Saturday, 23 June 2007

OFT finally starts to investigate the home builders.

Just as the bubble reaches its peak, the Office of Fair Trading launches an investigation into the trading practices of home builders. Unfortunately, the annoucement is way too late; the housebuilders have done their worst. The OFT investigation will amount to little more than closing the barn door, while the horse has galloped to the next county.

Here is the killer fact about the UK housing industry. Despite rocketing house prices, the number of homes built each year has declined in virtually every one of the last 15 years. Demand may increase, but supply falls.

The OFT investigation will be a somewhat unusual one. Rather than focusing on price fixing behaviour, it will ask whether the builders have used the planning process as cover for jacking up prices.

For their part, the homebuilders complained that they weren't responsible for the damaging explosion in house values. Their argument went something like this; since the new home market only accounts for 10 percent of sales, they could hardly be held responsible for rising house prices. It is a curious argument. If they built more houses, supply would increase and prices would moderate.

In the long run, the OFT investigation will probably be irrelevant. By the time the report is available, the UK house bubble will be over, and the discussion will move onto the old themes of the early 1990s; negative equity, repossessions and recession.


Anonymous said...

Blaming the homebuilders for high home prices is about as smart as blaming oil companies for high gas prices.

Anonymous said...

The housebuilders played their part.

Anonymous said...
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