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BRIEFING PAPER

Number 07665, 1 August 2019

New-build housing: construction defects - issues and solutions (England)

By Wendy Wilson Christopher Rhodes

Contents: 1. Customer satisfaction with

new-build homes 2. Regulating building standards 3. Post-completion defects:

owners’ remedies 4. Problems and potential

solutions 5. The Government & industry

response on consumer redress

6. Construction industry: skills, innovation and capacity

2 New-build housing: construction defects - issues and solutions (England)

Contents Summary 3

1. Customer satisfaction with new-build homes 5

2. Regulating building standards 8 2.1 Building Regulations 8 2.2 Enforcing Building Regulations 9 2.3 Reviewing the Building Regulations and regulatory framework 12

3. Post-completion defects: owners’ remedies 13 3.1 The defect liability period 13 3.2 Warranties 13 3.3 Consumer Code for Homebuilders 13

4. Problems and potential solutions 15 4.1 The Building Control Regime 15 4.2 How effective are warranties? 17 4.3 Buying new-build homes: the balance of power 18

5. The Government & industry response on consumer redress 22 5.1 New Homes Ombudsman: Technical Consultation 26 5.2 CIOB: call for evidence on construction quality 26

6. Construction industry: skills, innovation and capacity 29 6.1 Labour market and skills 29 6.2 Innovation in construction 30 6.3 Housing maintenance 32 6.4 Finance for house building 33 6.5 Predictable demand 34 6.6 The APPG’s recommendations 2016 34 6.7 The Farmer Review’s recommendations 2016 34 6.8 Construction Sector Deal 37

Wendy Wilson Christopher Rhodes

Sections 1 to 5 Section 6

Cover page image copyright Louise Smith

3 Commons Library Briefing, 1 August 2019

Summary A good deal of political attention is focused on the need to increase the rate of house building, but alongside this are growing concerns about the quality of the houses under development. MPs are encountering constituents who have bought new homes and who are struggling to achieve satisfactory resolution when defects are reported to builders. The role of building control officers in ensuring compliance with the Building Regulations was the subject of Westminster Hall debates in 2015 and 2016. A Westminster Hall debate on 16 October 2017 focused on warranties issued by the National House Building Council (NHBC). There have been some high profile examples of blocks facing demolition/major repair work only a short time after completion due to construction defects, for example Solomon’s Passage in Southwark, built in 2010.

In this context, the All Party Parliamentary Group (APPG) for Excellence in the Built Environment carried out an open inquiry into the quality and workmanship of new housing for sale in England and published More Homes, Fewer Complaints in July 2016.

The APPG identified a risk around efforts to incentivise house building for homeownership if similar attention is not directed at ensuring consumers are buying “new homes that are fit for purpose, are of enduring quality, perform to the requisite levels of maintenance, cost and energy efficiency and give peace of mind, pride and enjoyment to those who occupy them.”

More Homes, Fewer Complaints included several recommendations aimed at:

• improving the systems in place to check quality and workmanship;

• developing a new quality culture within the construction industry;

• improving customers’ means of redress through the establishment of a New Homes Ombudsman and a review of the warranty system; and

• improving the information customers receive about their new home, including standardised contracts and a right to inspect before completion.

The APPG felt that these measures would address imbalances in the relative bargaining positions of builders and house buyers.

This was not the first time that the standard of newly built housing had come under scrutiny. The Callcutt Review of Housebuilding Delivery (2007) recorded concerns about caveats included within warranties provided on new homes. It was felt that they may not offer adequate protection for consumers. The Office of Fair Trading’s 2008 study of the homebuilding market also considered the effectiveness of warranties. One response was to recommend the introduction of a code of conduct to meet consumer protection concerns. The industry responded with a Consumer Code for Homebuilders, now in its fourth edition. However, the APPG concluded that the Code “does not appear to give homebuyers the safeguards we think they should expect.”

The former Housing Minister, Alok Sharma, responded to the Westminster Hall debate on 16 October 2017 saying “it is clear that home builders need to step up and make quality and design a priority. That includes ensuring that, where something goes wrong, house builders and warranty providers fulfil their obligations to put things right.” He described several actions which were being taken forward:

• The Government is “seriously considering” the APPG’s recommendations.

4 New-build housing: construction defects - issues and solutions (England)

• The House Builders Federation (HBF) will issue a formal response to the APPG’s report.

• The HBF has set up a working group and “will take forward action to provide better information to customers, simplify the legal process and create a clearer and simpler process for signing off new homes as complete.”

• The HBF working group has commissioned an independent report on consumer redress for new homebuyers.

• The Minister said he would review the independent report “with a view to ensuring that improved redress arrangements are introduced to provide greater protection to consumers on a broad range of issues, with a greater degree of independence from the industry.”

• On calls for a new housing ombudsman, the Minister said, “I am considering that option very seriously indeed.”

In June 2017 the Chartered Institute of Building (CIOB) set up a Commission of Past Presidents to consider construction quality standards following the closure of 17 schools in Edinburgh earlier that year. The fire at Grenfell Tower prompted the Commission to launch a call for evidence in October 2017. The Chair of the Commission, Paul Nash, said that the tragic events at Grenfell underlined “the need for an urgent review of the way in which quality is managed in our industry”. Evidence was accepted up to 15 December 2017. 75% of the 200 construction industry respondents to the call for evidence reportedly believed that “the industry’s current management of quality is inadequate”.

On 29 November 2017 Sajid Javid, then Secretary of State at DCLG (now the Ministry of Housing, Communities and Local Government, MHCLG), told a group of housing professionals that it was vital that the quality of new build homes continues to improve. He said that the Government would consult in 2018 and “look at options to explore how the overlap between responsibilities can be improved. This would help to avoid the confusion faced by consumers over where to seek help”. Strengthening consumer redress in the housing market: a consultation ran between 18 February and 16 April 2018.

The APPG published Better redress for home buyers in June 2018 which focused on how a New Homes Ombudsman could drive up standards and improve consumer redress.

On 1 October 2018, the Government announced an intention to create a New Homes Ombudsman to “champion homebuyers, protect their interests and hold developers to account”. The summary of responses to Strengthening consumer redress in the housing market, together with the Government response, was published in January 2019. There is an intention to create a new Housing Complaints Resolution Service as a single point of access to redress services across all tenures.

June 2019 saw publication of a technical consultation, Redress for Purchasers of New Build Homes and the New Homes Ombudsman. Submissions are invited up to 22 August 2019; responses will inform future legislation.

This paper considers the existing building control regime and customers’ means of redress when faced with defects in newly built housing. It summarises the findings of the APPG’s inquiry and recommended actions as well as the Government and industry response.

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1. Customer satisfaction with new-build homes

Kate Barker’s 2004 Review of Housing Supply called on the house building industry to demonstrate increased levels of customer satisfaction:

The House Builders Federation should develop a strategy to increase the proportion of house buyers who would recommend their housebuilder from 46 per cent to at least 75 per cent by 2007. Over the same period, levels of customer satisfaction with service quality should rise from 65 per cent to at least 85 per cent.1

In response, the Home Builders Federation (HBF) and National House Building Council (NHBC) began to conduct national annual surveys of house builders in 2005. The survey is described as a “self-completion census completed by the purchasers of new build homes.” The most recent survey was conducted over 12 months from October 2017 to September 2018 – the results were published in March 2019. The survey records that 86% of respondents were very, or fairly, satisfied with the overall quality of their new home and that 87% would recommend their home builder to a friend.2 This is an improvement on the 85% and 86% scores recorded in 2018.3 The HBF and NHBC had acknowledged a fall-back in scores recorded in the 2015/16 survey:

The industry acknowledges the slight fall in the average satisfaction score – down 1% on last year – and is committed to addressing it. Individual companies are reviewing their customer journeys; whilst collectively the industry is focusing on developing processes that will ensure it can further increase satisfaction levels in the coming years, at the same time as providing even more, desperately needed homes.4

The 2017/18 survey refers to improved results: After seeing satisfaction levels fall for four years in succession, something the industry was heavily criticised for, last year saw a reversal of the trend across all question areas including a 2% improvement in the key ‘recommend’ questions.

This year’s further improvement is a clear demonstration that the intense focus within the industry on build quality and customer service is continuing to deliver. The improvements in satisfaction levels have been achieved as output has continued to increase. The past five years have seen an unprecedented 78% increase in housing supply, and the industry recognises that high levels of build quality and service must be maintained as volumes rise.5

The All-Party Parliamentary Group (APPG) for Excellence in the Built Environment considered the issue of customer satisfaction as part of its 2016 inquiry into the quality and workmanship of new housing in

1 HM Treasury, Delivering Stability – securing our future housing needs, 2004,

recommendation 32 2 National New Home Consumer Satisfaction Survey, March 2019 3 National New Home Consumer Satisfaction Survey, March 2018 4 National New Home Consumer Satisfaction Survey, March 2017 5 National New Home Consumer Satisfaction Survey, March 2019

The 2017/18 annual survey of house builders found that 86% of respondents were fairly or very satisfied with the quality of their new homes compared with 85% in 2016/17.

