Number 10 needs a new housing advisor, Sir Peter Bottomley tells Commons
The government’s two-storey planning reform will create only 8,120 new flats over ten years – but has also inadvertently gifted residential freehold owners between £21 billion and £41.9 billion in increased development value
In addition, existing flats will plummet in value by nearly £200 million.
The consequences for leasehold reform are also profound, with the Law Commission’s January proposals to reform enfranchisement now irrelevant.
LKP has examined the government’s own impact assessment of the reform, which anticipates only 800 new flats a year with a total of 8,120 new flats after 10 years. Full report here
But the statutory instrument, which comes into force on August 1, has also hugely increased the value of residential freeholds, arriving at figures of between £21 billion and £41.9 billion after an analysis of the government’s own impact assessment.
The proposal allows freeholders to build two new storeys on blocks of flats without planning consent.
It was attacked by Sir Peter Bottomley in the Commons yesterday. He said the measure would make “Wreck the lives of leaseholders who want to get their freeholds”.
MPs: Sign Sir Peter Bottomley’s EDM
He added: “It will put the price up so that people like Vincent Tchenguiz can stuff his pockets again at the expense of leaseholders.”
He urged the prime minister and chancellor “to look at this again and ask whether there can be a better housing advisor in Number 10 and the Ministry of Housing so that they do not get things wrong – again”.
Opposition MPs have signalled their support for Sir Peter’s early day motion to derail the proposal, which was first aired at the Conservative party conference last autumn. It appears to have ignored any potential conflict with government’s proposals to reform leasehold.
When LKP alerted then housing minister Esther McVey to the proposal last autumn, she was adamant that any benefit would be shared among the leaseholders – whose leases account for 95% of the value of most blocks of flats.
But only 17% of apartment blocks are owned by the leaseholders, with third party landlords owning the remainder.
While freeholders will benefit by £408 million in new flats from the reform, existing leaseholders will see the value of their properties fall.
LKP estimates that existing top floor flats will loose £50.8 million of value, and lower flats will lose £66.4 million. An additional £80 million will be lost to leaseholders during the development of the site over the permitted three years for completion of building works.
But the consequences of the proposal are wider still.
The impact assessment acknowledges:
“Freehold owners of eligible blocks of flats will benefit from any land value uplifts to their properties due to having planning permission through the permitted development right even if they do not actually extend upwards.”
Most speculators in residential freeholds do not actually construct and sell buildings. But the enhancement in the theoretical values of their freeholds is immensely important.
For example, the Tchenguiz residential freehold portfolio of the Consensus Business Group sold the ground rent income via a debenture to Goldman Sachs-founded pension investor Rothesay Life.
The freeholds themselves were only providing income to the Tchenguiz group from permission fees and commissions, such as insurance.
With the government’s planning proposal, the portfolio of freeholders will immensely increase in value.
The full LKP analysis is here:
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On May 13, Robert Jenrick paid tribute to Sir Peter Bottomley and other campaigners for leasehold reform and confirmed the government is opposed to “rip-off practices in the leasehold sector”. and that “draft legislation” to counter such practices would be with MPs for scrutiny “shortly”. -even before the summer recess.! Once again we must ask, where is it?
In December 2017, Sajid Javid promised to “liberate” consumers in the leasehold sector, and following on the separate reports from the Select Committee, the CMA, and in January the Law Commission on enfranchisement, we accepted Mr Jenrick’s statement to MPs was based on the three reports and that, indeed, draft legislation would be forthcoming “shortly”.
The promised legislation must address urgently the many issues affecting existing long leaseholders.
May I suggest Mr Jenrick makes an urgent statement to MPs on all this and provides a date by which the draft legislation will be before MPs for scrutiny. Otherwise, he is in danger of being accused of misleading MPs in parliament.
Your report fails to acknowledge that the vast majority of leases reserve the right for the landlord in the future to alter the building – so it was in the lease which was negotiated on prior to signing or taking an assignment of. So why in those circumstances should the landlord be made to distribute any future planning / development gains to the leaseholders ?
Stephen, I note you are no longer seem to be questioning the numbers.
While leases may sometimes allow the freeholder to alter the building they had no automatic right to do so. Leaseholders could and have actively objected to when freeholders applied for planning permission in the past. The SI makes things a lot easier. There are of course some legal protections a leaseholder might follow if their landlord decided to develop.
You also know most ground rent investors buy into these assets on a speculative basis and the price based on ground rent incomes which is why they have been sold for such a low price in the past. There is always something they can claim to own to make a few more bob when not fiddling insurance commissions and permission fees.
I’m not for one moment suggesting all landlords like this but quite a few are.