Competition watchdog to investigate land banks, planning system and private rental sector

The Competition and Markets Authority (CMA) has published an update on its housebuilding and private rental market inquiry, formally launched in February.

The regulator revealed last week (25 August) that it will look into issues regarding land banks (the inventory of land held by housebuilders for potential future development), due to concerns that “the extent of land banks held by large firms could have the effect of giving them market power in some areas.”

The CMA outlined five main areas it is investigating in relation to UK housebuilding for further analysis.

This included:

• The increasing use of private estate management companies to take on responsibility for public amenities such as roads, lighting and public open spaces in newly built estates.
• Issues regarding land banks.
• Aspects of the planning system “impeding the effective functioning of the housing market”.
• Potential barriers to entry and expansion in the market – particularly looking at SME [small and medium size enterprise] housebuilders.
• How competition works in the market “both in terms of competition to secure land for development and competition to supply housing to consumers, as well as the interplay between the two.”

The CMA noted that its analysis of planning application data in England shows that the percentage of the major dwelling planning decisions that were made within the statutory 13-week deadline “fell significantly” from above 50% in 2009 to below 20% in 2021.

It said: “We would expect difficulties in navigating the planning system to have a greater impact on SME housebuilders, as increasing fixed costs of managing the planning process will represent a higher proportion of the revenue of a smaller firm.”

Turning to its consumer protection project on issues in the private rental sector, the CMA said it had heard “numerous concerns” about the sector, as well as some positive developments.

The regulator outlined five issues it will investigate further:

• Zero-deposit schemes, which normally require tenants to pay a non-refundable monthly fee and/or upfront premium instead of a larger upfront deposit payment.
• “Sham licences” – typically where a landlord purports to give a ‘licence to occupy’ a room within a property when in fact the terms of the contract create a tenancy.
• “Onerous” guarantee clauses which impose very wide obligations on tenants – such as requiring then to provide extensive evidence of assets.
• Activity that could constitute unlawful discrimination – for example, advertising properties as not available to housing benefit claimants (‘no-DSS’).
• Issues surrounding retirement homes and their impact on the rights and financial well-being of residents and their dependants.

The CMA noted that while zero-deposit schemes can be helpful to households which do not have access to a large deposit and may ease the issues arising around refunds of deposits when tenants move house, “it is important that tenants understand the costs for which they may be liable under such schemes, and that the terms of such schemes are fair”.

It noted that sham licencing practices “may affect the vulnerable, recent arrivals in the UK such as overseas students, and those who don’t understand English well”.

The watchdog added: “We understand that sham licence practices may exist across the UK however we have seen little data to indicate their prevalence and we will look into this further.”

On issues surrounding retirement homes, (properties built and aimed at older buyers to create retirement communities), the CMA said there may be problems around event fees which are charges imposed on residents when they leave or sell their retirement homes, which can be “high and unpredictable, potentially limiting residents’ choices and financial outcomes”.

The CMA revealed it will investigate each of the issues further, and will provide updates on its work later in the autumn.

The watchdog will then consider a “range of options” to best address the issues it has identified, which could include recommending legislative changes to the UK, Scottish and Welsh governments, or launching a market investigation.

Sarah Cardell, Chief Executive of the CMA, said: “The CMA alone can’t resolve the problems in the UK housing market. But we have a role to play and will do our part to help ensure the private rental and housebuilding markets work better for people and businesses.

“For private renters, we’re taking action to provide updated guidance for lettings agents so that both tenants and landlords are really clear about their own rights and responsibilities. We’ve also identified areas of concern relating to zero deposit schemes, sham licences, onerous guarantee clauses, and possible unlawful discrimination. These warrant further investigation and we stand ready to take enforcement action if needed.

“In housebuilding, we’ll press on with our investigation of the five areas that are the focus of our market study so that we can get to the bottom of any potential competition concerns. Once complete, we will consider what actions the CMA can take to tackle any concerns identified or whether there are more effective ways to deal with those concerns such as through recommendations to government for legislative change.”

Lottie Winson