6 New-build housing: construction defects - issues and solutions (England)

England. According to the APPG, although 86% of respondents to the 2014/15 annual survey were satisfied with the quality of their new homes, that still left a substantial number of buyers who were unhappy with quality standards in their new homes.6 93% of respondents to the survey published in 2016 had reported problems to their builders.7 The 2015/16 survey published in March 2017 recorded an increase to 98%8 while the 2016/17 survey recorded a further increase to 99%.9 25% of respondents to the 2016/17 survey had reported 16+ problems to their builder.10 The 2017/18 survey again records that 99% of respondents had reported problems to their builder; 26% of respondents had reported 16+ problems to their builder.11

Responding to a Westminster Hall debate on 16 October 2017, the then Minister for Housing, Alok Sharma, commented on the HBF survey results published in March 2017:

As my hon. Friend pointed out, delivering good quality homes does not always happen in the sector. He referred to the Home Builders Federation survey, so perhaps I can elaborate and share some further statistics from it. The latest HBF survey concludes that 98% of new homeowners report problems to the builder. Of course, some will be snagging issues, but although some problems may be hard to prevent initially, 38% of buyers had more problems than they expected. A staggering 25% of buyers reported more than 16 problems. The latest survey shows that 84% of new homebuyers would recommend their builder to a friend. That figure has fallen steadily from 90% in the past four years. It means that 16% of new homebuyers do not think that they have a quality product. In any other market, that would spell the end of the most poorly performing companies. That has rarely been the case in the house building sector.12

The APPG’s inquiry also referred to a 2015 Homeowner Survey by HomeOwners Alliance and BLP Insurance which found that “the British public are shunning new homes because they are seen by some as being poorly built, characterless and with too small rooms.”13

In More Homes, Fewer Complaints (July 2016), the APPG called on housebuilders to “make the annual customer satisfaction survey more independent to boost customer confidence.” The 2017/18 survey notes that the survey methodology was reviewed by Ipsos MORI in 2017:

They concluded that the survey approach and processes are consistent with best practice and that it is ‘fit for purpose’. Recommended changes have been implemented for the new survey year.14

Information on complaints received by Local Authority Building Control (LABC) in England and Wales over the previous 36 months was shared

6 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016 7 National New Home Consumer Satisfaction Survey, March 2016 8 National New Home Consumer Satisfaction Survey, March 2017 9 National New Home Consumer Satisfaction Survey, March 2018 10 National New Home Consumer Satisfaction Survey, March 2018 11 National New Home Consumer Satisfaction Survey, March 2019 12 HC Deb 16 October 2017 c692 13 2015 Homeowner Survey by HomeOwners Alliance and BLP Insurance (accessed on

17 August 2016) 14 National New Home Consumer Satisfaction Survey, March 2019

There has been an increase in the number of new-build home owners reporting problems to their builders.

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with the APPG’s inquiry. At that time, LABC reported an increase in the number of “disgruntled homeowners” approaching local authorities for assistance in sorting out defects.15

An analysis by the Chartered Institute of Building (CIOB) in 2016, which compared buyers’ satisfaction levels with their new homes with levels of housebuilding, concluded that:

…there is a clear pattern that demonstrates that more homes built correlates with a decline in homebuyers’ satisfaction in terms of quality. The most obvious increase in customer satisfaction came in 2008-09, one year after the recession began to bite and at a time when housing completions were beginning to fall.16

A policy briefing published by Shelter in March 2017, New Civic Housebuilding Report, argued that speculative house building “systematically drives down the things communities value in development, such as build quality, infrastructure and affordable homes, and systematically drives up land values.”17 Alongside this report, Shelter published the results of an online YouGov survey of 3,583 English adults between 13 and 15 February 2017, which found that 51% of home owners said they had experienced problems with their new homes:

English members of the sample had bought a newly built home in the last ten years (since 2007). Of these, 123 (51%) said that they had either experienced some major problems with their new home, or a lot of major problems with their new home, as a direct result of the initial construction. Examples of major problems given were poorly constructed or unfinished fixtures/ fittings/ doors, problems with the exterior of the building, faults with utilities.18

However, the National New Home Consumer Satisfaction Survey for 2017/18 notes that improved satisfaction scores have been achieved while housing supply is increasing.19

Research commissioned by the Local Government Association, published in August 2017, reported that at current build rates the average house in England will have to last 2,000 years, while “one in 10 new home buyers are dissatisfied with the quality of their new home and one in six would not recommend their house builder to a friend.”20

15 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p20 16 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p19 17 Shelter, New Civic Housebuilding Report, March 2017, p5 18 Shelter Press Release, 2 March 2017 19 National New Home Consumer Satisfaction Survey, March 2019 20 LGA, Confidence in new builds falls while average house in England will have to last

2,000 years, 18 August 2017

Some evidence suggests that when housebuilding rates increase, levels of homebuyers’ satisfaction with quality falls.

8 New-build housing: construction defects - issues and solutions (England)

2. Regulating building standards

2.1 Building Regulations Building standards are governed by the Building Regulations Act 1984 and regulations (Building Regulations) made under this Act. The regulations are aimed at securing the health, safety, welfare and convenience of people using or affected by a building, and of conserving water and energy and reducing waste. The Building Regulations represent minimum standards - the Callcutt Review of Housebuilding Delivery (2007) said that compliance was “necessary but not sufficient, to ensure good quality.”21

All newly built housing must comply with Building Regulations and must receive building control approval. Local authorities are responsible for enforcing building regulation. Approval can come directly from local authority run building control services, or through private approved inspectors (PAIs).

The Ministry of Housing, Communities and Local Government (MHCLG) issues approved documents, available on the planning portal, which provide guidance on how to meet the required technical standards. The role of building control inspectors is to ensure that the technical standards are met - i.e. they perform a compliance role. The inspectors are not responsible for monitoring build quality. This explained further on the Construction Industry Council Approved Inspectors Register (CICAIR) website:

Building Regulations are minimum standards set by the Ministry of Housing, Communities and Local Government (MHCLG) that cover the design and construction of buildings. They are also concerned with the health and safety of building users, energy and water efficiency, and access and facilities for people with disabilities.

With all building work, the owner and occupier of the property or land in question is ultimately responsible for complying with the relevant planning rules and building regulations. The role of checking that Building Regulations are, as far as can reasonably be determined, being complied with falls to a Building Control Body – either an Approved Inspector or a Local Authority. The person carrying out the work has the choice of which Building Control Body to use.

Approved Inspectors are persons authorised under the Building Act 1984 to carry out building control work in England and Wales. Approved Inspectors are required to adhere to the Construction Industry Council Approved Inspectors Register (CICAIR) Code of Conduct for Approved Inspectors and follow the Building Control Performance Standards in their working practices.

The role of building control is to act as an independent third party check and Approved Inspectors are required to take such steps as are reasonable to enable the Approved Inspector to be satisfied,

21 Callcutt Review of Housebuilding Delivery, 2007, p71

All new build housing must comply with the Building Regulations.

Building control officers are focused on compliance with the Building Regulations – they do not monitor build quality.

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within the limits of professional skill and care, that the applicable aspects of the Building Regulations are complied with.

A number of inspections are usually carried out during the building work. These are usually, but not necessarily, at specific stages, such as foundations, damp proofing and on completion. These inspections are carried out to check, but not to guarantee, that the work complies with the Building Regulations.

It is not the role of building control to:

• Provide quality control of the Works.

• Provide a ‘clerk of works’ service monitoring every stage of the construction process.

• Provide a service to address issues such as the finish and aesthetics of the Works where these are not Building Regulation matters.

• Provide a service to offer contractual protection between the person carrying out the work and the parties engaged in the design and/or construction of such work.

• Provide a guarantee of compliance with the Building Regulations. The appointment of a Building Control Body does not remove the obligation of the person carrying out the work to achieve compliance.22

Up to 2013, approved inspectors (AIs) were not able to take on work until a development had signed up to a Government approved Designated Warranty Scheme under the Warranty Link Rule. This requirement was removed. At the same time, indemnity insurance requirements for AIs were strengthened. Further details are set out in a DCLG circular issued on 21 December 2012.

2.2 Enforcing Building Regulations As noted above, local authorities are responsible for enforcing Building Regulations. The planning portal summarises the approach as follows:

A local authority has a general duty to enforce the Building Regulations in its area and will seek to do so by informal means wherever possible. If informal enforcement does not achieve compliance with the Regulations the local authority has two formal enforcement powers which it may use in appropriate cases.

First, if a person carrying out building work contravenes the Building Regulations, the local authority may prosecute them in the Magistrates' Court where an unlimited fine may be imposed (sections 35 and 35A of the Building Act 1984). Prosecution is possible up to two years after the completion of the offending work. This action will usually be taken against the person carrying out the work (builder, installer or main contractor).

Alternatively, or in addition, the local authority may serve an enforcement notice on the building owner requiring alteration or removal of work which contravenes the regulations (section 36 of the 1984 Act). If the owner does not comply with the notice the

22 CICAIR website [accessed on 12 July 2019]

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local authority has the power to undertake the work itself and recover the costs of doing so from the owner.

A section 36 enforcement notice cannot be served on you after the expiration of 12 months from the date of completion of the building work. A local authority also cannot take enforcement action under section 36 if the work which you have carried out is in accordance with your full plans application which the authority approved or failed to reject.

