Housebuilders fall as CMA launches investigation into information sharing practises

FTSE 350 housebuilders were trading in the red on Monday after the Competition and Markets Authority (CMA) published a report on the UK housebuilding market.

The CMA’s report concluded current planning systems prevented more houses from being built and raised concerns about estate management charges and the quality of new homes. The CMA noted high levels of defects across the entire industry which was compounded by poor practices in rectifying snags.

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While compiling their report, the CMA found evidence of potentially anti-competitive information sharing by housebuilders that impacted the availability and price of new homes in some areas.

Barratt Developments, Bellway, Berkeley, Persimmon, Redrow, Taylor Wimpey, and Vistry were named by the CMA as companies they would look into amid concerns about anti-competitive practices.

Sarah Cardell, Chief Executive of the CMA, commented:

“Our report – which follows a year-long study – is recommending a streamlining of the planning system and increased consumer protections. If implemented, we would expect to see many more homes built each year, helping make homes more affordable. We would also expect to see fewer people paying estate management charges on new estates and the quality of new homes to increase. But even then, further action may be required to deliver the number of homes Great Britain needs in the places it needs them.

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“The CMA has also today opened a new investigation into the suspected sharing of commercially sensitive information by housebuilders which could be influencing the build-out of sites and the prices of new homes. While this issue is not one of the main drivers of the problems we’ve highlighted in our report, it is important we tackle anti-competitive behaviour if we find it.”

The CMA’s report may actually help the housebuilders build more houses in the long term, but there will understandably be concerns among investors. The short-term impact of the report’s findings could be higher costs and lower margins for housebuilders.

Persimmon shares fell 2.9%, Taylor Wimpey gave up 2.5% and Barratt Developments dipped 1%.

“Housebuilder stocks have fallen as the CMA launches a probe into the sector. Concerns include poor customer outcomes from the quality of new homes, with faults on the rise over the last ten years,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“A major trigger for the investigation is accusations that some major housebuilders are sharing confidential and commercially sensitive information relating to sales prices and sales rates. Other criticism is levelled at the UK’s overly clunky planning processes, which are contributing to the under-supply of new homes.

“Seeing rules streamlined could help some of the big listed names shift more houses, but it could also increase competition. The accusations of poor build quality and anti-competitive practice will be of more immediate importance, as findings against either strike could lead to margin degradation in the short term, but this is far from guaranteed.”

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