UK housebuilders have far too much power. Now a £4.5bn lawsuit could change that for good | Peter Apps

Every new government – at least for the past decade or so – has come into office with a promise to build more homes. New ministers don a hard hat, take a trip out to a recently completed development and smile indulgently as a bright young couple get given the keys to a smart-looking new-build. Then follows a speech about aspiration.

The unspoken truth will be that it is not up to the minister how many new homes are built in his or her term. Instead, this decision is mostly made in the boardrooms of the largest developers, who together control the land and resources to dominate the market in this country.

The UK is unusual in this regard. In Germany, it is normal for an individual household to buy a plot of land and commission a local building firm directly to build a house on it. More than 50% of German housebuilding is done in this way – with similar rates in Belgium and Austria. In the UK it is 7%. In France, municipal authorities, social housing providers and regional builders make up a much bigger share. In Sweden, cooperatives play a bigger role.

But in the UK, volume housebuilders and their preferred model of speculative development routinely provide most of our new homes. This situation has emerged slowly over decades. Public housebuilding collapsed from the 1980s onwards. The number of smaller builders fell from about 10,000 in the 1980s to 2,800 by the mid-2010s, and has fallen further since. So if ministers want more homes to be built, they are forced to ask the big housebuilders – please, pretty please, would you mind building a few more?

The trouble is, the answer is often no. The speculative model works by controlling the release of homes to maximise profits. When the economy is difficult, it makes sense to retrench. And even when borrowing is cheap and buyers are queueing round the block, it makes sense for them to release homes to the market slowly to keep profits high. Between 2012 and 2015 (boom years for private builders) profits before tax at the biggest builders rose by nearly 200%, but their output of homes only rose by 33%.

All of this is background to the news that the UK’s seven largest housebuilders are facing a collective action on behalf of an estimated 700,000 people who bought a new-build home between October 2015 and June this year. The case is being brought by a single representative on behalf of this class – many of whom will have no idea it is taking place. The aim is to secure a right to compensation of between £3,100 and £6,200 each – a bill for the industry of somewhere between £2.2bn and £4.5bn.

The journey to this point has been a long one. In 2022, Michael Gove was housing secretary and came to the role with a desire to shake things up. He asked the Competition and Markets Authority (CMA) to carry out a full market study into volume housebuilders. It published its findings in early 2024, saying that the reason we build fewer homes than we need in the UK is structural: it’s a natural consequence of the builders’ speculative model bumping into an uncertain planning system.

But buried on page 87 was a small finding – that “evidence from housebuilders’ internal documents” suggested the “sharing of commercially sensitive information” was taking place, which could influence pricing. This would have broken the law, so the CMA launched a further investigation in February 2024.

This investigation ended surprisingly. In October last year, the CMA agreed to close its investigation without reaching a final conclusion. In exchange, the builders under investigation agreed to pay a collective £100m into government affordable housing schemes, ensure commercially sensitive information was not shared going forward and publish new industry guidance on information exchange. The builders were neither exonerated nor found to have breached competition laws. The investigation simply stopped. Law firms who specialise in class actions, however, spotted the potential for a case, and the Competition Appeal Tribunal will rule in due course as to whether or not it can move forward.

The breaches the housebuilders are accused of feel – in the grand scheme of things – relatively minor. The CMA said it was concerned about the sharing of non-public information such as agreed prices (distinct from asking prices), incentives (a kitchen upgrade or a bit of help with stamp duty) and the number of visitors to a site. The general idea is that other builders in the area were getting an insight into buyer attitudes and what prices they could really hold out for.

Neal Hudson, an industry analyst, says that his assumption – based on the report and the industry guidance that has now followed – is that the concerns relate to “chumminess” between salespeople working across different outlets rather than “wholesale sharing of information at a corporate level”.

Nonetheless, if this has been going on and it did influence prices, competition law would render the buyers entitled to compensation. The seven housebuilders threatened with the claim have so far declined to comment, except Berkeley Group – which says simply that it is aware of the claims, but that it would be inappropriate to comment further.

Given the other scandals around new-build homes – the often dreadful quality, the hidden charges for estate management, the various leasehold scandals, controversies over excessive executive pay and the general, ongoing structural problem of low building rates and high house prices – the fact that this scandal is where the class action has finally arrived does bring to mind the words “Al Capone for tax evasion”.

Nonetheless, it would leave builders with a big problem. It is not boom time for them any more. Ukraine, Brexit, Iran and general inflation have sent the cost of building soaring. Borrowing money is far more expensive than it was. The post-Grenfell cladding crisis has left developers with bills ranging into the billions to strip combustible plastic off flats they built up to 20 years ago. Meanwhile, buyers – with higher mortgage rates to service – are far less interested in a new-build semi than they were 10 years ago.

There may be little sympathy for them, but this latest hit – if it materialises – will have consequences. These seven builders collectively built 73,000 homes in 2023-24. Some are already wobbling financially.

The overall lesson is clear: this model of building new homes is not serving us well. If we are to solve our seemingly endless housing problems, it must change. The dominance of the big builders needs to break – at least a bit – for any new model to truly flourish. Perhaps this case can be among the catalysts that bring that about.

Peter Apps is the author of Show Me the Bodies: How We Let Grenfell Happen

This post was originally published on this site.