An appeal against a section 36 notice may be made to a Magistrates’ Court under section 102 of the Building Act.

Where an approved inspector is providing the Building Control Service, the responsibility for checking that the Building Regulations are complied with during the course of your building work will lie with that inspector. They will usually do this by advising you.

However, approved inspectors do not have formal enforcement powers. In a situation where the inspector considers your building work does not comply with the Building Regulations and there is a refusal to bring it into compliance the inspector will cancel the initial notice. If no other approved inspector takes on the work, the building control function will automatically be taken on by your local authority. From this point on, your local authority will also have enforcement powers set out above where it considers this necessary.23

If someone tries to sell a property where work has not complied with the Building Regulations, this should come to light through local land search enquiries.

Parliamentary Questions have probed whether there are plans to improve the enforcement of building regulation, for example:

Jo Churchill: To ask the Secretary of State for Communities and Local Government, what steps he is taking to ensure that building safety regulations for new build housing is enforced.

Alok Sharma: The person undertaking building work is responsible for compliance with the building regulations. All new build housing is subject to supervision by a building control body, who have a legal duty to take all reasonable steps to ascertain if the building work complies with the relevant requirements of the building regulations.

Local authorities have enforcement powers to order alteration or removal of building work which contravenes the building regulations and bring a prosecution in the Magistrates’ Court for a breach of the building regulations. In 2015 the previous limit on fines for breaches of building regulations was lifted so fines on conviction for breach of the building regulations are now unlimited.24

Gordon Henderson led a Westminster Hall debate on building regulations on 11 May 2016 during which he raised inadequate policing of building standards. The Minister, James Wharton, responded:

On the whole, the system of building regulations in this country—the system by which the work that builders do is monitored—is of a good standard, but that does not mean that it does not go

23 MHCLG, planning portal [accessed on 9 August 2018] 24 Building Regulation: Written question – 6944, 25 September 2017

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wrong at times. I recognise my hon. Friend’s concerns, particularly given the terrible situation that he set out and the difficulties that his constituent faced as a result of it.

[…]

It is appropriate that I first talk about the system that is in place for redress when people find that the properties they have purchased are not up to the standard that they expected. We recommend that such a person first complains to the person who carried out the work—the builder or the developer—and makes known to them their concerns about the work that they believe to be inadequate. Most responsible builders and developers will put right work that is not to the expected standard.

Should that not work, the next level of complaint is to the warranty provider if a new home warranty is in place. There are many different providers—NHBC, which my hon. Friend mentioned, is one of the largest—and they do a good job of ensuring that the standards that people rightly expect when they buy and move into a home are met, and that the system enables them to raise concerns about work that has been done. The consumer code for home builders provides protection if a home was built by a home builder that is registered with one of the supporting warranty bodies, such as NHBC, on or after 1 April 2010.

Should a constituent not find acceptable redress through those routes, there is the option to bring a civil claim against the builder in the civil courts and to pursue appropriate redress through the legal process. I have received a number of complaints about the process by which building control is carried out, but they are not focused only on approved inspectors. Local authorities, just like any other organisation, will not necessarily get building control right every single time. The reality is that the processes and the system that is in place allow these issues to be addressed at an earlier stage. I have set out some of the options that exist to enable redress to be found and problems to be rectified.25

He went on to refer to the process through which the work of building inspectors is regulated:

We also monitor and regulate the work that approved inspectors do. At the heart of my hon. Friend’s concern, or at least one part of it, is the way the approved inspectors system regime is working for our constituents. The Construction Industry Council Approved Inspectors Register is the approval body for approved inspectors, and it has reviewed its activities. One of its recommendations was that there be periodic audits of approved inspectors to ensure that they are doing the work that we expect them to do, to the standard that we expect them to do it. CICAIR started carrying out audits last year to pick up issues with particular approved inspectors—hopefully, before complaints are raised. The Building Control Performance Standards Advisory Group has also strengthened the standards that apply to both types of building control bodies—local authorities and approved inspectors—to give better targeting of building control work.

The role of building control can only ever be to be a spot-checking service. The issuing of a building regulations compliance certificate at the completion of work is not a complete guarantee of compliance throughout the process; it is only a spot check that

25 WH Deb 11 May 2016 cc344-5

12 New-build housing: construction defects - issues and solutions (England)

seeks to hold developers and builders to account and to ensure that the standards that we expect are applied.26

Building Control Performance Standards were first introduced in July 1999 and were most recently reviewed and reissued in January 2017.

2.3 Reviewing the Building Regulations and regulatory framework

On 28 July 2017, following the Grenfell Tower fire, the Government announced an independent review of Building Regulations and fire safety.27

The Independent Review of Building Regulations and Fire Safety: final report was published on 17 May 2018. The Government provided a response to the report on the same day. There was a further announcement on 19 July 2018 focusing on action to improve fire safety guidance.

The Government published Building a safer future: an implementation plan on 18 December 2018.28 Information on action being taken in this area can be found in the Library paper: Building Regulations and Safety: Review and Reforms.

26 WH Deb 11 May 2016 c346 27 DCLG, Independent review of building regulations and fire safety, 28 July 2017 28 CM 9739, 18 December 2018

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3. Post-completion defects: owners’ remedies

Defects identified before completion should be addressed before the property is handed over. What happens in these circumstances will depend on the detail of the contract between the buyer and the developer.

If attempts to correct the defect within the defect liability period or through a warranty claim are unsuccessful, owners may have to resort to legal action for which professional legal advice should be sought.

The Consumer Rights Act 2015 (CRA 2015), which came into force on 1 October 2015, does not apply to property. Specifically, section 2 of the CRA 2015 defines goods as “any tangible moveable items”; in other words, the Act does not apply to purchases of immovable property, such as land or a house. Similarly, the Sale of Goods Act 1979, which the CRA 2015 replaced, did not apply to the conveyance of property.

3.1 The defect liability period As a rule, responsibility for rectifying defects identified during this period fall to the builder. The period usually lasts for two years after completion. On expiry of this period owners will normally have to rely on their warranty. Some warranty providers may assist owners if builders fail to tackle problems identified during the defect liability period.

3.2 Warranties Most new-build properties are sold with a warranty lasting for around ten years - e.g. the NHBC Buildmark warranty. Indeed, defects warranty is de facto obligatory for new homes purchased with a mortgage as lenders will not provide finance without it. These insurance policies provide for the homeowner to claim against the policy for certain defects arising within various notification periods. Warranty cover can be limited to certain structural defects and may not cover issues related to, for example, general wear and tear and cosmetic damage.

Buildmark covers new homes for ten years. It requires the house-builders to put right anything arising in the first two years, provides a mediation service for this, and insurance cover for the remaining years. The insurance cover only has limited coverage for failure to meet standards set by the Building Regulations. There are other schemes, including for example Premier Guarantee and LABC Warranty.

3.3 Consumer Code for Homebuilders Since April 2010 all homebuilders registered with the UK’s main home warranty providers: NHBC; Premier Guarantee; and LABC Warranty, have had to adhere to the Consumer Code for Homebuilders. The Code sets out 19 principles that home-builders must meet in their marketing and selling of homes and their after-sales customer service.

Consumer law does not apply to the sale of immovable property.

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Home-builders are required to have a complaints procedure in place – information on dispute resolution should be provided to home buyers. The Code applies to complaints arising within two years of the date on the Home Warranty Body’s insurance certificate concerning defects or damage caused by a breach of technical requirements.

An independent resolution service is available for homebuyers who believe their builder has failed to meet the requirements of the Code:

A dispute may arise where a Home Buyer believes the Home Builder has failed to meet the Code’s Requirements but it falls outside the Home Warranty Body’s resolution scheme for defects or damage. If so, the dispute may be resolved by the Home Buyer applying to the Consumer Code’s Independent Dispute Resolution Scheme. This means a trained Adjudicator will review written submissions from both parties and issue a decision based on his or her conclusions. The Adjudicator will decide whether or not a Home Buyer has a legitimate dispute and has suffered financial loss because their Home Builder has breached the Consumer Code’s Requirements.29

Disputes can be referred to the Independent Dispute Resolution Scheme provider, i.e. the organisation that runs the Code’s independent dispute resolution service. A summary of the process to follow can be found in section 5 of the Consumer Code Scheme (April 2017). The adjudicator’s decision is final and cannot be appealed. Home owners can still purse a claim in court if they are unhappy with the outcome.

29 Consumer Code for Homebuilders, Fourth Edition, 2017, p9

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4. Problems and potential solutions

4.1 The Building Control Regime Section 3 of this paper notes that Local Authority Building Control has seen an increase in the number of people approaching local authorities for assistance in sorting out defects with their new homes. This seems to demonstrate confusion over the role of building control. More Homes, Fewer Complaints (July 2016) listed a selection of information taken from councils’ websites which attempted to set out what building control is not:

• A ‘clerk of works’ service monitoring every stage of the construction process on site. That is a matter for the contracts and arrangements put in place between the client and the builder. Ultimately, compliance is the responsibility of the person carrying out the work.

• A service to address issues such as the finish and aesthetics of the final project where these are not Building Regulations standards. These are a matter for designers, builders and new home warranty providers.

• A service to offer contractual protection to a client in a contract with a builder. This is a matter for contract law.

