This is the full version of the HBF's views which have been submitted.
Introduction
The House Builders Federation is the trade association representing the interests of private house builders in England and Wales. Our members are responsible for more than 80% of the new homes built every year.
HBF agrees with the objective set out by the Government in proposing the introduction of home information packs (HIPs) of improving the efficiency of the residential property market.
In addition to the consumer benefits that the Government foresees, if a more efficient residential property market can be achieved it would improve market signals for the developers of new housing and reduce problems associated with property chains. We are aware, however, that several stakeholders have raised significant concerns about whether the proposals as formulated will in practice create a more efficient market.
A specific concern for house builders would be if the overall effect of the proposals were to shrink the size of the property market. New homes are an integral part of the wider housing market, so that any constraints on overall housing demand and the number of transactions would have a potentially adverse impact on new home sales. We believe it is therefore very important to understand better what the effect of the details of the proposals will be and to consider actively any changes needed to prevent damage to the operation of the property market.
Specific comments on key issues
We have a number of comments and proposals relating to the detailed issues raised in the consultation document on the contents of HIPs. The key points are:
Exemption of the sale of new homes from the requirement for a Home Condition Report
- We support the proposed exemption of the initial sale of new homes from the requirement to provide a Home Condition Report (HCR) provided that the homes are registered with a warranty provider designated by the Secretary of State.
Such warranties provide good and fully sufficient protection for purchasers, including the ability to secure remedial action in the event of a problem with the home. Such new homes must also be properly compliant with all relevant building regulations. The provision of a HCR for the sale of new homes would therefore bring no additional consumer protection benefits, but would on the other hand add to the costs and administrative burdens faced by developers. At a time when much attention is being devoted to how barriers to improved housing supply can be removed, such requirements and costs would not be helpful or justified.
We note also that it is proposed to consult separately on the designation criteria for housing warranty schemes and will wish to consider the issues raised by this consultation in due course.
- We agree that transfer of ownership by a developer of a new home to another company prior to marketing to the public should not be subject to the requirement to provide a HCR where the company assuming ownership is itself a member of a designated housing warranty scheme. Here too there would appear to be no need for such a requirement in consumer protection terms.
The case for an extended exemption
- It follows from the two points above that there is a good case for a longer term exemption from the proposed legal requirement for a vendor to provide a HCR for the resale of a new home where a HCR does not clearly accord greater consumer protection than that available under a designated housing warranty scheme.
The HBF considers this will prospectively be the case for any new home where the warranty cover remains in force that is, for up to 10 years from initial purchase. The warranty provides extensive insurance cover for the purchasers of new homes and means of resolving problems relating to defects that avoid the need for costly and lengthy legal proceedings.
In principle a designated warranty scheme provides more effective consumer protection than recourse to legal action. Home owners first response to an unexpected problem with a new home within its warranty period is normally to seek a solution under the warranty because of the comparative simplicity of this route something they have immediate access to because the warranty relates directly to the home they live in rather than to advice given on the home by someone else.
The alternative under the proposed new arrangements for second or subsequent purchasers of new homes to seeking redress for unexpected problems during the period of the warranty cover would be to take legal action against a Home Inspector or possibly others. Such action will never, however, be an easy or attractive course and is necessarily a more indirect way of seeking to resolve problems. In addition, issues of liability under the Governments HIP proposals may well be complex and could further add to the costs and difficulties of taking legal action. Given this, the HBF would consider that the consumer is usually better protected by and can more easily seek redress under the designated warranty cover than by the option of legal action.
We recognise, however, that there are possible exceptions to this position where major structural alterations to a new home have been undertaken by the initial or a subsequent purchaser during the warranty period or if notifiable damage has not been notified when it should have been reasonably apparent to the purchaser. Such cases are not likely to be common, but could not be ruled out. In such eventualities, the purchaser could potentially find that the warranty no longer applied.
To protect themselves against this type of risk, purchasers would under current arrangements need to consider having a survey of the home undertaken. However, given the general advantages of warranty cover over the alternative of legal action (following a survey or HCR) in seeking redress for unexpected problems a more attractive idea might be for the new arrangements to allow for the re-inspection of the home by the warranty provider.
The warranty provider will be able to ascertain whether any problems have arisen as a result of alterations made or otherwise and presumably consider offers of cover in that light. The advantage of such an approach is also that it would clarify the warranty position something that a HCR would not itself be able to do in such cases.
