OFT inquiry into house building seeks to cool property market

An inquiry into the £20bn housebuilding industry aimed at increasing the number of new homes for sale and taking the steam out of the property market is to be launched by the Office of Fair Trading.

The watchdog is promising to subject the industry to greater scrutiny than ever before, focusing on two areas - customer satisfaction and the controversial planning system.

Big housebuilders welcomed the investigation in the hope it will unblock hold-ups in town hall planning departments, which can lead to delays of five years or more before new housing projects are approved.

John Fingleton, the chief executive of the OFT, said: "This is the first in-depth examination of competition and consumer issues in new housebuilding.

"This is a hugely important market for the economy because unresponsive housing supply hinders labour mobility, constrains economic growth and harms consumers."

The OFT has been keeping a close eye on the industry since a study from Kate Barker, one of the Bank of England's Monetary Policy Committee members, recommended a relaxation of planning rules to allow more affordable homes to be built.

The Barker review also urged the industry to establish a code of conduct. The OFT believes "the industry has not fully complied with this recommendation" and remains concerned that the market "may not be working well for consumers". The inquiry is due to be completed by the middle of next year.

Housebuilders have lambasted the planning system for years with little effect. Roger Humber, the strategic advisor with the Housebuilders Association, said: "It can take three to four years to obtain approval for smaller sites of between 50 and 100 homes. On larger sites, it is not unknown for it to take seven to 10 years. It is an incredibly slow process. The planning system is giving consumers a bad deal."

Barratt Developments, one of the country's largest builders, said: "Whatever the inquiry can do to tackle the issues and bring forward a greater supply of homes will be welcomed by housebuilders and house buyers alike."

Persimmon, the UK's largest housebuilder, said it was "very keen to speed up the planning process and anything that would help that would be welcomed". Andy Brown, an analyst with the stockbroker Panmure Gordon, said: "The current planning regime creates bottlenecks in supply. This is not helped by a relative scarcity of experienced planning officers in the system."

The industry has consistently failed to hit targets of 200,000 new homes a year. The shortfall especially of affordable homes is restricting the availability of essential workers in many key towns particularly in the South-east. While the number of homes built each year has been declining over the past 15 years, the number of households has continued to grow. Across Europe, Britain now has the slowest rate of housing starts per head after Slovakia, Poland and Germany.

An important line of inquiry likely to be pursued by the OFT is whether housebuilders have been deliberately sitting on their land banks. Some of the big housebuilders have enough land to last four or five years at current rates of building. They deny claims from some quarters that they are profiteering by sitting on the land in the hope that it will become more valuable when released for building at a later date.

The housebuilding sector is emerging from a spate of mega-mergers with companies getting together to give themselves wider geographical coverage and enhance their land banks.

The OFT's findings could lead to "enforcement action" against companies suspected of breaching consumer or competition law.