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The government’s plans to cap ground rents in England and Wales could cost the taxpayer over £31bn, a trade body has warned.
The costs, equivalent to a 1% increase in income tax for the next five years, would result from the compensation that investors will be entitled to and will seek from the government, according to the Residential Freehold Association (RFA).
It says these investors include pension holders, charities and other institutions that receive ground rent income from their legitimate investments in freeholds.
The proposals will not only hit public finances, but will also drive professional freeholders from the market, creating “zombie buildings”, where there is no freeholder present, the RFA argues.
It also says the absence of professional freeholders will likely create a greater safety risk for residents, given there will be no steward with institutional experience to oversee the remediation of complex building safety issues in many cases, and in the case of an emergencies residents will not have the support of a freeholder during evacuation of unsafe buildings.
The trade body points to the government’s own research which suggests a majority of leaseholders are unlikely to favour the long-term consequences of the government’s proposals, given such a move will do nothing to reduce service charges for the maintenance and management of buildings.
Independent polling, commissioned by the RFA, has also found that only 18% of current leaseholders would be comfortable assuming the legal obligations for managing their building – and just 21% of people would be confident that agreement could be reached on building management and maintenance issues in complex blocks between residents.
Mick Platt, director of the RFA, commented: “It’s astonishing to see a British government consulting on the retrospective interference with the legitimate rights of property owners in this way and it sets an alarming precedent for UK plc.
“Mr Gove’s department has gone way beyond any reasonable attempt to reform the leasehold system and has consistently ignored calls for regulation. Instead, they have proposed a raid on investors that would hit the public finances and leave leaseholders in the lurch.
“Spending over £31bn to reduce consumer choice and leave millions of residents with management responsibilities they do not want would be a thundering own goal. The government has ignored extensive research, including its own, which shows there is simply no desire from a majority of residents, or the public at large, for the policy proposals they are pursuing.
“The government must respect the rights of property owners and ensure any leasehold reform is proportionate and delivers tangible benefits to leaseholders – from managing service charge levels to no new leasehold houses – instead of running a horse and cart through a huge area of investment in the UK economy.”
The analysis comes just days after the Global Investment Summit where Rishi Sunak announced £30bn of new investment in the UK from world-leading investors, the same sum the government will be driving out of the UK through its leasehold reform proposals, the RFA says.
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