Michael Gove must put up or shut up over housebuilder cartel claims

The lack of supply in the property market is down to the Government’s failure to reform planning laws

‘There is a strong sense that Gove is deliberately trying to pick a fight with a unpopular brand of business’

It is an extraordinary word for a Cabinet minister to use, let alone repeat. In an interview on GB News earlier this week, Michael Gove said he stands by his comments likening the UK’S biggest property developers to a “cartel”.

The Secretary of State for Housing first made the claim in a letter to Conservative Party activists earlier this year. Asked by Liam Halligan, a Telegraph columnist as well as GB News presenter, whether he still thought the word was justified, Gove replied: “Yes, I do.”

He went on to specifically claim there had been manipulation of the land market in order to keep prices at a particular level and that some volume housebuilder had been producing homes that are shoddy and of low quality.

This last claim isn’t very contentious. For example, Persimmon Homes, one of the UK’S biggest developers, was ordered to modify 262 properties at a new housing estate in Colchester, Essex, last October after they were built backwards.

Persimmon, whose main claim to fame was the staggering £75m bonus paid to former chief executive Jeff Fairburn, has made plenty of other blunders, including a leaky sewage system that allegedly left a family in Derby covered in rashes and a house where the lavatory somehow flushed with boiling water.

But staggering incompetence does not indication collusion. What’s even odder about Gove’s claims is that he conceded there are high barriers to entering the construction market that make it harder for smaller builders to compete against the bigger players.

That strongly suggests the main issues in the new-build property market are with the system, rather than the behaviour of industry participants. And if Gove wants to have a chat with the person in charge of that system he needs only step in front of a mirror.

A cartel is a group of companies who secretly agree prices in order to increase profits and limit competition. This kind of behaviour does happen but it is extremely rare – not least because it is extremely illegal, as Gove, a former justice minister, no doubt knows.

Either he has evidence that housebuilders are engaging in illegal activity – in which case I would suggest a quick call to the Competition and Markets Authority to kick start an immediate investigation is in order – or the former journalist is being a bit fast and loose with the English language.

When Gove started slinging the word around in March – as was first reported by The Daily Telegraph at the time – Stewart Baseley, the chief executive of the Home Builders Federation, wrote to the Housing Secretary to say the accusation was “entirely unfounded”. There is a strong sense that Gove is deliberately trying to pick a fight with a particularly unpopular brand of business.

Credit where it is due, he has just won an important battle by getting the industry to stump up billions to pay for cladding repairs. Tension had risen over the final bill and unhappiness among some companies that they were all being tarred with the same brush, and asked to pick up the tab to correct the shoddy work of less scrupulous rivals.

Nevertheless, about 3m people were trapped in unsafe and unsaleable flats with dangerous cladding of the kind exposed by the Grenfell Tower fire in 2017, which killed 72 people. Gove came up with a solution and, after plenty of grumbling, the industry acquiesced.

Gove likes to point out that this means he’s “not particularly popular with developers”. But perhaps he’s beginning to revel in that status a little too much. The fact is, he will have to work with the industry if the Government is ever to sort out the UK’S chronic housing shortage.

The chairman of a mid-sized listed housebuilder describes Gove’s use of the word “cartel” as “almost laughable”. He says his biggest concern is that it betrays a lack of understanding about how the industry works.

He points out that raw land prices are approaching the highest they have ever been, but that benefits landowners and not builders. But for developers this is just another input cost, as undesirable as, say, expensive bricks because it eats into margins.

Developers have in the past been accused of land banking, where land is bought and held in the hope that its value will go up over time. But all publicly listed builders have to report how much land they own and it is clear this hasn’t changed materially over time.

Holding on to land for too long would mean a company’s capital was tied up indefinitely, making it hard to hit their return on capital targets. “I’m in the business of getting as many new homes as possible to market as quickly as possible,” says one industry executive. And, with his margins, why wouldn’t he be?

What’s more, the price of new homes is primarily set by the aftermarket. There were 175,390 new homes built last year. Provisional HMRC estimates suggest there were just under 1.4m UK residential property transactions in the 2021-22 financial year.

In other words, even if all the property developers in the country were in cahoots, they’d still only be responsible for less than 13pc of all property sales. How much influence, then, could they really have on prices?

This is not to say many developers aren’t making huge profits and executives, like Fairburn, aren’t making unjustifiable bonuses.

But really that’s because they don’t have to try too hard to build particularly good quality homes; there’s such a dearth of supply that everything sells like hotcakes.

But this is, again, more the product of a dysfunctional system than anything else. The truth is that the housebuilders don’t need to collude with each other because the Government is doing all the hard work for them by not reforming the planning laws and thereby restricting supply.

On the other side of the equation, successive administrations have constantly stoked demand with yet new crackpot policies. Boris Johnson’s plan, championed by one Michael Gove, to let people use their housing benefit to help get on the property ladder is only the latest in an extremely long and ignoble list.