Tuesday, June 26, 2007

OFT Investigation

News that the Office of Fair Trading is launching an investigation into the housebuilding industry had me exclaiming “OK, but why now?” Nothing has really changed that much in the past ten or even twenty years; certainly not the nature of the cozy cartel that exists between the housebuilders, the planners and the amenity groups such as the Council of Preservation for Rural England (CPRE). Both the low rates of new housebuilding and the poor standards of that housebuilding are symptomatic of a general market failure, but then this is no ordinary market.

The OFT would seem to want someone to blame for this state of affairs. Housebuilders point to intransigent planners, planners point at huge landbanks being held back to artificially inflate prices. According to the BBC website, the OFT have appointed an eight-strong team to take representations, but I expect them to get pushed from pillar to post and back, and to end up more or less back where they started.

To my mind, the problem really starts with 1947 Town & Country Planning Act, which effectively nationalised land use. Instead of land being freely brought forward for building by whoever fancied their chances, the new planning authorities started ring-fencing areas suitable for development. As these areas were often large, the small players were effectively cut out from the market. Over the years, this policy of concentration and densification has grown more and more pronounced and the whole development process has been professionalised. The current consolidation going on in the housebuilding industry is merely the latest phase of a process that dates back to 1947.

What the OFT should be looking at is how development took place in the 1920s and 30s, when there were very few controls and no massive national building concerns. There was genuine competition back then and also a high rate of housebuilding. Also they should look closely at what has been happening in Ireland. And France. And Germany. And Scandinavia. And North America. And Australia. They will quickly find out that what goes on in the UK is unique. Other countries build more houses and they generally have far fewer quality issues. Land is often set aside by rural communities for small developers and selfbuilders to create homes and thereby organically grow communities. New development isn’t restricted to all but a few mega-sites, as it is in the UK. Mega-sites may be regarded as sustainable, but they do nothing to enhance competition. The land supply in the UK is now so restricted that the whole process is managed by a small number of very large businesses, who carve up the cake between themselves. The fact that there is little competition is because there is often only one new housing site for miles around.

But rather than blaming everybody or indeed anybody for letting this state of affairs come about, the OFT should come to realise pretty quickly that it’s a creation of our restrictive planning policies. If you really want to reform the housebuilding industry, that is where to start. I don’t think it’ll even be on the agenda.

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