The Competition and Markets Authority and the housing market – a flawed assessment

Summary

The Competition and Markets Authority has published a report on the housebuilding market in Great Britain. The main points are that:

Housebuilding levels have been lower than the housing targets;

The planning system limits the ability of developers to build more houses.

 

Analysis of the report suggests that it is flawed it:

Accepts the housing targets are valid without assessing them;

Assumes that as most reports favour more house building that is the correct approach;

Bases views on the planning system from organisations who automatically want to make it easier to build, despite no evidence to support their case.

 

The report

The Competition and Markets Authority (CMA) has published its final report on the housebuilding market in Great Britain – finding that the complex and unpredictable planning system, together with the limitations of speculative private development, is responsible for the persistent under delivery of new homes.

 

This seemingly definitive conclusion was for the ‘build more houses’ supporters further evidence that there was both a lack of housing supply and that the planning system was largely responsible. Yet an analysis of the document suggests that the CMA is probably not in a position to judge housing and planning policy.

 

Targets and why more houses are needed

The supporting evidence document published by the CMA states that in England there is a target of 300,000 new houses each year.  Then the CMA states “2.9 We do not intend to provide a rigorous assessment of the targets set by governments or test their validity.”  This undermines the basis of the report – how can the CMA suggest that a target is not being met when it does not know whether that target is valid or not?

 

The report indicates that “The 2014 household projections were used ‘in the interests of stability for local planning and for local communities’. Using more recent household projections would likely produce significantly lower estimates of housing need at the national level and also large changes in need estimates for a number of LPAs."  So the household projections used are probably higher than they will be.

 

The report cites four studies which have looked at the number of dwellings required. Two of these were from the National Housing Federation which estimated need. Both reports are useful yet the resulting figures require detailed analysis and may be over-estimates.  The third report from the Centre for Cities. “…measures the difference between the number of homes per person that the UK would have if Britain had built at the rate of European countries compared with what has actually happened.”   But this study is based on a flawed methodology. Analysis indicates that most European countries have similar levels of housing surplus to the UK and in one example, France many of the surplus dwellings are not available to house people and lie empty.

 

The CMA then cite a "study by the UK Collaborative Centre for Housing Research in 2019 argues that housing supply has outstripped household formation for decades. It suggests house price increases are a function of the main components of the cost of capital: mortgage interest rates, taxes, and expectations of future price growth.” [Ian Mulheirn, 2019]. The report then states - “We therefore do not endorse the specific figures or findings produced by any of these papers. However, we note that most find that there is a shortfall in current levels of housing provision, and that the findings of those papers imply the target levels of housebuilding set by government may be a lower bound for what is needed.”

 

There is no evaluation of the reports and the CMA simply says that as most support more housebuilding that must be the right approach an odd way of assessing evidence.

 

The report uses a chart from a research briefing by the House of Commons Library which graphs house building in England and Wales from 1923 to 2020.  The chart shows high levels of house building particulary in the 1960s, a comparison often used to suggest that development levels are lower than they should be.  Yet the chart does not indicate that house building levels were high largely as a result of significant levels of demolition requiring dwellings to be replaced.

 

The report then refers [2.45] to Social housing waiting lists as a measure of need. These which are more accurately described as Housing Registers are essentially clearing houses for those seeking social housing. They include households facing various challenges many of which do not require the building of additional dwellings.

 

The planning system

The CMA then turn to the view that the current planning system limits the level of house building stating “we have seen evidence of three key concerns with the planning systems which we consider are limiting their ability to support the level of new housing that policymakers believe is needed: 

            Lack of predictability;

            Length, cost, and complexity of the planning process; and

            Insufficient clarity, consistency and strength of LPA targets, objectives and incentives to meet housing need."

[Housebuilding market study – final report].

 

The relevant question here is where does the evidence come from?  Those in the development industry generally dislike planning as it makes life more complicated for them but there are very good reasons for a planning system. A planning system has to evaluate proposals examining whether developments are necessary or appropriate. A free for all would be bad for the environment and society in general.

 

The gaps

The CMA report fails to explore a number of issues. There is no mention of what dwellings are used for so that the impact of second homes and holiday lets on the housing market is ignored. The report does not examine the various factors that have resulted in rising house prices and rents neither does it look at the underlying reasons influencing households ability to rent or buy.

 

Conclusion

The CMA report is flawed, it does not evaluate the targets or the reports about housing need. It takes the views of those in the industry about planning without assessing the validity of them. It omits areas of interest regarding what developers build and why and the underlying problems facing people seeking to rent or buy. The CMA is not qualified to look at issues outside its remit.

 

Ian Mulheirn – twitter comments

Ian Mulheirn has commented on the CMA report he states – “Disappointing to see key startling assumption behind @CMA.gov.UK s housing report – inadequate supply! – is just a copy/paste of 2 questionable methodologies that produce implausibly high figures. It makes no new or rigorous assessment of ‘need’.

 

Report also ignores data that undermines its judgment on supply adequacy: - stock persistently outstripping household formation for >25yrs (note that means HH formation is not constrained by availability) - stable rent-income ratios.”

 

[Ian Mulhein @ianmulheirn]

 

Unless otherwise indicated the quotes are from - CMA, 2024, Housebuilding market study, Supporting evidence document.

 

For the CMA report: https://www.gov.uk/government/news/cma-finds-fundamental-concerns-in-housebuilding-market