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LONDON, Feb 26 (Reuters) - Britain's housebuilding market has fundamental problems that are preventing more homes being built, the competition regulator said on Monday, weighing into one of the key battle fronts of an election expected this year.

The Competition and Markets Authority (CMA) also said it was starting an investigation into eight of Britain's largest housebuilders to see whether any commercially sensitive information was being shared among the companies and if that was weakening competition.

The companies include Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow , Taylor Wimpey and Vistry.

Shares in UK housebuilders fell 2% in early trading, with Persimmon dropping the most, at 3%.

"Housebuilding in Great Britain needs significant intervention so that enough good quality homes are delivered in the places that people need them," CMA Chief Executive Sarah Cardell said.

Housing has long been a political issue in Britain, with a shortage of properties driving up the cost of homes, alienating many younger voters who pay high rents and cannot see a way to own their home.

It is also a contentious area for Prime Minister Rishi Sunak's governing Conservative Party. Some lawmakers in rural areas do not want to see an increase in building while those in more urban regions want more homes built quickly.

The government says it is on track to deliver 1 million new homes by the next election. But it is not expected to deliver on another promise to build 300,000 net new homes per year in England by the mid-2020s, largely because of uncertainty over planning policy reform.

The CMA concluded, following its year-long market study, that a complex and unpredictable planning system as well as speculative housebuilding was causing a persistent shortfall of homes.

Less than 250,000 homes were built across England, Wales and Scotland last year, well short of the government's annual targets, the CMA said.

Britain's opposition Labour Party, expected to beat Sunak's Conservatives in an election that must be held by January 2025, has vowed to reform the planning system to improve housebuilding rates, including in rural areas as appropriate.

The CMA said that while the potential anti-competitive behavior of housebuilders was not the main driver of the problems in the market, it was concerned that it could be weakening competition and influencing new house prices.

Nearly all publicly listed British housebuilders have routinely highlighted problems related to the planning system, specifically long delays in land approvals, and have urged the government to help resolve the issue.

The Home Builders Federation, the industry's main trade body, did not immediately respond to a request for comment. (Reporting by Aby Jose Koilparambil in Bengaluru and Sachin Ravikumar in London; Editing by Varun H K, Dhanya Ann Thoppil, Kate Holton and Ed Osmond)