• A 100% guarantee of compliance. It plays an important part to educate and to reduce risk, but building control does not remove the obligation of the housebuilder to achieve compliance.30

Building control officers do carry out inspections to check compliance with the Building Regulations, but the number of inspections varies and not all properties on a large development will be inspected. A sampling approach may be adopted instead.31 More Homes, Fewer Complaints noted that inspections are a “snap shot” and may not necessarily show work undertaken to remedy identified defects.32 The APPG report also identified issues around a shortage of building control officers, difficulties in recruiting qualified staff, and an ageing workforce.33

In terms of potential solutions, the APPG recommended a minimum standard for compliance inspections and the supply of inspection reports to buyers:

We are concerned that competition in building control might be fuelling a race to the bottom and we are therefore recommending there should be a defined minimum number of inspections that local authority building control and approved inspectors in the private sector and warranty providers should not fall below. We

30 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p26 31 For more information see: Building Control Performance Standards 2014 32 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p28 33 Ibid.

16 New-build housing: construction defects - issues and solutions (England)

suggest that the minimum level should be considered by DCLG in consultation with the industry.

We are also recommending inspection reports are made available to the public and form part of the information pack provided to purchasers when they buy a new home.34

The revised Building Control Performance Standards (January 2017) refer to the right of owners to request site inspection records:

Building Control Bodies are required to provide site inspection records to the building owner on request for all building work that has been issued with a final/completion certificate or where an initial notice has been cancelled. The request must be in writing and made within 15 years of the final/completion certificate being issued.35

The role of building inspection services was considered as part of Dame Judith Hackitt’s Independent Review of Building Regulations and Fire Safety. Her recommendations in this area were subsequently endorsed by the Housing, Communities and Local Government Select Committee:

The Independent Review noted several weaknesses in the current structure of building control. The part-privatisation of the regulatory function—with developers able to choose between Local Authority Building Control and private sector Approved Inspectors—has raised many serious concerns, including disincentives for building control bodies to use enforcement methods for fear of losing long-term business. The Review concluded that, “the ability for duty-holders to choose their own regulator must stop and regulators must be able to enforce as regulators”, envisaging a model with a “clear, single regulatory route for oversight” for high-risk residential buildings.

In the context of building inspection services, we particularly welcome Dame Judith’s proposal that the industry should no longer be able to choose their own regulator and that there should be a single regulatory route for oversight of high-rise residential buildings through Local Authority Building Control. Indeed, we believe this principle should apply to a much wider range of buildings.36

On publication of the Hackitt review’s final report, the Government committed to taking forward several measures, including:

• changing the law to achieve meaningful and lasting reform of the building regulatory system, with strong sanctions for those who fail to comply

• inviting views to inform how the government could implement major reform of the regulatory system37

In Building a safer future: an implementation plan (December 2018),38 the Government said they would consult on proposals to remove duty holder choice in relation to building regulation; however, it appears that

34 Ibid., p38 35 DCLG, Building Control Performance Standards, p28 36 Housing, Communities and Local Government Select Committee, Ninth Report of

Session 2017-19, HC 555, 18 July 2018, paras 17-18 37 MHCLG Press Release, 17 May 2018 38 CM 9739, 18 December 2018, para 2.23

Owners can request site inspection records within 15 years of the final/completion certificate being issued.

17 Commons Library Briefing, 1 August 2019

any change will only apply to “buildings in scope”, i.e. certain high-rise residential buildings.

Responding to a debate on 13 December 2018, the Minister, Heather Wheeler, explained how a complaint against a building control body can be taken forward:

A building regulations compliance certificate issued by a building control body is not a guarantee of the highest standards and the responsibility is not removed from the builder or developer. If a consumer feels that the building control body did not carry out its functions properly, they may complain to the local government and social care ombudsman in respect of a local authority. A complaint about an approved inspector can be made to CICAIR, the Construction Industry Council Approved Inspectors Register, which is the body that approves inspectors.39

4.2 How effective are warranties? The Callcutt Review of Housebuilding Delivery (2007) identified concerns about caveats included within warranties. It was felt that they may not offer adequate protection for consumers.40 The Office of Fair Trading’s 2008 study of the homebuilding market considered the effectiveness of warranties; Professor Sommerville of Glasgow Caledonian University was commissioned to carry out research into this specific issue. At the time, OFT concluded that “while not perfect, warranty provision in the UK is relatively robust,” and went on:

They do not cover every possible eventuality which could arise under the contract of sale. In this regard, in particular, warranties provide no cover for failings in the sales process, delays in moving in, deficiencies in contracts and exclude many items included in the purchase price.

Instead, warranties provide homebuyers with a very specific type of insurance cover in particular circumstances. It is inevitable that there will be limitations in any insurance policy, although data from our consumer survey indicates that homebuyers appear to think that warranties cover much more than they do. The sale of insurance products, of course, falls within the remit of the FSA (Financial Services Authority).41

In More Homes, Fewer Complaints (July 2016) the APPG also identified that consumers often believe that warranties cover more than they actually do. There is confusion over the fact that the housebuilder should sort out defects in the first two years following completion, i.e. during the defects liability period.

Warranty providers carry out inspections but only on a sampling basis; not all properties are inspected at every stage of construction. One warranty provider told the APPG’s inquiry:

The average latent defects policy is £300 for a 10-year policy. The economics suggest that we cannot do a plethora of inspections.

39 HC Deb 13 December 2018 c202 40 Callcutt Review of Housebuilding Delivery, 2007, p71 41 OFT 1020, Homebuilding in the UK – a market study, 2008, p137 onwards &

Annex J. The full list of annexes to the report are online here.

18 New-build housing: construction defects - issues and solutions (England)

The inspections are purely to prove to our underwriters that the property is a standard risk.42

Developers who are excluded from one industry-led code can choose a different warranty provider aligned with a different Code. The Government refers to this as “code hop” and notes that:

This means that poorly performing developers are not held to account for their actions.43

In More Homes, Fewer Complaints (July 2016) the APPG recommended a review by DCLG (now MHCLG) “to establish whether a more comprehensive cover would be more appropriate for house buyers – and what the cost implications might be.”44 The APPG suggested that such a review should consider:

• minimum standards of cover and levels of inspection;

• an easier form of redress through a New Homes Ombudsman; and

• higher profile marketing by warranty providers and house builders during the conveyancing process to make it clear what the warranty covers.45

4.3 Buying new-build homes: the balance of power

The APPG’s inquiry concluded that, in relation to disputes between house builders and buyers “the balance has been tipped too far in favour of housebuilders.”46 There is reference to a “cavalier” attitude towards customers by house builders.

Confusion over warranties is covered in the previous section (4.2), other issues identified by the inquiry include:

• exclusion clauses in contracts and the lack of a standard contract;

• the lack of a straightforward means of pursuing a dispute with a builder;

• a refusal to allow pre-completion surveys; and

• a reluctance to provide information such as written plans and specifications which buyers could then check the finished home against.47

The APPG took evidence from Dr Stephen Watkins who referred to a body of developing case law which had further limited the ability of

42 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p27 43 MHCLG, Redress for Purchasers of New Build Homes and the New Homes

Ombudsman: A Technical Consultation, June 2019, para 4.11 44 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p27 45 Ibid., p27 46 Ibid., p28 47 Ibid., p29

19 Commons Library Briefing, 1 August 2019

home owners to take successful action against builders for defects in their homes.48

The Consumer Code for Homebuilders (see section 3.3) was developed to make the home-buying process fairer and more transparent for purchasers, but the APPG felt that the code “does not appear to give homebuyers the safeguards we think they should expect. We question how well it is policed and it does not appear to us objectively to offer consumers a wholly satisfactory form of redress.”49 A particular area of concern was a move by builders to include a term in their contracts for sale requiring any construction disputes to first be referred to the Code Dispute Resolution Service and/or another home warranty provider’s resolution service. This enables builders to argue that court action is excluded if disputes are not referred to these schemes, but some claims cannot be determined in this way - e.g. claims over £15,000 or which concern matters such as boundary disputes or fixtures and fittings paid for as extras.

The OFT’s 2008 market study suggested that if the industry failed to make satisfactory progress then further intervention might be necessary.50

Having concluded that the balance of power between the parties is uneven and favours builders, and that existing means of redress are protracted and expensive, the APPG recommended:

• the establishment of an independent New Homes Ombudsman to provide an easy and affordable dispute resolution service for all homebuyers which would be funded by a levy on the construction industry;

• the introduction of standardised contracts for sale to include provision for dealing with disputes before referral to the Ombudsman;

• a right of inspection for buyers prior to completion;

• the provision of a comprehensive information pack by builders to improve transparency around design and the building and inspection process; and

• a review of laws governing consumer rights when buying new homes.51

The authors of the Consumer Code for Homebuilders said that it had been successful in raising service standards in the industry when updating the Code in 2013:

…the Code has gone from strength to strength and customer research shows that the principles of the Code have been firmly adopted and embedded into the processes of many home

48 Ibid., pp 29-30 49 Ibid., p30 50 OFT 1020, Homebuilding in the UK – a market study, 2008 51 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p33-34

The APPG published Better redress for home buyers in June 2018 which focuses on how a New Homes Ombudsman could drive up standards and improve consumer redress.

