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U.K. Watchdog to Probe $40 Billion Housebuilding Industry

Britain's consumer affairs watchdog has launched an investigation into the housebuilding market, saying it is concerned the 20-billion-pounds ($39.9 billion) a year industry is not working well for consumers.

The investigation, announced on Friday, comes after years during which the number of new homes built struggled to keep pace with demand.

This in turn has helped fuel a sustained boom in house prices which has kept many first-time buyers out of the market and lumbered Britons with increasingly onerous mortgages. "This is a hugely important market for the economy because of its substantial economic impact and because unresponsive housing supply hinders labour mobility, constrains economic growth and harms consumers," John Fingleton, Chief Executive of the Office of Fair Trading (OFT) said in a statement.

The OFT said its study, which will report by summer 2008, will consider whether land which is suitable for development is being effectively brought through to the planning approval stage, whether land with planning permission is being converted effectively into homes and whether homebuyers are satisfied with the properties available.

The OFT said possible outcomes included giving the market a clean bill of health, a reference to the Competition Commission, encouraging firms to take voluntary action and making recommendations to the government.

Britain's biggest housebuilders include Barratt Developments , Persimmon, George Wimpey and Taylor Woodrow.

They were either not immediately available for comment or have no official comment.

With the tight supply reducing affordability, housebuilders have complained that a complicated planning process is one of the main reasons of undersupply and have urged the government to relax the planning system.

The number of homes built each year has declined in most of the last 15 years, while the number of households has continued to grow, resulting in only a 1.7% surplus in available homes as of 2003, according to the lastest government data.

It had more than halved from a 4% surplus in 1981.

Britain's annual three-month rate of house price growth held in double digits at 10.6% in May, although the growth rate has slowed following four interest rate increases -- by 100 basis points in total -- since August last year, according to the Halifax.

Shares in Persimmon were up 0.2%, Barratt's were up 0.4% and Woodrow up 1.3% in early trade. Wimpey was down 0.1%.