CMA update on work in housing sector

25 Aug 2023 11:11 AM

CMA publishes progress update on consumer protection work in private rented housing and housebuilding market study.

• Initial assessment of private rental sector suggests a significant minority of landlords and letting agents may not be following consumer protection rules.
• Five areas to be probed further in next phase of housebuilding market study including estate management charges and land banks.

The Competition and Markets Authority (CMA) today issued updates on 2 pieces of work in the housing sector – a consumer protection project on issues that private rental tenants are experiencing and a market study probing competition concerns in housebuilding.

As set out in its annual plan, the CMA is prioritising outcomes which help people, businesses, and the UK economy – and a critical part of this is ensuring that competition and consumer rights are protected in relation to where people live.

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 5 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.”

Consumer protection in rented sector

While many landlords and letting agents are providing a good service, initial engagement by the CMA heard many complaints raised by stakeholders suggesting that a significant minority are not complying with consumer protection law.

To help letting agents understand their obligations, the CMA will update its guidance for lettings professionals. If any letting agency or landlord is found to be in breach of the law, then the CMA does not rule out launching enforcement action.

Following its initial engagement, the CMA’s investigation will explore the 5 areas highlighted by stakeholder complaints:

• Zero deposit schemes: These schemes alleviate the need for tenants to come up with a hefty deposit when they enter a tenancy, but the CMA has heard concerns that tenants may be unaware of their liabilities under such schemes, alongside reports of pressure selling and undisclosed commissions earned by letting agents.
• Sham licences: The CMA has been told that there are still landlords who claim that tenants have licences to occupy rather than assured tenancies and who fail to recognise the rights that consumers have under a tenancy.
• Guarantees: The CMA has seen examples of onerous guarantee clauses which impose wide obligations on tenants – such as requiring them to provide extensive evidence of assets.
• Activity that could constitute unlawful discrimination: This includes, for example, looking at those who advertise properties as not available to housing benefit claimants (i.e. ‘no-DSS’).
• Retirement housing fees: The CMA’s initial engagement also heard concerns around so-called ‘event fees’ charged to vulnerable tenants entering specialist retirement housing. The CMA will review practices in the sector and whether some businesses are taking advantage of elderly consumers.

More information can be found on the rented housing sector consumer project case page.

Housebuilding market study

After receiving feedback from key stakeholders in the sector – which included housebuilders of all sizes, campaign groups, councils, and devolved administrations – the CMA will now look at 5 areas in greater detail as the market study progresses:

• Estate management charges: Evidence has shown a significant number of new housing estates built over the last 5 years have not been taken on (a process known as adoption) by their local authority – meaning homeowners are required to pay a private management company to maintain amenities such as roads, parks, and street lighting. This has led to concerns about high or uncapped charges for owners and the quality of work carried out in maintaining these amenities.
• Land banks: Analysis of the housing market shows the largest builders in the UK hold large swathes of land, and that these land banks have grown in recent years, leading to concerns from some stakeholders this may be limiting competition or slowing build-out rates in some areas.
• Planning rules: Concerns expressed by some stakeholders suggest that complex planning rules and uncertainty of decision making were hindering the delivery of new homes – particularly for smaller housebuilders that have less resources to help manage the planning process.
• Competition between builders: The market study has found that, at the national level, the housebuilding market does not appear to be particularly concentrated, with a number of large housebuilders competing alongside smaller, regional firms. The CMA is now considering the number of competitors in particular areas and the extent to which small and medium sized housebuilders are able to compete in these local markets.
• Barriers for new businesses wanting to build homes: The CMA has heard concerns about barriers facing small and medium-sized builders and the particular issues they face when delivering new homes (for example, access to land).

The CMA will investigate each of these issues further – while considering the economic conditions affecting the sector – and will provide updates on its work later in the autumn. This will include publishing working papers on estate management charges, land banks, and planning rules.

The CMA 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 (see note 5).

More information can be found on the housebuilding market study case page.

NOTES TO EDITORS

1. Both the consumer protection project on private rental accommodation and housebuilding market study were launched in February 2023. The CMA has today published an overview update, which covers both projects.
2. The CMA’s consumer research project into the private rented sector has looked into the experiences of tenants and landlords across all 4 nations of the United Kingdom. This followed work by the CMA to remove doubling ground rent clauses in leasehold contracts, and to obtain refunds for thousands of leaseholders. Consumer protection work is also underway with the CMA looking at misleading green claims made by businesses selling and installing green home heating products.
3. The housebuilding market study is examining housebuilding in England, Scotland and Wales. The market situation in Northern Ireland is significantly different from the rest of the UK, such that Northern Ireland appears unlikely to face the same market or supply-side issues, and therefore the housebuilding market study has not included Northern Ireland.
4. Market studies examine why particular markets may not be working well for consumers. They may lead to a range of outcomes, including: a) making recommendations to the government to change regulations or public policy; b) encouraging businesses in the market to self-regulate; c) taking consumer or competition law enforcement action against firms; d) making a reference for a more in-depth market investigation; e) “clean bill of health”.
5. With regard to the private management of public amenities on new-build estates and the land banks controlled by the largest housebuilders, the CMA has identified concerns that may form the basis of a market investigation reference (MIR) and is today launching a consultation to seek market participants’ input with regard to the possibility of an MIR in relation to those concerns. The consultation closes for responses on 18 September 2023.
6. Working papers will be published later this autumn addressing issues relevant to the housebuilding market study. Working papers will set out the CMA’s more detailed thinking on whether and how the way the market works in the areas under consideration may be having a negative effect on market outcomes for consumers and options for action to address any problems found.
7. The CMA’s 2023 to 2024 Annual Plan, published in March, explains that the CMA wants to promote an environment where people can be confident they are getting great choices and fair deals and where competitive, fair dealing businesses can innovate and thrive. It also explains that, over the next 3 years, the CMA will “consistently focus on the areas where consumers spend the most money and time”. This includes focusing on the accommodation sector over the next 12 months through our consumer research project into the private rented sector and through the housebuilding market study.