The OFT continues to be supportive of industry efforts to implement a code and will continue to work with the code body and stands ready to advise on request.

The market study set out a timetable of milestones and deadlines with the purpose of ensuring progress, against the background of previous reports and recommendations about the implementation of a code in this sector.

While we acknowledge the considerable progress made by the code body, it can no long be said that it is working to any timetable agreed with the OFT as a result of the market study – indeed since CCAS approval is an entirely voluntary scheme, this could be argued to be quite appropriate.

In these circumstances, the OFT considers that its ‘backstop’ recommendation to the Government of a statutory redress scheme must now be made but the OFT acknowledges that the Government will wish to take into account the ongoing progress in deciding whether, or when, to act on the OFT’s recommendation.

Zurich was an original signatory to the industry’s proposal to form an industry code to deal with the issues raised in the market study report.

As agreed between the OFT and the industry, the proposal for the homebuilding code envisaged that the code would have provided the ‘established means’ for the control of unfair commercial practice under the Consumer Protection from Unfair Trading Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008 within the homebuilding industry. View information on established means.

In response to the withdrawal of Zurich from the code body, the OFT has expressed concern about allowing the remaining signatories to form a code which became the established means of enforcing aspects of consumer law in the homebuilding industry. This concern arose from the fact that the OFT would have to treat certain operators within the industry differently. In the OFT’s view, this was not an appropriate use of the ‘established means’ status and could appear to accord certain operators within the industry preferential treatment from the OFT.

Following further consideration of the situation, the OFT believes that, without Zurich’s participation, the form of code as originally envisaged in the market study is no longer achievable. The OFT has informed the industry of its view.

It is the case, however, that the industry has made significant progress towards developing a voluntary code. The industry has informed the OFT that it remains committed to introducing a form of voluntary code in the near future.

The industry is currently considering whether to make an application for its code under the OFT’s Consumer Codes Approval Scheme (CCAS) or whether its code will operate without OFT approval. The OFT has informed the industry that some aspects of its proposed code may not meet the OFT’s CCAS criteria, for instance, the OFT considers that the currently proposed limit on the redress scheme is too low.

The OFT understands that the industry’s aim in developing its code is to meet the OFT’s concerns as set out in its market study report, entitled Homebuilding in the UK. However, the OFT firmly believes that it is also essential for the code to be evaluated against a recognised benchmark to ensure its effectiveness. If the industry decides not to apply for approval of it code under the CCAS criteria, the OFT is concerned that there would then be no recognised benchmark by which to measure the effectiveness of the industry’s code going forward.

We understand the industry will make a decision whether or not to apply for OFT approval by the end of June 2009 – between now and the end of June it will assess whether or not it can make the changes to meet the requirements of CCAS. The OFT will publish a further update on this page at around that time.

NHBC Consumer Code
Builder Guidance

In addition to gathering evidence, we have been working hard to ensure that our study complements other reviews across government and minimises the burden on our stakeholders. In particular we have held discussions with the NAO about its announced study into part of the planning regime. The two organisations have worked together to make sure that the scopes of the two studies are complementary. In order to avoid an overlap with the NAO we have refined the scope of our homebuilding market study to omit any detailed examination of the planning regime. We will limit our work on planning to looking at the impact of features which may have a strong link to our analysis of competition.

The main focus of the study remains on the areas of: the impact on output of changing prices (the apparent weak supply response) and the homebuyer’s satisfaction with new homes.

As we explained at the launch of the study in June 2007, possible outcomes of the study include:

1. giving the market a clean bill of health
2. publishing information to help consumers
3. encouraging firms to take voluntary action
4. encouraging an industry code of practice
5. making recommendations to the Government or sector regulators
6. investigation and enforcement action against companies suspected of breaching consumer or competition law, or
7. a market investigation reference to the Competition Commission.

By way of update at this stage, we are discussing with stakeholders whether or not the evidence we have collected so far indicates that the market is broadly competitive – by this we do not mean that the sector is entirely free from problems but just that the problems that may exist may not be inconsistent with a market which is functioning on a competitive basis. If this is the case, it may suggest that the apparent weak supply response (the number of new homes built may not keep pace with rising prices) is likely to reflect land supply and the relationship between capacity and the economic cycle.

On the consumer side, we are discussing with stakeholders whether or not the evidence shows that there is room for improvement in homebuyer satisfaction levels.

The next stage of the study will review our initial work and conclude several case studies around the UK to give a real life context to the analysis. We will continue to discuss our findings and thinking with our stakeholders and to assist this process we intend to publish, in draft, elements of our commissioned research from time to time. We have published a draft version of our survey examining consumer satisfaction.

Download the draft OFT house building survey (pdf 505 kb)

The housebuilders, the NHBC and HBF have been consistently stating that the OFT (Office of Fair Trading) will give the industry a clean bill of health once the market study is complete in August. This articleclearly shows that this was just spin from the public relations people.