In summary, therefore, we feel there are good consumer protection arguments for providing for an exemption from the requirement for an HCR on resale of a new home within its warranty period, subject to the need to address any risks such as significant structural alterations undertaken by a vendor or notifiable damage to the home. Such risks could be dealt with via re-inspection by the warranty provider and do not require a general legal duty for vendors to provide a HCR. Vendors may see merit in commissioning a HCR and purchasers may still in some circumstances wish to have a survey undertaken, but they will be best placed to know whether they need to do so or not taking into account any benefits such surveys might provide for them compared with the warranty cover and the fact that no survey can itself revalidate the warranty.
Part-exchange transactions
- The position on part-exchange transactions needs to be clarified. It is not clear whether a house builder would have to provide a second set of HIP/HCR documentation in selling on a home he had taken in part-exchange for the purchase of a new home he had built. The HBF considers it should not be a requirement to provide such a second set of information where the developer has not undertaken any major structural work to the home taken in part-exchange or where in practice the home taken in part-exchange had not been marketed publicly in the normal way. And where the new home has the protection of a designated housing warranty scheme, the HBF believes that a property owner proposing to part-exchange their home for such a new home should be exempt from a requirement to provide a HIP/HCR.
The lightest touch regulatory policy possible is desirable for part-exchange transactions since these can be an important means of facilitating property chains, including moves by individuals from existing properties into new homes. It is important that this aspect of the market is not adversely affected by the proposed HIP arrangements.
The Energy Report
- The proposed Energy Report would include a section for recommendations for improvements to the home under inspection. While this would seem to be very relevant and useful for older homes, the HBF considers it would be inappropriate for new build.
Building Regulations already set minimum standards of energy efficiency for new homes. These standards in general far exceed the levels of energy efficiency achieved by much of the existing housing stock. When the HIP requirements become effective in 2006, relevant building regulations will have been tightened further from todays position to require even higher standards of energy efficiency for new homes.
Given this progressive approach to improving the energy efficiency of new homes, we do not believe there will be any practical benefit to be gained by requiring an energy report to make recommendations for additional improvements in the case of the initial sale of a new home. All cost-effective energy efficiency features should have been included in building regulations, so there are unlikely to be any cost-effective improvements that could reliably be recommended.
Indeed, taking consideration of this aspect of the Energy Report a step further, there is a good case for exempting the resale of new homes from this aspect of the Report at least for the remainder of the period for which the relevant building regulations remain unchanged, provided the vendor can certify that no works likely to have affected the homes energy efficiency have been carried out.
In view of the strong case for this exemption in the case of new homes, HBF member companies would be concerned that any items that might be listed if the Energy Report improvements section did apply might, quite wrongly, give an impression that potentially beneficial and economic measures had been intentionally excluded by the house builder.
Accordingly, HBF would recommend that this particular requirement of the proposed Energy Report should not be applied in the case of the sale of new homes or for their resale while building regulations remain unchanged.
Impact of the proposals on the property market as a whole
The overall impact of the proposed changes on the residential property market could adversely affect the number and speed of transactions to a significant extent. New homes are an integral part of the wider housing market, so that any such constraints on housing demand and the number of transactions would have a potentially adverse impact on new home sales. This would run counter to identified national priorities.
It is difficult to assess the scale and long-term effect of such factors, but HBF is aware that several other stakeholders have expressed concerns about the impact of HIPs on the property market.
Concerns raised include whether:
- Sufficient home inspectors can be found and trained
- Inspectors will have adequate knowledge about all types of home and housing construction, including the modern methods of construction that house builders are now seeking to employ
- Adequate insurance will be available on a cost-effective basis to inspectors and other professionals to make the system work
- Some of the information proposed for inclusion in HIPs will tend to confuse rather than assist purchasers
- The cost and complexities of organising HIPs will act as a disincentive for groups such as the elderly to move home
- The cost of HIPs and HCRs is too high and will generally tend to depress the market
- The complicated liability issues associated with the proposals have been fully thought through
- The speed and capacity of organisations responsible for providing searches will be able to meet customer requirements
- The information in HIPs should be time-limited and, if so, for what reasons and periods given the potential impacts on the market
- It needs to be clear that HCRs are a snapshot at the date of inspection.
This is a substantive set of detailed issues and HBF believes this calls for a thorough analysis of all the implications of the Governments proposals on the residential property market, including the knock-on effects on the market for new homes. It would be perverse if the effect of the detailed proposals were to reduce liquidity and mobility in the residential property market and hence weaken active demand for new housing at a time when Government and industry are committed to delivering a step-change in its output.
The House Builders Federation
July 2003