Help to Buy boosted builders’ profits and made them lazy. They need a kick up the backside

Report by competition watchdog underlines the need for urgent reform in the housing market

Facebook campaign groups such as “Taylor Wimpey – Unhappy Customers”, “Do Not Buy a Persimmon Home” and “David Wilson Homes Hell” are testament to the shocking failures that many home buyers say they have experienced at the hands of the big housebuilders.

Victims of shoddy standards, practice and workmanship will no doubt consider a thorough examination of the sector at the hands of a Competition and Markets Authority (CMA) reinvigorated by fearless chief Sarah Cardell to be a highly welcome move.

The experiences of some purchasers are genuinely shocking, but what’s more alarming is that they are so widespread. This shouldn’t be happening in 21st century Britain. For too long, the overwhelming impression is that the default approach of the big housebuilders towards customers is one of contempt.

The findings of the CMA report merely underline the urgent need for reform. It concludes that the housebuilding market is dysfunctional, with the quality of new-builds getting worse and buyers paying more in murky management fees. Suspicions of illegal information sharing are particularly concerning and must be investigated in full – collusion is a stain on society and in the case of the housing market, it risks pushing up prices, which are already beyond the reach of so many. But what really sticks in the craw is that this is an industry that has been the beneficiary of some of the most generous and enduring state handouts ever witnessed.

Lavish taxpayer support, predominantly in the form of the Help to Buy scheme that was introduced in wake of the financial crash, should have been the catalyst for pro-consumer change. With more foresight ministers could have made subsidies a quid pro quo arrangement in which they were conditional on real reform. Instead, the coalition government panicked and took the easy option, turning on the taps without a thought for the consequences.

The results have been catastrophic to the point that Help to Buy has had the very opposite effect of what was intended. Indeed, one could reasonably argue that the breakdown in the housing market is the product of more than a decade of government back-door handouts.

Help to Buy made the industry horribly lazy. It lit a fire under house prices, boosting housebuilder profits, share prices, and executive pay – an extraordinary transfer of wealth from taxpayers and house buyers direct to the pockets of industry bosses. No wonder they are begging for its return.

A 2021 study by PHD student Tom Archer and Prof Ian Cole, of Sheffield Hallam University, found that a typical home built by one of the nine biggest UK housebuilders made a pre-tax profit of about £30,000 on average before 2008’s downturn. By 2017, that had more than doubled to £62,000. Meanwhile, shareholder payouts over the same period rocketed from £400m to more than £1.8bn.

One explanation for this eyewatering purple patch is that housebuilders are in much better financial shape than they once were. Many went into the financial crisis drowning in debt and were forced into serious balance sheet surgery. Billions of emergency capital was raised from investors, and management took a knife to costs. A more plausible reason is that with the purchasing power of potential new-home buyers boosted by Help to Buy, housebuilders spotted an opportunity to make more money than ever.

Housing analyst Neal Hudson has been tracking the trajectory of the industry’s profits and costs for more than a decade and has found a huge divergence. At Persimmon, total costs per plot rose by 17pc between 2010 and 2022, while profits almost quadrupled. The trend is more shocking when you consider that it largely occurred during a period of record low interest rates.

Despite their risible reputation for poor quality, the big housebuilders have long been able to get away with charging a significant premium. Archer and Cole’s research showed that a new Barratt home cost 12pc more than the average national house price in 2005. By 2017, that figure had more than doubled to 26pc – equivalent to nearly £49,000 more than the average price of a British home.

So with the CMA having set out to uncover why Britain builds too few homes, part of the answer at least is that the housebuilders have become much more profitable without the need to erect more. For the industry to get another boost, and an entirely undeserved one at that, during the pandemic from the Chancellor’s stamp duty holiday and the mortgage guarantee scheme, was particularly hard to swallow.

Housebuilders will welcome the CMA’S view that the UK’S “complex and unpredictable planning system” is a factor in the shortage of new homes but it can hardly be considered a reprieve.

The regulator found no end of red flags including estate management agreements that leave homeowners “facing high and unclear charges for the management of facilities such as roads, drainage and green spaces”; an increase in the number of owners reporting snagging issues; and the sharing of non-public information, including sales prices and details of incentives for buyers, which “prevented and distorted” competition, Cardell said.

So the idea that a planned £7bn mega-merger of Barratt and arch-rival Redrow is the answer to any of this is plain silly. It smacks of two companies that want to avoid the hard work needed to improve services and standards, while anything that hands more clout to the big builders is obviously unwelcome.

Having shown it cannot be trusted to police itself, this is an industry deserving of the full glare of the regulator and the Government.