While we see partnerships between local authorities and developers as key to unlocking the urban land supply that is needed to deliver housing growth, it is essential not to neglect other parts of the market. In the past, it has been the smaller and medium sized housebuilders who have delivered much of the volume growth.We must continue to support and encourage this segment of the market and provide opportunities for the small and medium sized firms to be part of the industry’s growth.We have made a variety of recommendations to achieve this, including securing a supply of smaller sites and ensuring that they are viable.

We have recommended that no general action should be taken to force the faster build-out of land banks; we are clear that this will put production at risk, not add to it. However, there is no reason why Government or other public agencies should not stipulate faster build-out rates when disposing of land for housebuilding or within partnering agreements, so long as they can justify any loss of value this may incur. We have also made some recommendations for more transparency in the use and status of land for future housebuilding.

Similarly we have not recommended that Government stipulate the use of specific methods of construction. Our view is that over time the industry itself will determine what are the most cost-effective techniques.We welcome the new higher performance standards now being required by both the Housing Corporation and English Partnerships. This is certainly the right approach to promoting innovation and quality. In the current housebuilding market, however, there are insufficient incentives for quality. The returns to housebuilders for investing in quality barely justify the effort.

In the drive for increased quality, we are recommending that within the next two years, housebuilders seeking Government grants or other public subsidy must achieve customer satisfaction standards which have been established by an independent led survey. Efforts should be made to make sure this stipulation does not inhibit small and medium size builders and developers. The existing regulatory and warranty frameworks are an inadequate substitute for market disciplines.We are therefore recommending new arrangements for design review and for construction which incentivise good quality and impose real penalties for poor quality.

One of the most challenging aspects of our Review was to consider the increase in housebuilding alongside the Government’s aspiration to be world class in the delivery of zero-carbon homes by 2016.

We conclude that with multiple technical options and long lead times in the production supply chain, the industry itself will be stretched to meet the goals in this very tight timeframe, but with the Government demonstrating strong leadership, direction and being firm in its commitment, the industry and its supply chain, including construction products manufacturers and energy suppliers, can meet our zero carbon targets. We have provided a delivery timetable which shows a number of actions that need to be set in hand now to make this happen. In particular we consider it is essential to establish a delivery body which will lead and co-ordinate the efforts of all parties towards the zero carbon target.

In conclusion, our Review shows clearly that the housebuilding industry and its supply chain have the potential to deliver 240,000 new good quality homes a year by 2016 and to achieve the zero carbon targets. However, the industry is answerable only to its investors and shareholders and not to the public interest. This is why most of our recommendations are addressed to central and local government. It is their business, not that of the industry, to deliver public goals.We are clear, however, that by following our recommendations Government will put in place a framework of incentives and opportunities which will create a strong commercial motive on the part of the sector and its shareholders to deliver the Government’s targets for 2016 and beyond.

Full Report

Catriona Bright the managing director of New Build Inspection, said: “We welcome the fact that the Government recognises there is a problem, especially as the housebuilding industry is spending a fortune on professional lobbyists and public relation campaigns claiming their house is in order.”

In its response the Government stated that contracts for the sale of new homes are not covered by the Sale of Goods Act. It claims that this is a fair reflection of the differences between buying goods and land, stating that the fundamental difference is that land is immovable.

IT IS probably the biggest purchase in anyone’s lifetime – yet buyers of newly built homes have fewer rights than someone buying a loaf of bread.

Now the Scottish Consumer Council (SCC) is calling on the government to include new-build houses in the Sale of Goods Act in order to give more protection to purchasers amid a rising tide of complaints about getting builders to return to the house to deal with “snagging” – minor but vexing faults.

In its response to the Office of Fair Trading’s (OFT) examination of the new-build market, the SCC says people buying from builders need new rights and should be assured of much clearer standards.

The Office of Fair Trading (OFT) has launched an investigation into the £20 billion industry amid claims that companies have been manipulating the planning process in a bid to inflate
new house prices.

The OFT study investigating the £20bn house building industry aims to improve consumer satisfaction and increase the number of new homes. However, most of the press attention has focused on housing supply rather than the lack of consumer protection and decreasing customer satisfaction linked to poor quality standards.

The OFT welcomes relevant written submissions on this topic and it would assist the project team if submissions were set out as follows:

• A summary of the main points you would like the OFT to consider
• A more detailed explanation of these points
• Evidence to support the views being made:
  1. If this includes data or financial figures, precise definitions, the dates and source of the data should be provided. All data or financial figures should be provided in electronic format
  2. If this includes detailed calculations, an annex or spreadsheet which allows the OFT to replicate these calculations should be provided
  3. If this includes specific examples of events, a chronology and background to the events should be provided
  4. If this includes comparators, the reasons why you consider the comparator to be appropriate should be provided
  5. If you are willing to answer questions further to your submission, a named point of contact whom the case team can contact and contact details including telephone number

E-mail to: housebuilding.study@oft.gsi.gov.uk

Reasons for the study can be found here.