20 New-build housing: construction defects - issues and solutions (England)

builders, raising the standard of service and support provided to home buyers and potential home buyers.52

However, the summary of changes to the Code’s fourth edition, published in April 2017, said:

Knowledge of the presence of the Code Scheme, as demonstrated by recent mystery shopping surveys, is inadequate.53

In response, home builders are now required to display the Code Scheme logo prominently in their own and agents’ sales offices and in sales brochures. Home buyers must be provided with the Code Scheme documents with the reservation agreement, this can be done electronically.54 The 2017 edition of the Code makes it clear that builders may offer incentives to new buyers and/or refer them to a panel of solicitors but they “should not restrict their choice of legal representative.” This includes not restricting the financial advisor or mortgage intermediary the buyer may wish to use.55 The Code has been clarified to emphasise that home builders should make it clear that they are responsible for remedying relevant defects arising under the home warranty two-year defect period.56

The use of incentive payments to encourage buyers to use a particular solicitor was considered by the Housing, Communities and Local Government Select Committee’s inquiry into leasehold reform. Evidence submitted to the inquiry referred to buyers who thought they were incentivised or coerced by developers to use their panel of solicitors. The Committee recommended that “the Government should prohibit the offering of financial incentives to persuade a customer to use a particular solicitor.”57 The Government’s response to the Committee (July 2019) agreed that consumers should have access to independent and reliable advice when buying a property. Measures referred to include proposals to create a New Housing Ombudsman and action by the Solicitor’s Regulation Authority and the Council of Licensed Conveyancers on the quality and price of advice provided by members.58 The response details existing routes for complaint and redress for consumers if they are unhappy with the service provided by a lawyer.

Arguably, many of the APPG’s recommendations are already covered by the Consumer Code for Housebuilders. For example, in terms of policing, adherence to the Code forms part of the contractual relationship with the home warranty body under their registration scheme. A failure to comply could bring sanctions to bear, the most extreme of which could be suspension or cancellation of the home builder’s registration. In turn, this would mean that the builder would be unable to sell their newly built homes. This is undoubtedly a

52 Consumer Code for Homebuilders: Summary of Changes to the Code, 2013 53 Consumer Code for Homebuild. ers: Summary of Changes to the Code, 2017 54 Ibid. 55 Ibid. 56 Ibid. 57 Leasehold Reform, HC 1468, Twelfth Report of 2017-19, 19 March 2019, para 67 58 CP 99, 3 July 2019, paras 36 and 37

21 Commons Library Briefing, 1 August 2019

significant deterrent, but the sanctions regime operated by home warranty bodies may not provide direct assistance for an individual who finds themselves owning a defective property.

In October 2017 DCLG issued Improving the homebuying and selling process – Call for evidence which acknowledged that the process of buying a newly built property can present particular challenges. The paper asked:

What can be done to improve the customer experience of buying a new build home?59

A summary of responses received and the government response was published in April 2018. Respondents raised issues around completion dates and timescales for completion. Full information on costs for potential buyers also attracted comment. On snagging, some respondents wanted to be able to withhold a proportion of the purchase price until satisfied that all defects/unfinished work are addressed. There was reference to regulation of developers with enforcement via an ombudsman.60 The Government said that they would “improve the process of dealing with buyer complaints” and that this would be informed by a further consultation exercise on strengthening consumer redress in the housing market (see section 5 below).61

A new Consumer Code for New Homes was launched on 29 November 2017 having gained approval from the Chartered Trading Standards Institute to “ensure that best practice is followed in respect of the marketing, selling and purchasing of New Homes and to set expected standards for after sales customer care service.” The Code establishes mandatory requirements that apply to all developers registered with it:

Where a Developer (or their Agent) is found to be in serious breach of the Code, the Code Sponsor can apply a range of sanctions, including removal from the Code’s register of members. This will also result in removal from the registers maintained by the Warranty Bodies.

The Code provides an independent Dispute Resolution Scheme for complaints that arise and are made in writing to the Developer within two years of the date of the Completion of the New Home purchase.

The Code also benefits second and subsequent Buyers of the New Home but only in respect of after sales matters reported within two years of the date of the Completion of the New Home purchase.62

At the time of writing, some of the largest builders, including Barratt, Bellway, Berkeley and Persimmon were not registered with the Code.

59 DCLG, Improving the homebuying and selling process – Call for evidence, October

2017, Q23 60 MHCLG, Improving the home buying and selling process – summary of responses to

the Call for Evidence and government response, April 2018 61 Ibid., para 13 62 Consumer Code for New Homes, November 2017, p2

The Government issued a call for evidence on the house buying process, including buying newly built properties. The outcome was published in April 2018.

22 New-build housing: construction defects - issues and solutions (England)

5. The Government & industry response on consumer redress

Steve Double secured a Westminster Hall debate on 16 October 2017 during which he raised issues about the standard of new build housing and compared the lack of protection buyers of new homes have with those buying faulty goods:

The homeowner has far more consumer rights and protection for a new kettle in their kitchen than they do for the new building that houses it. For the vast majority of people, buying a new home will be the biggest purchase they ever make, and surely we should provide more adequate protection for them. On the thankfully very rare occasions when the builder has completely failed to construct a property fit for habitation, house purchasers should not have to resort to the courts to establish their rights. Sadly, that is too often the case in the current set-up.63

The then Housing Minister, Alok Sharma, said “it is clear that home builders need to step up and make quality and design a priority. That includes ensuring that, where something goes wrong, house builders and warranty providers fulfil their obligations to put things right.”64 He described the following actions which were underway:

• The Government is “seriously considering” the APPG’s recommendations.

• The HBF will issue a formal response to the APPG’s report.

• The HBF has set up a working group and “will take forward action to provide better information to customers, simplify the legal process and create a clearer and simpler process for signing off new homes as complete.”

• The HBF working group has commissioned an independent report on consumer redress for new homebuyers which is due to be published shortly.65

• The Minister said he would review the independent report “with a view to ensuring that improved redress arrangements are introduced to provide greater protection to consumers on a broad range of issues, with a greater degree of independence from the industry.”

• On calls for a new housing ombudsman, the Minister said, “I am considering that option very seriously indeed.”66

Subsequently, on 29 November 2017 Sajid Javid, then Secretary of State at DCLG, told a group of housing professionals that it was vital that the quality of new build homes continues to improve:

But we don’t have to choose between building more and building better - we can do both. Homes are not only the biggest financial

63 HC Deb 16 October 2017 c691 64 Ibid., c692 65 This work was commissioned from WPI Economics – the report’s findings have been

referenced but it does not appear to be publicly available. 66 HC Deb 16 October 2017 c693

A new Consumer Code for New Homes was launched on 29 November 2017 – see section 4.3 of this paper.

23 Commons Library Briefing, 1 August 2019

investment in our lives, but also provide security, and so it’s only right that developers and builders are held to a higher standard.

That’s why we are looking at bold options to improve redress in the New Year – including whether housing, like other sectors, should have a single ombudsman. This could help drive up standards across the whole industry and increase protections for consumers.

Currently, there are 4 government approved providers of redress that cover some aspects of home buying and renting, but not all. Membership of ombudsman schemes is compulsory for some groups, but not for others.67

Strengthening consumer redress in the housing market: a consultation ran between 18 February and 16 April 2018. The section on new build homes acknowledged problems that new owners can face in getting defects fixed:

Too often we receive letters from consumers that include protracted disputes over snagging issues and cases where the home buyer does not feel that they have been treated fairly during the purchase process.68

The consultation referred to ongoing work with industry stakeholders to drive improvement:

We are working with the Home Builders Federation, warranty providers, lenders and the redress providers to address these issues and we want them to continue to drive improvement. We want to consider the best approach for taking this forward.69

The paper set out options for improving redress through:

• the creation of a single housing ombudsman which would require primary legislation; or

• the creation of a single “front door” with greater standardisation of practices; or

• consolidation and rationalisation of existing schemes.70

In June 2018, the APPG published Better redress for home buyers which focused on how a New Homes Ombudsman could drive up standards and improve consumer redress.

On 1 October 2018 the Government announced an intention to create a New Homes Ombudsman to “champion homebuyers, protect their interests and hold developers to account.” The accompanying press release contained the following information:

Support for homebuyers facing problems with their newbuild

The government has announced that there will be a New Homes Ombudsman - a watchdog that will champion

67 DCLG Press Release, Government looks at consumer redress across the housing

sector, 29 November 2017 68 MHCLG, Strengthening consumer redress in the housing market: a consultation,

February 2018, para 32 69 Ibid., para 33 70 Ibid., para 47

The Government will legislate to create a New Homes Ombudsman. All new developers will be required to be members of the scheme.

24 New-build housing: construction defects - issues and solutions (England)

homebuyers, protect their interests and hold developers to account.

We intend to legislate to require all new developers to belong to a new homes ombudsman.

House buyers should be confident that when they purchase a new home, they get the quality of build and finish they expected.

We will work with consumers and industry to develop our proposals and publish more details in due course.

