Making the housebuilding market work better for consumers
Buying a home is one of the most important purchases that a consumer will make in their lifetime, and the market should work well to meet the needs of consumers. This report focuses on how to improve the market in the interests of consumers. We examine the market structure of the housebuilder market, and consequences on the outcomes for consumers, focusing on the quality, size, design and location of new housing.
We have proposed measures to improve competition in the market, improving choices for consumers and ensuring that their needs are met. To realign the incentives between housebuilders and consumers, we propose a reform to the redress system that will help to protect consumers.
This report recommends:
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.
- Objective standards of marketing, including improved measures on transport connectivity. There should be industry standards for marketing which ensure new properties are depicted in an objective way, including comparisons to average measures (e.g. average distance to railway stations). This would complement existing regulations that aim to prevent misleading advertising.
- 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.[i]
- 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.
- Recent changes in planning policy encourage developers to engage with the local community. We recommend that the government monitors take-up of this and considers mandating this approach if it is not taken up widely. Given the importance of new housing to local communities, this will encourage sustainable developments.
- 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.]
[i] http://cdn.loyensloeff.com/media/6947/building-in-the-netherlands.pdf