Gove’s grand plan leaves gaps to fill

Posted: January 17, 2022 | Author: julesbirch | Filed under: Fire safety, Help to Buy, Housebuilding | Tags: Michael Gove |Leave a comment

As one MP put it, we welcome the steps forward in ministerial statements on building safety only to find problems in the steps backward that follow.

Michael Gove’s plans to ‘make developers pay’ represent the most positive steps seen so far but there are still major concerns over what comes next.

For starters, how exactly will he ‘make’ them? The initial plan in talks before Easter seems to be persuasion but the levelling up secretary has limited levers that he can pull and why would companies that have previously resisted calls to ‘do the right thing’ change their minds now?

He cited the way that Rydon Homes, sister company of the main contractor in the Grenfell refurbishment, was barred from Help to Buy but the scheme ends in 2023 and most of the £29 billion in equity loans has already been committed.

This highlights yet again a major flaw in the government’s support for housebuilders that I highlighted even before the creation of Help to Buy: its failure to get a quid pro quo for all that help for profits, bonuses and dividends.

Short of another support scheme, which may ironically be needed if supply plummets, that leaves blacklisting from Homes England programmes and naming and shaming as his principal weapons. Neither is a negligible threat but will they be enough?

That leaves coercion, legal action or the ‘high-level threat’ of a new tax that Gove is authorised to make in the letter leaked to Newsnight from chief secretary to the Treasury Simon Clarke.

Whether it was someone at the Treasury or the Department for Levelling Up, Housing and Communities (DLUHC) that leaked the letter, and what that says about the dynamics between them, remain to be seen.

But the written evidence that the Treasury has reserved its position on a final decision may increase the temptation for developers to call Gove’s bluff.

The Home Builders Federation argues that the largest housebuilders have already committed £1 billion to put buildings right and they already face a residential property developer tax raising £2 billion over the next 10 years for buildings over 18m.

Simply trebling that would not solve the problem for leaseholders facing bills now, and reducing the profits threshold for the tax to £10 million would not spread the net enough. That’s before we get to the issues with buildings developed by special purpose vehicles that have been wound up and companies that have gone bust.

A more viable option might be a windfall tax on profits that Gove said amount to £16 billion for the top seven developers alone over the last three years but would the Treasury go that far?

The Treasury’s explicit instruction to Gove that the £4 billion package ‘covers cladding only and does not extend to non-cladding’ is another problem.

If it comes to legal action over cladding, developers can and will point to the culpability of Gove’s own department in presiding over ambiguous regulations and of product manufacturers in exploiting them.

Let’s assume those issues will be at the heart of the talks but developers might well ask why they should pay to replace combustible cladding from existing mid-rise blocks when it is still allowed on new ones.

Developers are much more clearly to blame for non-cladding issues such as missing fire breaks and the cost of putting these right could be much higher – another £6 billion according to the all-party Levelling Up Committee and even more than that on other estimates.

Gove went further in the debate last week than he seems to have done in his discussions with the Treasury, promising to work ‘to ensure that statutory protection [for leaseholders] extends to all the work required to make buildings safe’.

There were hints that he thinks it should be building owners who pay, presumably by taking legal action against individual developers once the liability period for defects has been doubled to 30 years. However, that will take time and money and it could still be easier for freeholders to pass on the costs to leaseholders without persuasion and/or coercion.

Even if all these issues can be resolved, the levelling up secretary will still be left with significant problems.

What about leaseholders who have already been forced to pay for work? Gove did not have an answer to MPs who asked why, if it is morally wrong to make them pay in future, it is not morally wrong to do turn a blind eye now.

And what about leaseholders in buildings under 11m who are caught up in the crisis but will get no help?

The hope is that a more proportionate approach including the withdrawal of the Consolidated Advice Note will free up these properties but there are already worrying signs about the impact of the replacement guidance and lenders and surveyors still have to be convinced to make the system work.

That all these problems remain reflects the scale of the building safety crisis. Failure to act on the basis that it is all too complicated risks falling into the attitude that so infuriates leaseholders.

Gove deserves credit for going much further than his predecessors and for (so far) facing down the Treasury resistance that scuppered Robert Jenrick’s efforts to act on mid-rise buildings and led to his much maligned and now scrapped loans scheme.

The reversal of Conservative orthodoxy on tax and the rhetoric used against companies that have traditionally supported and funded the party are measures of how far we have come.

There were more signs of this in the debate ranging from Gove saying he would take the power to review the governance of the Royal Institution of Chartered Surveyors to one Tory backbencher calling for the renationalisation of the Building Research Establishment.

The amendments laid down ahead of the next stage of the Building Safety Bill later this week look promising, if not yet comprehensive.

For all the gaps that remain in Gove’s grand plan we had better hope it works – and not just the sake of leaseholders.

As the developers and owners of blocks caught up in the crisis, housing associations are already facing large bills for fire safety and are scaling back their plans for new homes as a result.

And the leaked Treasury letter makes clear that, if Gove fails to raise his £4 billion, there will be ‘no further Exchequer funding’ and existing DLUHC budgets are the ‘backstop for funding these proposals in full’.

The Treasury instructs him that ‘you must prioritise building safety over supply’ and that ‘this should not just be for a future [Spending Review], but be reflected in spending and delivery choices now to pay for this later if needed’.

Officials are expected to work on ‘the detail of these trade-offs’ over the course of this month.

The stakes could not be higher – not just for leaseholders, government, developers and landlords but for anyone who needs an affordable home and may not get one.

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