It is difficult to exaggerate the cultural shift that has occurred owing to Michael Gove’s dictat that leaseholders – even those in sub-18 metre low-rises – are not to be made to pay a penny for build safety defects.
Instead the money, £4 billion of it, is to come from the developers who built these flawed buildings in a sector-wide distribution of blame by government.
This is the single most important intervention into residential property by the Conservative party in decades.
It ruptures the long cosy intimacy it has had with developers, whose lobbyists – trade bodies, surveyors, assorted lawyers etc – have always relied on receiving a sympathetic ear. And, of course, property interests have provided a good 25% of the party’s recent funding (with Labour also on the receiving end when there is a serious prospect of it actually governing).
Among politicians of all parties and officials within the deeper state, patience with this sector is utterly exhausted.
For a start, it is massively subsidised by taxpayers through Help To Buy and other grants from Homes England.
And how has it repaid this generosity – which has turned housebuilder footsoldier-turned-senior-managers into multi-millionaires?
First, it cheated its customers with doubling ground rents and the wheeze of leasehold houses, needlessly scattered around the country. The Competition and Markets Authority is doing an excellent job in wrestling this to the ground.
Then it built blocks of flats so badly that they are dangerous, with the tragic consequence of Grenfell, and bodged other safety defects – fire compartmentation for example – which broke even rudimentary building regulations.
Levelling Up Secretary resets government action on building safety in England Leaseholders living in their own flats will not face any costs to fix dangerous cladding, with developers and cladding companies paying instead Industry given two months to agree to a plan of action to fund remediation costs, currently estimated at £4 billion New measures to hold firms to account and restore common sense to the market The government has today (10 January 2022) reset its approach to building safety with a bold new plan to protect leaseholders and make wealthy developers and companies pay to fix the cladding crisis.
Now, the Grenfell inquiry is revealing how cladding manufacturers rigged the system for private gain, and yesterday it took a Tory MP (!) – Kevin Hollinrake – to say that privatising the official sounding testing site, the British Research Establishment, may have been an error and it should be re-nationalised.
Broadly, the sector nobbled the regulatory regime for its own gain.
Good news for:
2/ Common decency
3/ Taxpayers (but … see below)
Four and half years have been largely wasted over this crisis – which LKP began flagging up in the autumn of 2017 – to the intense anguish of hundreds of thousands of often young families who simply made the mistake of buying a new flat.
Mr Gove delicately refers to “past mis-steps”.
Cash to address the crisis was dragged out of government – starting with £400 million in May 2019 it rose to £1.1 billion in March 2020 and then £5.1 billion (with a developer tax over ten years to get another £2 billion).
But still the hope was, in December 2019, that loans could be forced onto the leaseholders to put right the mistakes of others.
Loans were particularly disappointing to us, as our chair Martin Boyd had persuaded the team of then Communities Secretary Sajid Javid that they would not work the year before.
All this is now blown out of the water.
Mr Gove had the choice of hiding behind law – leasehold is the gift that never ceases giving to vested interests – or siding with the consumers.
Without any ambiguity, he has done the latter and that is the new landscape in which this crisis now moves.
The rhetoric deployed is uncompromising.
Mr Gove, the Secretary of State for Levelling Up, said:
“Leaseholders are trapped, unable to sell their homes and facing vast bills.
“But the developers and cladding companies who caused the problem are dodging accountability and have made vast profits during the pandemic whilst hard working families have struggled.
“From today, we are bringing this scandal to an end – protecting leaseholders and making industry pay.
“We will scrap proposals for loans and long-term debt for leaseholders in medium-rise buildings and give a guarantee that no leaseholder living in their own flat will pay a penny to fix dangerous cladding.”
He promised leaseholder protections in the deeply flawed Building Safety Bill – which appears to be set for major reworking – and “and we will restore much needed common sense on building safety assessments, ending the practice of too many buildings being declared unsafe”.
Mr Gove is scathing about practices in the housebuilding sector and “nothing is off the table”. He is clear-eyed over practices such as the liability-shirking “single purpose vehicles” (SPVs) that build out many sites (with directors whose families are often prominent national housebuilders).
Bad news for:
1/ Developers and property cartel generally
2/ Surveyors and managers seeking to clean up with works to low-risk sites
3/ Property managers who bought up management contracts of cladding sites
4/ Entrepreneurial fire safety consultants
As for warranties, “we will introduce immediate amendments to the Building Safety Bill to extend the right of leaseholders to challenge those who cause defects in premises for up to 30 years retrospectively”.
As with developers, the government seems to have fallen out of love with the property professionals, primarily the Royal Institution of Chartered Surveyors, who have decided that the vast majority of newish blocks of flats have safety risks (and thus considerable fees will be required to put them right).
Mr Gove wants to “focus relentlessly on making sure it [the money] is risk driven” and thousands of low-risk buildings are removed from scope.
