The £4 billion cladding tax bill faced by housing developers will come at the cost of new affordable homes, developers have warned the government.
The first round of discussions held between housebuilders and Michael Gove, Secretary of State for the Department of Levelling Up, Housing and Communities, resulted in some the UK’s biggest housebuilders signing up to the government’s building safety pledge that ensures leaseholders in blocks above 11 metres are not responsible for paying for cladding remediation.
Gove announced that those who could afford to pay would be made to do so in February. It was reported at the time that Persimmon, one of the largest developers, had taken legal advice from Lord Pannick QC over whether Gove was breaking the law by demanding that developers pay to fix fire-safety problems, or be shut out of the property market. Other housebuilders also threatened legal action.
Firms have also agreed to remediate buildings going back 30 years, an extension on the previously discussed period going back to 2000. They will now reportedly be asked to contribute £4 billion towards the government’s Building Safety Fund via the new cladding tax during the second round of talks with Gove.
The initial money within the fund is there to fix blocks over 18 metres in height. The additional £4 billion will go towards the cost of remediating buildings between 11 and 18 metres, of which there are reportedly 8,000 in Britain, with 800 or so being built by developers. The remaining properties will have been built by councils, bust developers or foreign developers – yet the current housebuilders are being asked to front the £4 billion cost of remediating them.
The industry is seemingly unwilling to do so. Housebuilders say they would not be able to build as many affordable homes: a study commissioned by the Home Builders Federation found that the cladding costs will result in 56,380 fewer homes being built over the next decade, with the majority of such homes being affordable ones. The report’s author, Steve Hughes, said:
“If that means they get fewer permissions, the impact on supply overall could actually turn out greater than we posit.
On whether reducing dividend payments to shareholders could alleviate such a supply deficit, the report said:
“Reduced dividends will, inevitably, affect investment appetite in the sector which will have consequences for future housing supply outturn.”
The report goes on to say that the cost of cladding will cause the industry to once again miss the government’s target of 300,000 new homes a year:
“Whatever the merits of introducing the new levy to remediate unsafe cladding, HMG may wish to consider the impact of removing over 56,300 units from housing outturn, given we face a national shortage of new homes.”
The report points the government in the direction of foreign developers, contractors, manufacturers and building owners. If the government continues to demand £4 billion from housebuilders, the report suggests smaller payments over time in order to “reduce these impacts”.