In the meantime government expects industry to continue to improve the current redress arrangements and improve the consistency of quality for new build homes.71

Commenting on the announcement, Chris Blythe, CEO of the Chartered Institute of Building, was reported as saying:

Although the classic ‘the devil’s in the detail’ phase applies, with the commitment to a new homes ombudsman the government has taken a significant step in offering greater consumer protection and improving the build quality of new homes. It is an opportunity for housebuilders to adopt a ‘get it right first time’ attitude. With this, we all win; buyers get good quality homes, the industry gets the capacity to build more and the opportunity to restore its reputation.72

Kate Green secured a Westminster Hall debate on Protection for Homebuyers which took place on 13 December 2018.73 The debate focused on the plight faced by buyers of new-build homes with defects. Heather Wheeler responded for the Government, she referred to the plan to create a New Homes Ombudsman and went on:

At the same time as exploring more substantive reforms, we are challenging industry to simplify redress now and to provide proper support for consumers in the early years of a house purchase, when most problems occur, until we have the ombudsman in place.

In November—one month ago—I met the executive chairman of the Home Builders Federation, which is taking forward proposals to implement a better redress system, based on the recommendations in the reports by the all-party parliamentary group for excellence in the built environment published in 2016 and this year. I believe this work is a positive step in the right direction.74

On the issue of developers referring clients to solicitors, she said the Secretary of State had written to the Law Society and to the Solicitors Regulation Authority and that she expected “those two authorities to take note and come back to us on the matter.”75

She said that proposals on the New Homes Ombudsman would be published “in more detail soon and will set out the scope and powers of

71 MHCLG Press Release, 1 October 2018 72 Championing Consumers: the role of the New Homes Ombudsman, 8 October 2018 73 HC Deb 13 December 2018 c174WH 74 Ibid., c202 75 Ibid.

25 Commons Library Briefing, 1 August 2019

the ombudsman.” In the meantime, she described work underway by the Home Builders Federation:

The work being done by the Home Builders Federation could lead to a voluntary new homes ombudsman and better redress for consumers in the short term, while Government works towards legislation. In our response to our redress consultation we will set out the standard we expect these voluntary arrangements to meet. We also expect that any new redress scheme for buyers of new-build homes should be free to the consumer, as in other sectors.76

A summary of responses to strengthening consumer redress, together with the Government’s response was published in January 2019.77 The Government intends to:

• Create a new Housing Complaints Resolution Service which will “build better access to redress through establishing a simplified point of access for consumers when they have an issue with their housing”.

• Create a Redress Reform Working Group which will work with industry and consumers to develop a new Housing Complaints Resolution Service. The new service will “help renters in private and social housing, leaseholders, and buyers of new homes”.

• Legislate to create a New Homes Ombudsman “and we will work with industry and consumers prior to legislation so purchasers of new build homes have access to better redress now”.

• Legislate to require developers of new build homes to belong to a New Homes Ombudsman. Developers will pay a charge for membership “to ensure that the service is free of charge to buyers of new build homes”.

• Engage and consult with the devolved administrations to seek agreement for UK-wide legislation which would take account of the fact that developers work across all nations of the UK.

• Develop an agreed single consumer code of practice which will be used by the New Homes Ombudsman to adjudicate against.78

Work to accelerate the implementation of a voluntary, industry-led New Homes Ombudsman ahead of legislation will be taken forward. There is an expectation that the voluntary ombudsman will be:

• Free to the consumer and funded by industry

• Independent from the organisations the ombudsman will investigate

• Fair in dealing with disputes

• Have effective powers to hold developers to account

76 Ibid., c203 77 MHCLG, Strengthening Consumer Redress in the Housing Market Summary of

responses to the consultation and the Government’s response, January 2019 78 Ibid., pp41-42

26 New-build housing: construction defects - issues and solutions (England)

• Be open and transparent and have public accountability through regular reporting.79

5.1 New Homes Ombudsman: Technical Consultation

June 2019 saw publication of Redress for Purchasers of New Build Homes and the New Homes Ombudsman: A Technical Consultation. Responses are invited up to 22 August 2019. The consultation paper is seeking views on the detail of proposed legislation for a New Homes Ombudsman.

The role of the New Homes Ombudsman will be to provide redress to consumers whose complaints or considered on a case-by-case basis:

An Ombudsman is not a regulator and does not have the authority to take regulatory or legal action against a property developer. It cannot impose fines or dictate the way developers conduct their business. An ombudsman can help resolve disputes and can uphold complaints and recommend redress, which is usually by way of compensation for what has gone wrong.80

Views are being sought on whether a Code of Practice should be underpinned by statute and how the requirement to be a member of the scheme will be enforced, alongside several other detailed questions.

5.2 CIOB: call for evidence on construction quality

Following the closure of 17 schools in Edinburgh in early 2017 due to building defects, the Chartered Institute of Building (CIOB) announced the formation of a Commission of Past Presidents to “investigate the issue of build quality in the construction industry, and what needs to be done to address it.”81

The Grenfell Tower fire prompted the following response from the Chair of the Commission, Paul Nash:

The recent tragic events at Grenfell Tower have further underlined the need for an urgent review of the way in which quality is managed in our industry. Whilst aspects of the public inquiry must necessarily focus on the issues of regulation and inspection, I think we have to look beyond this at the behaviours that have led to a lack of focus on quality at all stages of the build process, from design and procurement through to construction and re-fit.

The CIOB has a duty to respond to this issue, acting in the public interest. As professionals we have a duty to the industry and wider society to act responsibly and ethically. This defines what it means to be a professional. And we all have a responsibility for the reputation of our industry and, most importantly, the wellbeing of those who use the buildings that we create. 82

79 MHCLG, Redress for Purchasers of New Build Homes and the New Homes

Ombudsman: A Technical Consultation, June 2019, para 3.18 80 Ibid., para 4.4 81 CIOB Press Release, 21 June 2017 82 CIOB Call for Evidence on Construction Quality, October 2017

27 Commons Library Briefing, 1 August 2019

The CIOB launched a call for evidence to “gather views, data and substantiation from members, the wider construction sector, government and other interested stakeholders.” Evidence could be submitted up to 15 December 2017:83

Responses to the call for evidence will help the CIOB shape its work on improving construction quality and provide an evidence base to draw on. The Commission is looking for clear evidence to identify what improvements are necessary to achieve high standards of quality in the product, people and processes throughout the construction sector.

Suggested areas that evidence might cover, though this is by no means exclusive, are as follows:

• Is current management of quality at all levels of the workforce sufficient?

• Are current regulations, codes and standards fit for purpose to achieve good quality construction?

• Is construction quality taught effectively at educational establishments?

• Are existing certification schemes and qualifications fit for purpose to achieve good construction quality?

• Is value engineering adhering to its principles, or has it become a cost-cutting exercise?

• How can we change attitudes, behaviours and corporate culture to improve quality?

• What role does innovation and technology have to play in improving construction quality?

• Are there examples of best practice that can be shared and potentially scaled up?

• Are there any data or pieces of research that can help further inform the work of the Commission?84

Some of the findings arising from the call for evidence were reported in Construction Manager on 28 February 2018. The article states that 75% of the 200 construction industry respondents believed that “the industry’s current management of quality is inadequate.”85 Five key areas of concern were highlighted:

…which centred on education and behaviours: the contractors who execute the work; the skills of the workforce; the role of designers; procurement and client-side responsibility; and governance.86

Paul Nash reportedly said that the CIOB would recommend several measures:

“The first will be to develop a competency-based quality qualification/certification,” he explained. “The second will be the creation of a quality code which will capture best practice and set

83 The deadline was initially 1 December but was extended to the 15th on 30 November

2017 84 Ibid. 85 Construction Manager, “QM inadequate say 75% in CIOB survey”, 28 February

2018 86 Ibid.

28 New-build housing: construction defects - issues and solutions (England)

the standards to be expected from the industry. The third will be to ensure that quality has greater emphasis in the CIOB Education Framework”.87

Some respondents called for quality management to be treated and regulated in the same way as health and safety management. A plan of action for medium and longer-term activities was to be produced.88 In September 2018, the CIOB launched a new two-day course on quality management systems. Adrian Montague, head of the CIOB Academy said:

“We want to see a ‘get it right first time’ approach embedded in the industry, which should prevent these unnecessary costs and improve customer retention. Quality management is as important to a company’s efficiency and reputation as meeting time and cost targets. Our new construction quality management course comes from the extensive research conducted by the CIOB’s quality commission, and will cover all the fundamentals of construction quality management.”89

87 Ibid. 88 Ibid. 89 CIOB trainers target quality failings, 11 September 2018

29 Commons Library Briefing, 1 August 2019

6. Construction industry: skills, innovation and capacity

There are several construction industry issues which could impact on the quality of house building in the UK.

6.1 Labour market and skills High quality construction depends on a qualified workforce with a fairly high level of mobility so that demand can be satisfied when and where it arises.

The 2015 Government expressed concern that the “structure of industry training” is not sufficient to deliver the skilled workforce required to build enough adequate housing;90 The Chartered Institute of Builders reported that the construction sector would need to hire an additional “157,000 new recruits by 2021 in order to keep up with demand.”91

Arcadis, a built-environment design consultancy, elaborated on these concerns:

• Arcadis argued that if the government’s target for building new houses was to be met, then the industry would need to recruit 224,000 new people by 2019.

• The fact that the number of people joining the sector has been declining for some years led Arcadis to argue that there is a weak “pipeline of talent” into the house building sector.

