Let’s ‘buy back’ to help the victims of the cladding crisis now
Published in Housing Today – 2 February 2021
Housing associations are in a position to solve the problem of struggling leaseholders unable to sell, says Maureen Corcoran
Public concern is growing over the plight of hundreds of thousands of leaseholders who bought their flats in good faith, often through shared ownership. The issue is no longer confined to the housing press – it is being covered by most national newspapers, with campaigns in the The Sunday Times, Daily Mail and The Mirror.
We know that many leaseholders are facing huge financial problems as their flats are unsaleable through a toxic combination of slashed valuations, difficulties with EWS1 surveys and huge service charges turbo-charged by cladding issues. Quite rightly, these leaseholders have been campaigning to get those responsible for the cladding and fire safety crisis to pay to remedy these defects.
Yesterday (Monday), MPs passed a Labour Party motion in the House of Commons that called for urgent help for tenants and leaseholders living in unsafe properties, although the vote was non-binding.
>> Opinion: Government cannot avoid funding cladding repairs
The Leasehold Knowledge Partnership (LKP), a charity that represents those leaseholders, has come up with an innovative plan, devised by Dean Buckner, a former Bank of England economist. It proposes a bond funded by levies on developers, freeholders, manufacturers of building products, foreign homebuyers and the government.
This is a much fairer and more equitable remedy than the government’s current favoured proposal – the “Wade” plan – which has leaseholders funding the costs themselves through additional loans. As the Association of Residential Managing Agents (ARM) estimates average bills of around £50,000 per flat, this would put many leaseholders into negative equity and tip some into bankruptcy.
But getting either alternative off the ground will take time and political will as well as resources. So, they offer no immediate hope for the many thousands of home purchasers whose properties now have no market value – causing them massive financial and emotional stress. Many need to move urgently for employment and family reasons but are effectively trapped.
There is another solution that could provide immediate relief to some of the 200,000 leaseholders who are shared owners
There is however another solution that could provide immediate relief to some of the 200,000 leaseholders who are shared owners. The housing associations that sold these properties on a shared ownership basis could buy the shares back from anyone who is struggling and unable to move.
I speak from some experience as a former board member of one of the largest housing associations in England – a member of the G15 – and a former head of housing in London for the Audit Commission.
There are precedents for this. During the financial crisis in 2008, many developers were in difficulties, and housing associations such as mine were encouraged to buy vacant blocks of flats. As housing associations helped distressed developers a decade ago, so I think they can assist hard-pressed shared ownership residents now.
Some associations have already bought out shared owners severely affected by the cladding crisis. Notting Hill Genesis recently bought out over 100 shared owners on the Paragon estate in west London after it found safety issues so serious that it had to evacuate more than 800 residents. The estate had originally been developed by Presentation housing association before being taken over by Notting Hill.
Housing associations have always had discretion to buy back shares from owners who are in difficulty. Now is the time to exercise that discretion and save those in the most financial and emotional distress because they cannot move.
The benefits for the shared owners in difficulties would be immediate: they would have their initial shareholding bought back at an agreed valuation and could either stay as tenants or move to another property if they need to for family or employment reasons.
There would be benefits for wider society society as it would take a large number of properties that are effectively unsaleable out of the housing market. Some surveys estimate that one in seven sales is currently blocked because of this. It would also stimulate the wider housing market and increase the number of social and affordable rented homes as properties bought back could then be let out to other tenants in need.
Housing associations may say they cannot afford this because they already face heavy expenditure for fire safety work on existing stock as well as future requirements to meet a proposed decent homes standard. Plus of course they have been set targets to build more new affordable housing. But I believe they could take a more proactive, caring and innovative approach.
After all, a buy-back is not a handout – the associations will be purchasing assets that they can then rent out. This would secure an income stream and help to increase the stock of affordable rented homes. And it could be cheaper and quicker than developing new homes from scratch.
Additionally, not all shared ownership properties or blocks need expensive works to make them safe. Some do, and housing associations and leaseholders are rightly campaigning for those responsible to pay for these.
‘It should not be that difficult to devise a scheme to help distressed shared owners who need to move’
Some properties do not have cladding issues but cannot be sold because they do not have EWS1 certificates or have failed an EWS1 assessment. In some cases the works required may be relatively minor and could be remedied with less expenditure.
Housing associations know their properties and their residents who are shared owners. It should not be that difficult to devise a scheme to help distressed shared owners who need to move and at the same time mitigate the associations’ own risks on a case-by-case basis.
It can be argued that housing associations have a moral duty to the shared owners to whom they sold their properties. Many shared owners are among the most financially stretched of leaseholders as they will have qualified for this form of affordable housing on relatively low-income grounds. Plus, in recent years associations’ financial reserves have been boosted by surpluses fuelled in part by shared ownership sales and by some owners subsequently buying further shares through staircasing.
Clearly, if housing associations are inundated with requests from distressed shared owners, they may find these difficult to fund. But a suitable case could then be made for government assistance in the run-up to next month’s Budget.
Housing associations have an honourable history of helping the most disadvantaged in society
After all, the government has been very keen to push shared ownership as a form of affordable housing to people who are now unable to move through no fault of their own. Every MP can testify that the current situation is causing huge stress to a large number of people who bought properties in good faith and now feel totally let down by all agencies of the state.
At the end of the day, housing associations have far more resources and financial resilience than individual households who are trapped in dire circumstances through no fault of their own. They can play a long game until the government delivers a fair, sustainable scheme in which those responsible pay to remedy fire safety defects.
Housing associations also have an honourable history of helping the most disadvantaged in society. The cladding crisis has created many thousands of blameless victims whose lives are on hold.
Buying back from shared owners is not the answer for all victims of the crisis. But it is an answer for those who are hard-pressed shared owners trapped because of an inability to sell. Moreover, it is a solution that could be implemented relatively quickly. And it has the bonus of adding to the stock of social and affordable rented housing.
It is time to do the right thing for shared owners and encourage others, especially developers and the government, to step up and help out, too.
Maureen Corcoran is a former head of housing at the Audit Commission and a Housing Association board member
There is increasing public concern on the millions of leaseholders who bought their flats in good faith, often through shared ownership. Many now face huge financial problems as their flats are unsaleable through a toxic combination of slashed valuations, difficulties with EWSI surveys and huge service charges turbo charged by cladding issues.
Link to this Housing Today article on 2 February 2021
Previous article on cladding – I also had a similar article published in the Times on 20 January 2021 see ink below
On Radio: On the 27 January 2021, I was invited to participate in Radio 4’s consumer programme You & Yours to talk about the benefits of Housing Associations buying back properties from those in desperate circumstances. Here’s the link to the full programme – the segment on Housing starts around 30 minutes in.
Maureen Corcoran is a former Head of Housing in the Audit Commission and Housing Association Board Member.