Eight of the UK's leading private construction companies are facing significant allegations as part of a class action lawsuit estimated to be worth up to £4.5 billion. More than 700,000 home buyers claim to have paid inflated prices for their new-build properties, which is now the subject of a comprehensive legal review. Shareholders of these companies have already been informed of the impending lawsuit, indicating its potential scope and financial implications.
This development follows the findings of an investigation by the Competition and Markets Authority (CMA). The CMA had raised serious concerns in February 2024 as part of its review of the housing market. The CMA's provisional report suggested that UK planning restrictions hindered the granting of building permits, thus leading to a shortage of new-build homes. This was identified as a crucial factor contributing to rising property prices in the United Kingdom for decades.
Allegations of information sharing
Particularly sensitive are the CMA's accusations that there may have been questionable information exchange between large construction companies. The authority found that most large developers regularly, but informally, exchanged information about sales performance. Although the CMA could not conclude that this practice directly influenced house prices or production volumes, it noted that this likely led to an equilibrium in competition that did not actively promote production. The current class action lawsuit focuses precisely on this aspect, alleging that this information exchange actually led to inflated prices for end consumers.
The case is being brought by Geremia & Co. as an opt-out class action, meaning that all affected buyers who purchased a new-build property from 19 April 2024 onwards will automatically be included in the lawsuit unless they explicitly opt out. This type of litigation is increasingly common in the UK for large-scale consumer protection cases. The construction companies have the option to challenge the lawsuit before judicial approval, a decision that will be groundbreaking for the industry.
Market conditions and the role of planning restrictions
In addition to the alleged collusion between developers, the CMA has also highlighted the far-reaching impact of the UK planning system on the housing market. According to its analysis, the complex and often lengthy planning permission process is a significant impediment to efficient construction output. This not only leads to a scarcity of supply but also reinforces dependence on a few large developers who possess the necessary resources to overcome these bureaucratic hurdles. The pending lawsuit could therefore not only have financial consequences for the companies involved but also initiate a broader discussion about reforms in the planning sector to minimise future market distortions and stimulate competition.
