finance

Leaseholders should not pay for the cladding crisis


It has been over four years since 72 people died in the Grenfell Tower blaze in west London. As the government scrambled to prevent another similar tragedy by insisting on the removal of combustible cladding on tower blocks, a housing crisis was triggered that has left as many as 2m people unable to sell properties now deemed to be unsafe. This week, the government unveiled a suite of measures to improve building safety, as well as calling on banks to help thaw a frozen market in mortgages on high-rise flats. While a government guarantee would help banks start lending, neither step adequately addresses underlying problems, or does much to seek remediation from those actually responsible.

A parliamentary committee estimated that replacing dangerous cladding and fixing other fire-safety measures in towers across the UK may cost as much as £15bn. The question is who will pay for it. One point is clear: the burden should not fall on leaseholders, who through no fault of their own now face bills that in some cases are akin to a second mortgage.

While a “polluter pays” principle seems logical, pinpointing who is to blame is fiendishly difficult, against a backdrop of collapsed developers, housebuilders that argue they complied with building standards since shown to be inadequate, a privatised regulator and councils that had limited duty of care. This amounts to a market failure that requires deeper government intervention.

Steps included in this week’s bill such as a beefed-up regulator and a tougher individual accountability regime are sensible but do not go far enough. The £5bn government earmarked for removing unsafe cladding on the tallest buildings is about a third of that needed across the piece. A tax on housebuilders aiming to raise £2bn over a decade — partly to pay for a capped loan scheme for leaseholders to fix flaws — is also too meagre, particularly for an industry that has enjoyed government largesse encouraging new homes. Lengthening the time in which developers can be sued from six to 15 years is reasonable but does not help leaseholders facing immediate bills. It also does not capture buildings constructed before 2006. In any case, many developers fold or sit behind impenetrable offshore companies, making the odds of legal redress slim.

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It is also lamentable that the government ignored protestations from backbenchers and the House of Lords during the passage of the Fire Safety Act earlier this year, and placed the ultimate burden of fixing flaws on to leaseholders. Freeholders — sometimes developers, sometimes financial institutions and other professional landlords with deep pockets — merely have to show they have taken “reasonable steps” to recoup remediation costs elsewhere before passing them to their leaseholders, under this week’s bill.

Leaseholders have suggested a levy where freeholders, developers, housebuilders, manufacturers and insurers would all pay into a central pot used to fix defects. The government rebuffed this, regrettably. It has also ruled out paying for costs upfront then recouping them against parties such as cladding manufacturers, some of whom during the Grenfell inquiry were accused of gaming the system. A rethink is merited.

Before the Grenfell tragedy, successive governments have grappled with how to build enough new homes. But a failure to properly remedy historic flaws risks just as distortive an effect on the housing market. The parties arguably responsible for the cladding crisis are myriad but leaseholders are not among them.



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