK government, in consultation with the Scottish and Welsh Governments, requires that where housebuilders present consumers with genuinely optional extras as a part of the purchasing process, these optional extras and their prices are prominently and fully disclosed alongside the headline price.

Further work required

Developing an independent single consumer satisfaction survey and publishing key quality metrics

Recommendation 2.5: Single consumer satisfaction survey We recommend that the UK government, in consultation with the Scottish and Welsh Governments, requires an independent body to develop, maintain and undertake a single consumer satisfaction survey on the quality of new homes and the service provided by all housebuilders.	Further work required
Recommendation 2.6: Publishing key quality metrics We recommend that the UK government, in consultation with the Scottish and Welsh Governments, requires housebuilders to participate in the survey, display their key quality metrics to consumers, and share this information with an independent body for public dissemination	Further work required