• Arcadis found that many construction workers are retiring early, meaning that around 700,000 new recruits will be required just to replace the current workforce by 2019.

• Another issue is a lack of relevant skills needed to build houses among existing construction workers. Arcadis reports that the following trades or professions are constraining house building due to under-supply of labour: bricklayers, plasterers, architects and quantity surveyors.

• Training or re-training existing workers is more difficult in the construction sector compared with other sectors due to above average rates of self-employment and “the fragmentation of the supply chain”. These factors make organising widespread training difficult.92

• Arcadis reported that a large number of construction workers were operating in different sectors. But there was also evidence that people with relevant skills were operating in

90 The Construction Index, Ministers tell industry leaders to sort out skills shortage, 1

February 2016 91 Infrastructure and Projects Authority, Government construction strategy 2016-20,

March 2016, p9 92 The Construction Index, Ministers tell industry leaders to sort out skills shortage, 1

February 2016

The CIOB’s 2017 call for evidence found respondents were critical of construction quality training with 74% saying it was not taught effectively by educational establishments.

30 New-build housing: construction defects - issues and solutions (England)

shrinking sectors (such as manufacturing), suggesting a potential source of new labour for the construction sector.93

The construction sector is more reliant on non-UK born EU workers: 11% of construction workers are non-UK EU citizens, compared to 7% in the whole economy in 2016.94

Construction and house building trade associations have expressed concern that the UK’s new relationship with the EU could adversely affect the supply of migrant labour, which, combined with the other labour issues mentioned above, could cause considerable “damage” to the sector’s capacity. The Federation of Master Builders said:

…It is now the government’s responsibility to ensure that the free-flowing tap of migrant workers from Europe is not turned off…95

The Construction Sector Deal, discussed in more detail later in this section, details the Government’s framework for construction sector policies and makes a number of commitments around skills and the construction labour force:

• Reform the CITB to enable greater strategic leadership of training in the sector, based on recommendations from the review, published November 2017.

• An ‘aspiration’ of 25,000 new construction apprenticeships by 2020. Create 50 new apprenticeships standards that better reflect the skills needed by the modern construction work force.

• The Confederation of British Industry and the Trade Union Congress will work in partnership with government to establish a National Retraining Partnership that will work to give existing construction workers the skills they need for modern construction work.

• A new construction ‘T-Level’ technical qualification will be developed which will enable vocational construction training to be recognised.

• Invest £34 million to “scale up innovative training models across the country to support the delivery of 1.5 million new homes by 2022.”96

6.2 Innovation in construction Innovation in construction methods and materials can mean more homes are produced quickly, cost-effectively and to modern standards. Among other things, this can increase the life-span of housing, improve energy efficiency and reduce the need for major repairs.

93 Arcadis, People and money: fundamental to unlocking the housing crisis, 2015, pp4-

7 94 House of Commons Library Briefing Paper CBP8069, Employment of other EU

nationals in the UK, August 2017, p20 95 Inside Housing, Builders: immigration rules must protect construction workers, 1 July

2016 96 BEIS, Construction Sector Deal, July 2018, pp14-16

31 Commons Library Briefing, 1 August 2019

The UK construction industry has been slow to adopt technological and other innovations which are frequently used by house building industries in other countries.97

These innovations include:

• Increased use of data and data management in the design and planning of house building. This forms an important part of the Construction strategy 2016-20.

• Innovation in the way the workforce and businesses involved in house building are organised might provide a way to standardise house building and make the industry more efficient, according to Innovate UK.

• Mass produced modular components are a feature of commercial building but are less regularly used in house building in the UK. These methods reduce the time required to build houses and require less manpower. They also help to ensure standardised levels of quality and durability.

Adopting modern construction methods can also lead to increased productivity in the sector, meaning that fewer people are required to build the same number of houses. In Q1 2019, output was £25 per hour in the construction sector, whilst the whole economy average was £34 per hour. Growth in productivity in the construction sector is slower than the economy average: between Q1 1997 and Q1 2019, labour productivity in the construction sector grew by 12% compared to 28% in the whole economy.98

The 2015 Government launched its Accelerated Construction prospectus on 3 January 2017:

Through our new Accelerated Construction programme, we now want to provide a tailored package of support to ambitious local authorities who would like to develop out surplus land holdings at pace. The programme aims to deliver up to 15,000 homes (housing starts) on central and local surplus public sector land in this Parliament through £1.7 billion of investment. In doing so, we want to use Accelerated Construction to tackle broader constraints to seeing more homes built. The programme is designed to support our market diversification objectives by supporting non-major builders and help tackle the construction skills gap, including through greater use of Modern Methods of Construction (MMC).99

During a speech to the Northern Powerhouse Summit on 5 July 2018, then Business Secretary, Greg Clark, announced £420 million investment in construction technology. The Government is contributing £170 million and industry is contributing £250 million to innovation in construction techniques and materials.100

Respondents to the CIOB’s 2017 call for evidence made the point that innovation and technological advances could be beneficial but

97 Innovate UK, Construction industry summit, blog post, 18 September 2015 98 ONS, Labour productivity Q1 2019, Breakdown of contributions, 5 July 2019 99 DCLG, Accelerated Construction: expressions of interest, 3 January 2017 100 The Planner, “£420 to be invested in smart construction”, 5 July 2017

The Housing White Paper (February 2017) said that the Government would consider how the planning system operates to support modern methods of construction (MMC) developments. (para 3.40)

32 New-build housing: construction defects - issues and solutions (England)

emphasised that the industry will still be dependent on skilled operatives to produce quality work.101

HCLG Select Committee report on modern methods of construction In July 2019 the Housing, Communities and Local Government (HCLG) Select Committee published a report on Modern Methods of Construction. The Committee concluded that greater use of modern methods of construction (MMC) could help the Government meet its target to build 300,000 houses a year and could increase the quality of houses built in the UK.

The Committee received evidence that MMC typically delivers better quality housing:

Better quality of delivery–Great Places Housing Group found greater accuracy and “Zero defects on completion with reduced incidents of defects occurring in use. This results in reduced maintenance workload and consequential reduced costs for the landlord.”102

The Committee recommended that more money should be spent by Government on innovation and skill development in construction to encourage more MMC housebuilding:

The Ministry should track how much of its total spending on housing goes towards MMC developments specifically. It should also implement a coordinated strategy with other government departments that oversee schemes such as construction skills provision and research and development (R&D), to increase MMC housing output. It should monitor how many homes are built using MMC annually, in order to evaluate the impact of this strategy.103

6.3 Housing maintenance One important trend in house building in recent years is growth in the amount spent maintaining the existing housing stock compared to the amount spent on building new houses.104

This is partly attributable of the fall in the number of new houses being built each year, meaning that more emphasis has been placed on maintaining the existing housing stock.

One result of this has been that capacity among house builders has been directed towards repair work, and away from new-build work. This may have led to a reduction in new-build skills and the number of builders with these skills, and therefore a reduction in the quality of new build housing.

101 Construction Manager, “QM inadequate say 75% in CIOB survey”, 28 February

2018 102 HCLG Select Committee Fifteenth Report of 2017-19, HC1831: Modern Methods of

Construction, July 2019, p11 103 Ibid., p3 104 ONS, Output in the construction sector, July 2016, Table 4

33 Commons Library Briefing, 1 August 2019

6.4 Finance for house building House building requires considerable up-front investment, meaning that in the vast majority of cases, new housing developers need access to finance.

In common with the rest of the economy, finance has been less readily available in the construction sector since the financial crisis, although this situation has improved.105

For the house building industry, a particular concern is access to finance for smaller developers. In 2016, the Aldermore Group, a bank specialising in finance to small businesses said:

…smaller developers continue to struggle with access to finance, with a recent industry survey showing that more than 50,000 construction and real estate firms have begun the year in ‘significant’ financial distress…unless more is done by lenders to increase funding to smaller regional developers, the potential for the industry to reach… [the Government’s house building target]…will be less likely.106

Problems accessing finance can have an impact on house builders’ ability to produce high-quality housing, as well as on the overall capacity of the house building industry. With reduced access to upfront investment, house builders may choose to use cheaper, less skilled construction workers or lower-quality materials. Both these strategies for cost saving can have a direct impact on the quality of completed houses.

The Construction Sector Deal (discussed in more detail later in this section) includes the following policy to tackle the problem of finance for housebuilder, particularly small and medium sized (SME) housebuilders:

…the Federation of Master Builders and UK Finance are currently developing the SME Housebuilders Finance Guide to enable SMEs to understand how they can best secure long term finance for investment. Through facilitating greater collaboration between developers, lenders and construction teams, it aims to make the process more efficient, reducing risk and improving profitability.

The British Business Bank (BBB) has also been building on their existing portfolio of programmes with expansions such as a new asset finance variant of the Enterprise Finance Guarantee programme, and the provision of ENABLE guarantees designed specifically to increase the amount of lending that banks are able to provide to SME Housebuilders, both of which will increase the nature of support available to small and medium sized businesses in the construction sector.107

105 BBA, High street bank lending, July 2016 106 Mortgages for business, Smaller property developers struggling to access finance, 18

January 2016 107 BEIS, Construction Sector Deal, July 2018, p35

The Autumn Budget 2017 announced an additional £1.5 billion for the Home Building Fund targeted at SMEs.

