Gove’s £4bn cladding plan could see RPs’ homebuilding efforts hampered, sector warns

News13 Jan 2022James Twomey

Housing secretary Michael Gove’s announcement that developers would be made to pay their share of cladding remedial costs to the tune of £4bn could still harm social housing development efforts, industry figures warn.

Michael Gove announced new building safety plans this week (picture: Parliament TV)

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Voices in the social housing sector have said that Mr Gove’s plan lacks clarity on how the announcement, made earlier this week, would affect registered providers (RPs).

So far, the Department for Levelling Up, Housing and Communities (DLUHC) has been unable to confirm how RPs might be able to access the new fund and, in the event that developers refuse to pay, whether department budget for social housing would be tapped to cover the costs.

A leaked Treasury letter showed that there would be no further funds from its department to help cover the costs of cladding and indicated that DLUHC’s own budget would be a “backstop” for the touted £4bn.

While DLUHC has promised that social housing providers will not be in the “scope” for contributions to the fund and that its initial focus will be on firms with annual profits from residential development over £10m, there has been little guidance as to whether the department’s budget will have to cover any missing costs or how providers that have used developers could recoup any costs.

This has the danger to hamper housebuilding efforts should providers need to foot the bill themselves in a situation where developers refuse to pay, figures have warned.

Mr Gove said that in a situation where developers refuse to pay, the government would seek binding legislation.

Michael Wharfe, partner at law firm Devonshires, said the government would have to pass a “fantastical piece of legislation” to ensure developers contribute to the fund.

Mr Wharfe said: “From an RP point of view, all it’s really doing is taking away a traditionally legitimate form of recovery [service charge], in that where RPs don’t have a contractor to go after – because the contractor’s gone bust or is no longer trading or doesn’t have any money – [RPs] are going to have to pay for it.

“And that’s going to have a dramatic impact on the sector’s ability to deliver social housing.”

Mr Wharfe added that DLUHC faces a difficult political decision if it does have to rely on departmental funding in the wake of developers refusing to pay, as it would impact the Conservative Party’s central policy plank of ‘levelling up’.

“It’s going to be [an] accrued demand for money with threats in the background that if they don’t pony up, then there may be some legislative muscle employed, in order to force them to do that,” said Mr Wharfe.

“Our view at the moment is that those threats are probably hollow because there’s not much the government can do.”

Mr Wharfe also said that Mr Gove’s lack of clarity around where registered providers fit into the fund’s picture could create the potential for “double jeopardy”, as developers could make a contribution and then still be pursued by providers over potential defective buildings.

“If I was advising developers, I’d be saying ‘why stick your hand in your pocket now when there’s no meaningful way you can buy a release for anything,” said Mr Wharfe.

“You’re being asked to fund this fund and you’re also being expected to remediate those buildings, which you built, so it’s a double whammy.

“I can’t quite see why they will be rushing to open their pockets to them. On that point Michael Gove is likely to be severely disappointed.”

The £4bn quoted by Mr Gove does not match the industry estimation of the more than £10bn required to remediate unsafe buildings.

Kate Henderson, chief executive of the National Housing Federation, said: “In the absence of funding, charitable housing associations have been left to pick up the bill.

“These not-for-profit organisations already estimate they will spend £10bn – over double the sum being talked about today – on remediating homes where social renters live, impacting their ability to build more social housing and improve existing properties.

“As ever when it comes to this crisis, speed, clarity and certainty are of the essence. We need urgent and decisive action to end the misery leaseholders are experiencing and ensure people are safe in their homes.

“We look forward to seeing more detail from the government and will continue to work with ministers to put an end to the cladding scandal.”

Geeta Nanda, chair of the G15 group of London’s largest landlords, said that a “truly comprehensive solution to this crisis is still required”.

“Not-for-profit housing associations are investing significant resources into addressing building safety issues and this has already had an impact on our ability to build much-needed new affordable homes,” she said.

David Renard, housing spokesperson for the Local Government Association, echoed Ms Nanda’s sentiments and asked the government to view council tenants and those on the waiting list as innocent victims like private leaseholders.

Mr Renard said: “Unless the government forces the industry to act – or provides funding – we are concerned that the costs of fixing social housing blocks will fall on council Housing Revenue Accounts and housing associations.

“This will reduce the funding available to meet the government’s ambitions for improvements to social housing, net zero and the provision of new social housing.

“Like leaseholders, council tenants and those on the waiting list are innocent victims and the government needs to help them too.”

A DLUHC spokesperson was unable to confirm to Social Housing whether the social housing budget would remain untouched should developers refuse to pay towards the new fund.

The spokesperson said: “We recognise that some social landlords face significant building safety costs, and that they are having to balance their existing budgets to support this.

“The government committed up to £400m to fully fund the removal and replacement of unsafe [aluminium composite material] cladding systems on buildings over 18 metres that are owned by registered providers of social housing.

“The government has also committed to meet the cost of removing other types of unsafe cladding on social sector buildings over 18 metres where a registered provider’s financial viability would otherwise be threatened.”

Update at 10.08am, 13.01.2022

This story was updated to provide clarity around Michael Wharfe’s quotes.