LKP response to Robert Jenrick £3.5bn ‘exceptional intervention’ to cladding high-rises today

Press release

Interviews available with Dean Buckner, LKP trustee and former Bank of England economist
Author of the ‘LKP proposal to Secure private sector funding for cladding and fire safety remediation’

1/ General points

Today’s announcement is the latest example of the crisis-driven, piecemeal approach by government to resolving the cladding and building safety crisis – more than 3 1/2 years after Grenfell.

It certainly helps leaseholders in high-rises, but those in blocks less than 18 metres will have forced loans imposed on them to sort out the errors of other people.

It was very welcome that Mr Jenrick made a robust statement favouring a more at-risk approach, and hopefully that will mean the removal of many low-rise blocks from this crisis which should not be involved.

Government to bring an end to unsafe cladding with multi-billion pound intervention

Housing Secretary announces the government will pay for the removal of unsafe cladding for all leaseholders in high-rise buildings, providing reassurance and protecting them from costs New levy and tax on developers to ensure industry contributes Measures will boost the housing market and free up homeowners to once again buy and sell their properties Hundreds of thousands of leaseholders will be protected from the cost of replacing unsafe cladding on their homes, as Housing Secretary Robert Jenrick unveiled a five-point plan which will provide reassurance to homeowners and bring confidence to the housing market.

There will still be blighted lives, loss of homes and a stalled market in the resale of flats (which is already down 50% year-on-year Sept 2019-2020 according to Land Registry data).

Evidence of distressed sales is uncollated at present, but even today we were informed of a formerly £1.7 million flat at Point West, Cromwell Road SW7, selling to a cash buyer a £975,000 (interview).

Will thousands of leaseholders still be in danger of homelessness? Yes.

Will the government championing home ownership allow that to happen? Possibly not, but it will respond late when that crisis occurs, as it inevitably will.

2/ £3.5bn to high-rises

The proposal to issue grants of £3.5 billion to remediate cladding on high-rises (above 18 metres) and loans for low-rise blocks of flats (less than 18 metres) is unfair to those living in low rises.

Its justification is based on the exceptional risk of high rises.

But it could also be argued that it will help affluent leaseholders, particularly in London, who live in higher buildings compared with poorer leaseholders living in lower buildings throughout the country.

For example, the affluent West India Quay in Canary Wharf received cladding remediation money totalling around £45,000 to remove a minimal amount of ACM cladding. Solely because it was ACM cladding. Not because of risk. Still less, affordability.

In addition, there will likely be continued argument over what constitutes cladding: ie do the high-rise grants include insulation remediation, or do leaseholders pay up?

Those living in blocks that are lower than 18 metres will be given forced loans to get the work done.

The idea is that the loans will be capped at £50 a month, which is still a loan of between £14,500 and £24,000 of borrowing at 1.5% over between 30-60 years.

It is not just that leaseholders in low-rise buildings have these long-term loans imposed on them.

Many low-rise buildings have been dragged into the cladding crisis solely because of mortgage lenders’ refusal to accept building regulation approval and insisting on further EWS1 surveys. Many sub-18 metre sites do not have cladding at all.

Average cladding only replacement costs are estimated at £20-25,000 per flat, but the average cladding and fire safety defect remediation bills are £49,000 (ARMA and National Housing Federation). So the non-cladding bills more or less match the cladding ones.

On the other hand, one really positive note was that Robert Jenrick did make a robust statement concerning the risk of these buildings. He is aware many are not at high risk. Many should not be involved in this issue at all.

That is welcome and evidence of robust thinking.

3/ Developers: £2 billion over a decade

Mr Jenrick proposes a new tax on high-rises to raise £2 billion over a decade to help pay for remediation.

That is about covered by the ludicrous levels of pay in recent years to senior executives.

The Leasehold Knowledge Partnership funding model is based on the principle that those responsible for this disaster pay to remedy it.

Some housebuilders – Barratt – have acknowledged the argument for a sector-wide levy.

Rumours that Persimmon plc is putting aside a £75m provision for cladding issues has affected the share price today – the sum roughly equates to the bonus paid to Jeffrey Fairburn, a former chief executive. This indicates that housebuilders do not expect levies to put right their handiwork to be too onerous. Persimmon made profits of more than a billion last year.

A tokenistic levy of a small amount from the building sector will rightly outrage leaseholders who bought their flawed products.

Leaseholders will ask, again rightly, why they are expected to foot the bill for build defects while cladding manufacturers are revealed in the Grenfell Inquiry to have cheated safety tests.

It is evident that we have a crisis in housebuilding, with builders and suppliers having an unhealthy close relationship with government and particularly building safety regulators.

Doling out grants and loans with no acknowledgement that there has been systemic failure ensures that we learn nothing from this crisis and are destined to repeat it.

The shocking revelations of the Grenfell Inquiry will continue to drive the argument for substantive reform of a toxic sector that is highly subsidised (Help To Buy).

4/ But it is an ill wind that blows nobody any good …

The solution the government is proposing is obliging to freeholders and managing agents with a vested interest in minimising legal risks to them and maximising their fee income.

If an average 15% fee is collected on the £15 billion estimated cost, agents stand to receive £2.25 billion. Nothing is being done to address these risks. Firm action should be taken to cap these fees to demonstrable out-of-pocket expenses or to remove them entirely