Customers buying new-build homes should be able to hold back 5% of the purchase price until the housebuilder has fixed any problems or defects with the property, a think-tank has said.
The Social Market Foundation said that new rules are needed to fix a broken and uncompetitive market for new-build housing where builders can prioritise profits over customers and leaves buyers increasingly unhappy about quality and services, new report says.
The SMF said some housebuilders have a “culture” of neglecting customers’ interests, calling on Government to do more to boost consumer power and back new entrants to the market.
The report comes amid growing political focus on the quality of new-build housing, and the profits reported by builders whose customers are often left unhappy.
The 5% scheme is in use in the Netherlands and should be available here, the SMF said. James Brokenshire, the Secretary of State for Housing, has said he is considering the policy.
The SMF report, titled “Building a Better Market”, paints a bleak picture of the market for new-build homes, with consumers increasingly unhappy with their new homes, even as developers’ profits rise.
Salima Ali, the report’s author, said:
“Buying a new home is the biggest purchase most people will ever make, but the market doesn’t work well for many consumers. They should have more information about housebuilders and more power to push builders to fix problems with new homes.
“Housebuilders should also face more competition: they’re not under enough pressure to provide the better, cheaper houses that consumers want. It’s too easy for them to sell homes that leave buyers unhappy while making large profits. A better market would push them to work harder and give their customers a better deal.”
James Brokenshire MP, Secretary of State for Housing, Communities and Local Government, said:
“I’ve made it clear repeatedly that I want the housing market to work in the interests of consumers. This report highlights a number of challenges around quality of build and the approach of certain parts of the market that are, quite frankly unacceptable. Where we need to, we will act to protect consumers and ensure the market rewards quality, consistency and customer service. I will consider the recommendations made with interest.”
Key findings from the SMF report:
- Over the last 30 years, there has been an 80% reduction in the number of small housebuilders. The decline of small housebuilders, along with the consolidation of larger housebuilders means the market has become more concentrated in recent years.
- A lack of competition and weak consumer power means housebuilders can prioritise maximising profit rather than, for example, meeting consumer needs in terms of quality.
- Consumer satisfaction in new housing is declining, whilst the number of new homes is increasing. Only 46% of new buyers were very satisfied with the quality of their new-build home in 2018, compared to 53% in 2012.
- There is a gap between consumer expectations of quality and the quality delivered by housebuilders. 99% of new homeowners reported problems including snags or defects since they moved in, and of these, 69% had over 5 problems.
- It is difficult for consumers to access redress for problems with new homes. The system is complex and difficult to navigate, and homebuyers are not well informed about what their warranty covers.
- New homes are not always well connected to transport or amenities. Almost half of new homes (46%) are not within reasonable walking distance of the nearest railway station.
Steps to improve competition and choice in the market
Introduce a detailed information package to be made available to prospective homebuyers. By providing this information, consumers will be able to compare between their options and make a more informed choice. This package should include:
- Measures on performance of each housebuilder: These should include customer satisfaction measures, the number of defects in previous homes, number of warranty claims – these measures should be consistent across the industry.
- Clear information on what the warranty covers. This should help to close the gap between consumers expectations of what warranties cover, compared to what they actually cover.
Support entry and expansion of small and medium builders in the market, through reviewing and adapting existing policies. The success of some existing government initiatives has been limited, so these learnings should be incorporated to improve new schemes.
- Monitor the increase in volume of small sites following the revised National Planning Policy Framework (NPPF) requiring at least 10% of overall sites to be small sites. Consider whether there is scope to increase this percentage over time.
- Introduce a requirement for a minimum proportion of overall sites to be reserved for custom build homes. The Government has already expressed support of custom build homes; introducing this requirement will ensure that more custom houses are built.
Improving protection of consumers
Improve the current warranty mechanism, which does not provide enough support for consumers.
- Allow homebuyers to withhold 5% of the price of the new-build home, which can then be used by the housebuilder to fix any snagging issues. A similar scheme is operating successfully in the Netherlands.
- Housebuilders should be obliged to provide compensation if repairs are delayed. This will incentivise housebuilders to take more immediate action if there are issues with the new home.
- Introduce compulsory licensing and certification of housebuilder firms (including those that are subcontracted). This formal system will ensure that all companies have appropriate standards which should improve quality across the industry.
For more information or to arrange an interview, or for other media enquiries, please contact:
James Kirkup, SMF director: email@example.com and 07815 706 601
Barbara Lambert, SMF media officer: firstname.lastname@example.org and 07540 544 692