In the Commons debate yesterday, Robert Jenrick, Mr Gove’s predecessor as housing secretary – who was initially booed by MPs for his record over the building safety crisis – went further by blaming RICS for “a scandalous assessment of risk”. (He also blamed the Treasury for excluding low-rise buildings above 11 metres and below 18 metres from taxpayer aid.)
Using the leverage of Help To Buy and moral suasion, Mr Gove appears confident that the developers will pony up. Two examples of recent robust actions were the suspension of Rydon Homes from Help To Buy and Homes England aid owing to its connections to the refurbishment of Grenfell Tower, and he helped urge Mercedes to dump the sponsorship of cladding manufacturer Kingspan.
Developers don’t like it, and here is an early squeal of pain that will doubtless get louder:
The unanswered question is: will it work? Can the sector be made to come up with this sort of money?
You would have to be very optimistic to bet that taxpayers escape without making up some sort of shortfall, but we shall see.
Michael Gove’s building safety announcement today addresses the two contrasting problems of the cladding scandal, but fails to provide any convincing solutions. On the one hand, the Secretary of State for the Department for Levelling Up, Housing and Communities (with the unmemorable acronym DLUHC – …
Mr Gove could not be more bullish, however. He told MPs:
“We should not ask hard-working taxpayers to pay more taxes to get developers and cladding companies making vast profits off the hook. We will make industry pay to fix all of the remaining problems and help to cover the range of costs facing leaseholders. Those who manufactured combustible cladding and insulation, many of whom have made vast profits even at the height of the pandemic, must pay now instead of leaseholders.”
The optimism at LKP is that at last we are dealing with a ministerial team eager to support the consumer and powerful enough to do so effectively.
There were excellent contributions from all sides in the parliamentary debate over the annoucement yesterday.
Lisa Nandy, Mr Gove’s shadow, played a weak hand well: welcoming the announcement but highlighting the lack of detail. She is not wrong, there is not very much at this stage.
Then came contributions from MPs who have been fighting this issue for years.
All the three MPs who co-chair the APPG on leasehold and commonhold reform spoke in the debate.
Sir Peter Bottomley urged the importance of inflated insurance costs that have risen 10-fold from £300 to £3,000 over the past two years of building safety crisis. He referenced “price-gouging” and urged involvement of the Competition and Markets Authority and a re-insurance pool scheme.
Mr Gove replied: “Lord Greenhalgh will be talking to Baroness Morgan of Cotes and others in the Association of British Insurers to ensure that more insurers, like Aviva, do the right thing.”
1/ Leaseholders who have already paid to remediate building: not retrospective
2/ Leaseholders who have spent thousands on waking watch to cover the compliance backsides of anonymous and often offshore landlords
3/ Perhaps Buy To Let investors who have purchased flats through corporate vehicles (the comms are wobbly, at this stage)
Justin Madders asked whether there was any chance of reimbursement for leaseholders who have paid out thousands for waking watch. He received compliments for his brilliant work on leasehold reform, but the answer was: no retrospective payments.
Daisy Cooper was worried about light touch regulation and a race to the bottom of standards, but received nicely phrased compliments in response and no more.
Other stalwarts of the campaign spoke at the debate.
Sarah Jones spoke of high rises in her Croydon constituency, Longitude and Altitude, that have to pay for compartmentalisation. Bridge House is cladded, but its cladding is not categorised as the right type to qualify for funding.
“Some of my constituents live in blocks where the developer has gone bust and the freeholder is overseas, and they have a tenuous relationship with the managing agent.”
Mr Gove suggested further private talks, and his department has a project team, Operation Apex, which is aware of some of these issues.
Ian Duncan Smith named developer Telford Homes as unresponsive. “The biggest problem is getting the developers to talk to those who have suffered,” he said.
Mr Gove replied that he wanted to proceed consensually, but “we will deploy heavier artillery to ensure that we get the necessary support to those on the frontline”.
At one point Mr Gove was telling Jeremy Corbyn that “perhaps for the first time, I am almost wholly in accord with him”.
One of the most curious contributions came from Tory MP Kevin Hollinrake, respected as a property expert, who said that Mr Gove’s announcement “ticks all the boxes needed to solve this crisis, not least pointing the finger at construction product manufacturers.
“There is no doubt they have gamed the system to get some of their products approved inappropriately, but that gaming was facilitated by the Building Research Establishment, which, as my right hon. Friend knows, was privatised about 25 years ago. Will he make sure that these manufacturers contribute towards the costs of remediation and will he consider bringing the Building Research Establishment back under public ownership?”
The response was that Mr Gove would have to ask the Chancellor, but LKP raised Mr Hollinrake’s observation on TalkRadio this morning.
In the brief debate, MPs who have been on the right side of this argument for years also made contributions, including Clive Betts, Ruth Cadbury, Bob Blackman, Hilary Benn, Royston Smith, Stephen McPartland, Esther McVey, Florence Eshalomi, Barry Gardiner, Kate Green among them.
LKP thanks them all. A huge battle has been won, and the seemingly unending cladding scandal enters a new phase. But finally, a path has been set for a conclusion.