Unsafe cladding is just one urgent issue in the dysfunctional housing sector

Editorial: At a time when there is still so much concern about housing, and so much loose talk about ‘building back better’, it is strange that ministers are still presiding over such an unsatisfactory legal and commercial framework

Leaseholders cannot be responsible for failures by freeholders, property developers, builders or suppliers of defective cladding and materials (AP)

Almost five years since the tragedy of Grenfell Tower, there are many thousands of people still trapped in buildings that are unsafe, unsaleable and a potential threat to life itself.

None of this is the fault of the leaseholders, who in many cases have stretched themselves to get a foot on the housing ladder. It is not even a case of caveat emptor. Leaseholders, by definition, cannot be responsible for failures by freeholders, property developers, builders, or suppliers of defective cladding and materials.

It is not those who have to live in these places who skimped on safety and broke the rules on fire doors, say, or firebreaks. It is very often a case of straightforward mis-selling, akin to “dieselgate” in the car industry or the pensions industry scandals of recent decades.

Some of those responsible for selling defective flats are no longer in business; others cannot fund the work needed to put mistakes right; others again are simply unwilling to pay. Few, even among the wealthier players, are ready to do the right thing.

It is an obvious case for government intervention, and for a determined minister to cut through the thickets of self-interest and the overgrowth of confusion and buck-passing. Hence Michael Gove’s Treasury-backed threat to tax the developers and others as a last resort. It is a substantial sum – £4bn – even by the standards of the public finances, but the sector can afford it.

Mr Gove will have to find a way to make his threats stick or make another new tax work, because the Treasury, according to a leaked letter, has made it painfully clear that there is no new money available if Mr Gove fails to shake down the developers with a mixture of moral persuasion, charm and unveiled menace.

What’s more, the Treasury, presumably, will have to approve any new tax on the real-estate sector – only the “high-level threat” has been sanctioned for Mr Gove to use. He may yet be undermined by the Treasury’s reluctance to levy another tax on the property companies. He might also be stymied by the industry taking his targeted new property tax to judicial review.

In making such a compassionate and pragmatic move, Mr Gove has shown an unusually sure touch and surprising sensitivity for a minister of the Johnson government (and indeed in contrast to his own blundering record). Property developers don’t make easy heroes, and the tales from young leaseholders in worthless flats are heartbreaking. Mr Gove has chosen his enemies well.

The general impression of this administration is that it is far too close to its friends and donors in the development game, symbolised in that conversation between the then housing secretary Robert Jenrick and Richard Desmond about a major planning application. Mr Gove has signalled that his department is at least now ready to put people first.

The wrangles over who pays the bill for fixing cladding also raise the broader question of whether the traditional distinction in law between leasehold and freehold is nowadays properly understood, or even useful. Leasehold reform in the 1990s, and further reforms last year, went some way to protecting leaseholders from rapacious, bogus service charges and the abuse of ground rent and administration fees, but as Mr Gove has highlighted, problems remain.

Fresh difficulties were created by housebuilders abusing the rights of leaseholders, with residents of new-build houses on private estates being hit by the doubling of ground rent each decade – a practice now outlawed following action by the Competition and Markets Authority.

But service charges for freehold properties on new-build estates, with no opt-outs or tribunals to guarantee good practice, are increasingly problematic.

These “Section 106” agreements between local authorities and developers, linked to planning permission, release councils from paying for infrastructure and its upkeep, but transfer those costs, via private development companies, to the residents of the houses and flats on a development – with no proper control or accountability.

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Today it is also easier for local authorities to build new social housing on their own account – but the “right to buy” at a discount makes such efforts meaningless if these good-quality homes are in effect funded by council taxpayers and then sold off cheaply to relatively well-off residents.

At a time when there is still so much concern about housing, and so much loose talk and bravado about “building back better”, it is strange that ministers are still presiding over such an unsatisfactory legal and commercial framework.

The freehold/leasehold division, weak regulation, and right to buy – now extended to the housing associations – along with badly designed help-to-buy schemes and the workings of “Section 106” developments, create multiple perverse incentives, unintended consequences, and moral hazards in the housing market.

After 10 years of Conservative promises, the party of home ownership has hardly even built the foundations of a functioning public and private housing sector; but at least Mr Gove is sorting the cladding out, and for that he should be praised.