The Housing White Paper said that the Accelerated Construction Programme would support diversification in the market “through partnering with small and medium-sized firms and others as development partners and contractors. There was also a commitment to continue to work with the British Business Bank to encourage investment in SMEs. (para 3.9)

34 New-build housing: construction defects - issues and solutions (England)

6.5 Predictable demand To maintain consistent quality in house building the construction sector must be able to meet demand when and where it arises. This requires insight into future demand for new houses.

Evidence from the Construction Industry Training Board (CITB) suggests that there has been uncertainty about the location and timing of new house building and so some construction firms have lacked confidence in the past about taking on new employees or training their existing workforce.108

The Government’s National Infrastructure and Construction Pipeline has been developed to help resolve this situation. It provides details of public sector investment plans for all construction sectors including house building. The data is presented by date and region, so firms are able to plan recruitment and other investments.

6.6 The APPG’s recommendations 2016 In More Homes, Fewer Complaints the APPG also identified skills and labour shortages as a contributing factor in poor build quality. The report included some specific recommendations:

• Housebuilders should instigate a new quality culture by adopting quality systems to ISO standards. There is reference to the need for “an industry aspiration to a zero-defects culture.”

• The industry should significantly increase skills training programmes for new and existing workers “to embed a quality culture.” There is a suggestion that local authorities and Government should leverage more training by making it a condition on the sale of their land.109

6.7 The Farmer Review’s recommendations 2016

A combination of the issues outlined above led the 2015 Government to commission research from the Construction Leadership Council into how the industry’s skills and manpower problems might be overcome. The Farmer Review of the UK Construction Labour Model: ‘Modernise or die’ was published in December 2016. The review concluded that the construction industry and clients that rely on it are “at a critical juncture”. The following symptoms of failure and poor performance were identified:

• Low productivity.

• Low predictability.

• Structural fragmentation.

• Leadership fragmentation.

108 CITB, Industry insights, construction skills network forecasts 2016-2020, April 2016 109 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints, July

2016, p38

35 Commons Library Briefing, 1 August 2019

• Low margins, adversarial pricing models and financial fragility.

• Dysfunctional training funding and delivery model.

• Workforce size and demographics.

• Lack of collaboration and improvement culture.

• Lack of R&D and investment in innovation.

• Poor industry image.110

Amongst these, the review identified the industry’s workforce size and demographic as “the real ticking time bomb.” There was potential, according to the review, for the workforce to decline by 20-25% within a decade:

This scenario has never been faced by UK construction before and would be a capacity shrinkage that would render the industry incapable of delivering the levels of GDP historically seen. Just as importantly, it would undermine the UK’s ability to deliver critical social and physical infrastructure, homes and built assets required by other industries to perform their core functions.111

The review proposed the establishment of a tripartite covenant “between the construction industry, its end clients (private and public) and government” with the latter acting as a strategic initiator to pump prime change.112

The review’s ten headline recommendations are set out below:

1 Construction Leadership Council (CLC) to have strategic oversight of the implementation of the review’s recommendations and evolve to coordinate and drive the process of delivering the industry change programme.

2 Construction Industry Training Board (CITB) to be comprehensively reviewed and a reform programme instituted.113 This programme of reform is now underway.114

3 Industry, clients and government to work together leveraging CLC’s Business Models workstream activity, to improve relationships and increase levels of investment in R&D and innovation by changing commissioning trends from traditional to pre-manufactured approaches.

4 Industry, clients and government, supported by academic expertise and leveraging CLC’s Innovation workstream activity, to organise to deliver a comprehensive innovation programme. Programme to be aligned to the market and generate a new shape of demand across the industry with a priority on residential construction.

5 A reformed CITB to look to reorganise its grant funding model for skills and training aligned to what a future modernised industry

110 Farmer Review of the UK Construction Labour Model: ‘Modernise or die’, December

2016, p7 111 Ibid., p8 112 Ibid., p10 113 Building Support: the review of the Industry Training Boards was published in

November 2017 114 Construction Industry Training Board: Written question – 156346, 29 June 2018

A review of CITB opened in February 2017 and closed in March 2017. The Government has decided that CITB should be retained but reformed. The report of the review was published in November 2017.

36 New-build housing: construction defects - issues and solutions (England)

will need. Bodies to play a more active role in ensuring training courses produce talent appropriate for a digitally enabled world.

6 A reformed CITB or stand-alone body should be challenged and empowered to deliver a more powerful public facing story and image for the holistic ‘built environment’ process. To include an outreach programme to schools and draw on existing industry exemplars and a vision for the industry’s future state.

7 Government to recognise the value of the construction sector as part of its industrial strategy and be willing to intervene by way of appropriate further education, planning and tax/employment policies to help establish and maintain appropriate skills capacity.

8 Government to provide an ‘initiation’ stimulus to innovation in the housing sector by promoting the use of pre-manufactured solutions through policy measures. To be prioritised either through the conditional incentivisation of institutional development and investment in the private rented sector; the promotion of more pre-manufactured social housebuilding through Registered Providers; direct commissioning of pre-manufactured housing; or a combination of any of the above.

9 Government, as part of its housing policy planning, should work with industry to assemble and publish a comprehensive pipeline of demand in the new-build housing sector. This should be along the same lines as the National Infrastructure Pipeline, seeking to bring private developers and investors into this as far as possible to assist with longer term innovation and skills investment planning.

10 In the medium to longer-term, particularly if a voluntary approach does not achieve the necessary step-change, government to consider introducing a charge on business clients for the construction industry to further influence commissioning behaviour and to supplement funding for skills and innovation at a level commensurate with the size of the industry. The charge should be set at no more than 0.5% of construction value with a clear implementation timetable. Clients would be able to avoid payment by showing how they are contributing to industry capacity building and modernisation.115

A schedule of responses to the review was published in 2016 while the Government’s response was published in a letter of 19 July 2017:

Since its publication in October, we have been incorporating the review’s findings and recommendations into policy development. The attached annex sets out more fully how the Government has responded to each of Mark’s recommendations. In particular, Mark’s recommendations influenced the measures in the Housing White Paper to support increased housing supply, and helped inform the review of the Construction Industry Training Board (CITB).116

The Autumn Budget 2017 included the following announcement on construction skills:

115 Farmer Review of the UK Construction Labour Model: ‘Modernise or die’, December

2016, p11 116 Government Response to the Farmer Review_19 July 2017

A new route into construction will be launched in September 2019 and an apprenticeship levy has operated since 6 April 2017. (Housing White Paper para 2.33)

The Government will work with the CLC to challenge housebuilders and companies to deliver more training. (Housing White Paper para 2.33)

37 Commons Library Briefing, 1 August 2019

Construction skills – The government will support industry to help ensure that there is a workforce fit to build these homes, providing £34 million to scale up innovative training models across the country, including a programme in the West Midlands. The government is working with industry to finalise a Construction Sector Deal that will support innovation and skills in the sector, including £170 million of investment through the Industrial Strategy Challenge Fund. Construction skills will also be a focus for the National Retraining Scheme.117

On 31 October 2018, the Government responded to a question on the allocation of construction skills funding:

The CITB Construction Skills Funding is currently being agreed with the successful Construction Training Hubs providers across the country. We expect up to £9.2 million to be granted in 2018/19. A ministerial announcement about the successful projects will be made later this year.118

6.8 Construction Sector Deal The Government’s Industrial Strategy, published in November 2017, created a number of Sector Deals to support sectors with a competitive advantage in the UK, in which UK companies excel or which have a demonstrable need for Government support. Sector Deals are bespoke collaborations between industry and Government which aim to improve productivity, skills and output in certain sectors. The Deals set out a policy framework to increase the economic output of selected sectors, based on previous research identifying the needs within the sectors (in the construction sector’s case, the prior research that informed the Deal was mainly the Farmer Review).

The Construction Sector Deal was published in July 2018 and includes several policies relevant to improving the quality of new housing, as well as several cross-cutting policies that are relevant to this issue, some of which are described in other parts of this section:

• £170 million investment in the Transforming Construction: Manufacturing Better Buildings programme, some of which will be directed to “…research and development (R&D) and demonstration programmes, which will support innovations using digital and manufacturing technologies across the infrastructure, social infrastructure, commercial construction and homebuilding sectors.”119

• Improve the skills of construction workers in the housebuilding industry by improving the “competences for those working on the design, construction and operation of higher risk residential buildings, taking forward key recommendations from the final report of the Independent Review of Building Regulations and Fire Safety. The Industry Response Group Steering Group on Competences for Building a Safer Future will set out a plan for an

117 Autumn Budget 2017, November 2017, para 5.25 118 Training: Expenditure: Written question -184443, 31 October 2018 119 BEIS, Construction Sector Deal, July 2018, p13

38 New-build housing: construction defects - issues and solutions (England)

overarching body to provide oversight of competence requirements and support the delivery of competent people.”120

Improve the lifetime performance of buildings by encouraging the procurement of building (including houses) that involves consideration of the “whole life performance”. This involves estimating the value of a building over its whole lifetime, encouraging the production of buildings that will last longer with fewer defect.121

120 Ibid., p15 121 Ibid., p33

BRIEFING PAPER Number 07665 1 August 2019

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