Long-term land interests and housebuilding: what can be unpacked from the UK CMA's industry findings?

The Competition and Markets Authority (CMA), in its much-anticipated market study report into the housebuilding sector in England and Wales published earlier this week, would seem to have granted a momentary reprieve for the practice of so-called "land banking" but delivered a scathing assessment of the planning system.

Alongside the conclusions to the study of the housebuilding market that it opened in February 2023, the CMA also announced the launch of a follow-up investigation it estimates will run to the end of the year into whether information sharing between housebuilders is anti-competitive.

Land banking

The CMA report said that it does not consider land banks to be "significantly distorting competition between housebuilders in delivering houses".

The competition regulator views the increasing amount of land being tied up in options-to-purchase and promotion agreements – more than one million plots of land according to the study – as a symptom of wider problems in the market. These are primarily driven by the duration and uncertainty of the planning process.

Crucially, the report says that "artificially reducing the levels of land banks" would likely have a negative effect on the amount of housing being built if the underlying drivers of the under delivery of housing are not addressed.

The market features that encourage land banking are seen to be the same as those that lead to an undersupply of housing – primarily, this is the planning system.

Barring new information coming to light, this may mark the end of the CMA's investigation into land banking, alleviating concerns for the time being among housebuilders and promoters about the potential exposure of sensitive data and commercial terms.

Planning reform proposals

While identifying the planning system as a topic for legislative amendment, the CMA has proposed that the UK, Scottish and Welsh governments consider a range of changes to the planning system.

• More objective and effective use of targets to ensure the housing need is met.
• Effective monitoring and enforcement of local plans to encourage housebuilders to bring forward successful planning applications and build new homes.
• Streamlining the planning system to increase significantly the ability of housebuilders to begin work on new projects sooner and bring forward marginal projects which may have previously not been viable due to the costs of taking them forward.
• Clearly defining and rationalising statutory consultees to reduce the delay caused by the statutory consultation process.
• Effective monitoring and enforcement of deadlines for statutory consultees to avoid unnecessary delays in the planning process.
• Measures to support reforms to the planning systems and processes, such as improving local planning authority (LPA) capacity and resource by raising planning fees to a cost-reflective level and ringfencing those fees; as well as providing additional support for SME housebuilders through better guidance, standardised LPA policy, and a simpler 'outline' stage of planning permission.

The Levelling Up and Regeneration Act 2023 (LURA), which received Royal Assent on 23 October 2023, came with a mission statement to "speed up the planning system", but whether the framework put in place by the LURA will achieve these ambitions has been questioned. Shortly after LURA, a refreshed National Planning Policy Framework was published, which watered down housing targets for local authorities – a move that was heavily criticised by Labour. The Home Builders' Federation commented "we are seeing house building and planning permission levels tumble as a direct result of the government’s approach and further falls are now inevitable."

Anti-competitive information sharing

The CMA is concerned that housebuilders are sharing non-public information on land prices, property sales prices, incentives, sales and buildout rates. This comes from evidence from housebuilders internal documents that were obtained during the study. As a result, the CMA has launched a separate investigation into eight large housebuilders and their associated companies.

The competition regulator has given a preliminary indication that its initial investigation will take place until December 2024. This will include information gathering followed by analysis and review of this information. In the conduct of this investigation, it will have broad information gathering powers, extending to documents held on domestic premises. A refusal to comply with these powers can be subject to criminal sanctions. The CMA has discretion to widen its investigation should further information come to light in the course of the investigation. In the past, this has included investigating additional companies as well as broadening the scope of the investigation to incorporate different conduct.

Although the CMA does not consider information sharing to be a main factor contributing to the persistent under delivery of housing against government targets, the regulator is concerned that the practice may weaken competition in the market.

There are a number of consequences if an infringement of competition law is found. The parties may be ordered to cease or modify the agreement that leads to the anti-competitive conduct, parties may be fined up to 10% of worldwide turnover, the agreement could be unenforceable and third parties may be able to bring an action for damages.

There is also the possibility of personal liability for directors including disqualification from acting as a company director, an unlimited fine or even imprisonment. This accompanies the negative public perception that would likely accompany any finding of an anti-competitive practice which had the effect of increasing prices especially during the cost-of-living crisis.

Osborne Clarke comment

The CMA's findings in relation to the planning system has echoed the views of many that fundamental reform is required to tackle the UK housing crisis rather than tinkering around the edges of a system devised back in 1947.

It will be interesting to see how the government chooses to take the recommendations forward. While CMA reports undoubtedly carries weight, it can take many years for this to feed through into legislation. However, in an election year with housing likely to be a key battleground, voters will be looking for meaningful change in the supply and affordability issues currently plaguing the system.

We are pleased that the CMA has acknowledged there are issues with the planning system that continue to frustrate the delivery of land for housing and that they have accepted that there is not a widespread issue with land banking.

The CMA estimates that its follow-up investigation into suspected anti-competitive information sharing, including information gathering, analysis and review of information gathered, will run until December this year.

We have advised clients in this area and will be keeping close to our clients to support through this investigation. Please get in touch with our experts if you would like any advice.