Economic Insight was commissioned by Yorkshire Water and Business Stream to carry out an independent study on vacant properties in the non-household (NHH) retail market.  This project was funded by the Market Improvement Fund, which is overseen by the Strategic Panel and administered by MOSL.

There have been reports that the number of vacant properties in the non-household (NHH) water retail market has increased since market opening.  Together with issues relating to the quality of data on vacancies, this has led to concerns that properties recorded as vacant do not actually reflect ‘true’ vacancies, but instead ‘false’ vacancies, and that the current approach to managing vacant properties may not be delivering fair outcomes for NHH customers.

We consider whether there is a problem in the market in delivering the efficient level of false vacant properties.  Economic theory suggests that, in a competitive market, the market will deliver the efficient level of false vacancies.  Indeed, the available evidence indicates that the market might already be delivering the efficient level of false vacant properties.

As such, the most effective way of reducing the level of false vacancies in the market would be to improve the ‘efficient’ level of activity.  Based on our evaluation criteria, we find that reform options aimed at reducing the marginal costs associated with identifying false vacancies are likely to be the most effective at achieving this.  The most desirable reform options include: (a) increased cross-sector cooperation; (b) pooling of wholesaler and retailer efforts; and (c) sharing of bad debt risk between retailers and already billed customers.