Homebuilding sector is broadly competitive

The OFT has a market study into the homebuilding sector which says that whilst the sector is broadly competitive, many homebuyers experience faults or delays. As a result, the industry has agreed to develop its own code of conduct and redress scheme for consumers.

The OFT found little evidence of competition problems with the delivery of new homes in the UK. The report says that on the whole barriers to entering the market appear low, and that prices are set through homebuilders competing for sales against each other and are significantly constrained by the prices of 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, which include:

Delays in moving in
Faults in new homes
Issues around the sales process including reservation fees, the clarity of information provided to homebuyers and potentially unfair terms and conditions in contracts.

As a result, 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.

However, if the industry fails to make adequate progress or deliver an effective solution, the OFT recommends further intervention through a statutory redress mechanism.

This would involve a means of redress for homebuyers with the ability to award compensation for any failings in the sales process, shortcomings in contracts, delays or faults, and would need to be funded by a levy on the industry.

John Fingleton, OFT Chief Executive, said: 'We have found the homebuilding market to be generally competitive, with no evidence that individual homebuilders have the ability to restrict supply in order to inflate prices or to hoard land for anti-competitive reasons.

'However, we have concluded that homebuyers need more protection when buying a new home and we have worked hard with the industry to help it develop a new approach to self-regulation that will improve consumer protection.

'We believe that this measure will position this important sector of the economy to provide better levels of consumer satisfaction, with long term benefits to the industry and consumer alike.'

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 '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.