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: