OFFICE OF FAIR
TRADING News Release (109/08) issued by COI News Distribution
Service. 25 September 2008
Industry agrees to
introduce new code to protect consumers
The OFT has today published its market study into the
homebuilding sector which says that whilst the sector is broadly
competitive, many homebuyers experience faults or delays. As a
result, the industry has agreed to develop its own code of conduct
and redress scheme for consumers.
The OFT found little evidence of competition problems with the
delivery of new homes in the UK. The report says that on the whole
barriers to entering the market appear low, and that prices are
set through homebuilders competing for sales against each other
and are significantly constrained by the prices of existing
homes. There is no evidence that individual homebuilders have
persistent or widespread market power giving them the ability to
restrict supply in order to inflate prices.
However, the OFT found that homebuyers can experience a number of
problems, which include:
* delays in moving in
* faults in
new homes
* issues around the sales process including
reservation fees, the clarity of information provided to
homebuyers and potentially unfair terms and conditions in contracts.
As a result, representatives from across the sector have agreed
to form a body to deliver a code of conduct and redress scheme for
consumers, which it aims to have fully operational by March 2010.
However, if the industry fails to make adequate progress or
deliver an effective solution, the OFT recommends further
intervention through a statutory redress mechanism.
This would
involve a means of redress for homebuyers with the ability to
award compensation for any failings in the sales process,
shortcomings in contracts, delays or faults, and would need to be
funded by a levy on the industry.
John Fingleton, OFT Chief Executive, said:
'We have
found the homebuilding market to be generally competitive, with no
evidence that individual homebuilders have the ability to restrict
supply in order to inflate prices or to hoard land for
anti-competitive reasons.
'However, we have concluded that homebuyers need more
protection when buying a new home and we have worked hard with the
industry to help it develop a new approach to self-regulation that
will improve consumer protection.
'We believe that this measure will position this important
sector of the economy to provide better levels of consumer
satisfaction, with long term benefits to the industry and consumer alike.'
The study also found no evidence that homebuilders have the
ability to anti-competitively hoard land or withhold a large
amount of land with planning permission on which they have not
started to build. Instead 'landbanking' reflects the
need for firms to have a pipeline of land at different stages in
the development process.
The report also stresses the importance of maintaining a vibrant
small and self build sector. This includes recommending that the
Government and the Welsh Assembly should help small homebuilders
and self builders meet the technological advances required by the
Code for Sustainable Homes by enabling them to make use of
'off-the-peg' solutions. They should also consider
assisting small homebuilders and self builders to access the
necessary technologies to overcome the zero carbon challenge.
NOTES
1 The code of conduct is being developed by a Cross Industry
Steering Group comprising the Construction Employers Federation
(NI), Council of Mortgage Lenders, Federation of Master Builders,
Home Builders Association, Home Builders Federation, Homes for
Scotland, LABC New Home Warranty, National House Building Council,
Premier Guarantee, Retirement Housing Group and Zurich Building Guarantee.
2 The Barker Review of Housing Supply, which was set up in 2003
to look at the reasons for the lack of supply and low
responsiveness of housing in the UK, published its final report in
March 2004. This called on the industry to increase levels of
customer satisfaction and to introduce a code of conduct. It said
that if progress was unsatisfactory, or consumer satisfaction
levels did not rise substantially in the three years following the
report, the OFT should conduct a wide-ranging review of the market.
3 The OFT launched this market study in June 2007. The principal
focus has been an examination of the role of competition in the
supply of new homes and the consumer issues surrounding the new
build homebuying process.
4 OFT Market Studies are carried out under section 5 of the
Enterprise Act 2002 (EA02) which allows a market-wide
consideration of both competition and consumer
issues.
Possible outcomes of a market study include:
a.
giving the market a clean bill of health,
b. publishing
information to help consumers,
c. encouraging firms to take
voluntary action,
d. encouraging an industry code of
practice,
e. making recommendations to the Government or
sector regulators,
f. investigation and enforcement action
against companies suspected of breaching consumer or competition
law,
g. a market investigation reference to the Competition Commission.
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