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How many reports do you need to fix Britain’s broken housing market? The Office of Fair Trading’s 2010 report, the 2004 Barker review and Oliver Letwin’s 2018 report on buildout rates are just a few of the attempts to identify why the country fails to build enough homes to meet demand — and who is to blame.
The UK’s Competition and Markets Authority on Monday added its own contribution to the paper mountain. Despite initial appearances, UK housebuilders have more to celebrate than fear from the year-long study.
The main headline — that the CMA will investigate eight housebuilders over potentially anti-competitive information sharing — masks other helpful conclusions. Shares in Taylor Wimpey and Persimmon, the biggest fallers among the eight companies named, were down less than 4 per cent by lunchtime.
The blame for Britain perpetually missing housebuilding targets lies with its complex planning system, concludes the regulator, plus the limitations of speculative private development.
Neither should come as a great surprise. Housebuilders only build when they think they can sell homes and make a decent return. Market leader Barratt Developments targets a minimum gross margin of 23 per cent and return on capital employed of 25 per cent when it invests in new land. This has long led to allegations of housebuilders hoarding land to limit supply and prop up prices, which is something they reject. Equally, lengthy and bureaucratic planning processes are a bugbear of campaigners and developers alike.
The watchdog’s finding that land banking is “more a symptom” of other issues, such as the unpredictable planning system, rather than a cause of the housing shortage is a very welcome one for housebuilders.
So is the conclusion that any measures to directly reduce housebuilder profitability “may create an additional downward pressure on the number of houses being built”. Profitability in the sector is high during market upswings: Barratt’s gross margin has not fallen below 16 per cent since 2014, according to Visible Alpha data. But the CMA’s finding will bolster the housebuilders’ case if future governments look to rein in their profitability.
The probe into information sharing could lead to fines, a risk hard to quantify at this stage. Developers will also have to up their game on quality after the watchdog found the number of new owners reporting snagging issues had increased.
Once again, the question of what to do about UK housing is batted back in the politicians’ court. Meaningful progress would require multiple “difficult” interventions at once, says Toby Lloyd, of the Joseph Rowntree Foundation. Cue more additions to the policy paper mountain.