Prime minister Liz Truss is in a dash for growth. In the mini-budget, we heard from her Chancellor Kwasi Kwarteng on daring plans for low-tax, planning restricted zones to energise and densify our cities. Particularly in and around London soaring rents, rampant property speculation and a lack of housing supply are holding back the economy, preventing my generation from putting down our roots. Left unchecked this will spread to other regions, too.
Truss and Kwarteng are missing a trick though if they don’t use these special investment zones to turbocharge commonhold for a high-rise housebuilding boom and mass extension of the property-owning democracy. How about tax breaks for those developers with the foresight to build commonhold and share of freehold flats?
With the Labour party now proudly draping itself in the Union Flag and parking its tanks on Tory lawns with Keir Starmer’s party conference pledge to ramp up home ownership levels to 70% within the first term of a Labour government, the ruling party clearly needs a bold offering on home ownership. It must be one that moves beyond just piling more debt onto aspirant homebuyers or the ripping up of planning laws.
If Truss genuinely cares about supply-side reform and addressing England’s long-term structural problems like the housing crisis, she should do something consumers and the market have been craving for years now: reinvigorate commonhold tenure, a form of freehold flat ownership that cuts out monetising third-party building owners and provides for consumer control of service charges.
Analogous systems are taken for granted north of the border and across the globe: Scottish Tenements, Condominiums in the States, France’s Co-propriétaires, Sweden’s Bostadsrätt, Spain’s Comunidad de Propietarios, and Aussie strata-title which has taken off in places as diverse as Singapore, South Africa, the UAE and Canada.
Using these special investment zones as a precursor to a wholesale move to commonhold tenure would not only help successfully build up our cities, which are the lowest density in Europe, but it would restore confidence in flats in this country (flat sales have dived 60% in 3 years, according to Land Registry data). It would also unclog the wider property market as leaseholds take at least 20 days longer to transact than freeholds and slow down chains, and put rocket boosters on the “aspiration nation”.
Pound for pound, the UK has a competitive advantage in its great cities, but all too often perhaps ironically, these are not great places to settle down. If you want to live in them as a young professional, you’re either renting or purchasing a leasehold property.
Scrapping leasehold for growth-unleashing commonhold would also allow the government to show it is serious about setting this country on a new trajectory of growth. Every day, leasehold is sucking money out of the real economy (often into tax havens) and preventing consumer homeowners from spending their money on local services and contractors for their developments.
The preservation of leasehold, a tenure with roots in serfdom and manorialism, only contributes to house price inflation while stymying urban development and flat living in this country. It doesn’t have to be this way.
Leasehold law is giving freeholders the ability to lurk in the shadows while extracting endless streams of cash from occupiers. This phenomenon has simultaneously driven up land (and with them, house) prices, through ‘excess rent’ being captured from leaseholders, while also collapsing the value of the individual leasehold dwellings, where 97%+ of the initial capital value actually lies (the remaining 3% being the capital of the freeholder).
Truss can sort all this as Prime Minister if she leads the crusade against medieval leasehold laws; action that is consistent with her belief that being pro-disruption and anti-vested interests means more freedom for individuals and families.
Through the state’s dereliction of duty, an entire generation risks being frozen out of the Thatcher dream of home ownership forever as a result of this egregious super-stealth tax on household incomes. Leasehold is driving us into the ground.
For example, my freeholder is entitled to arrange the buildings insurance. To the gladly uninitiated this sounds like the most benign of activities, almost a favour. But as with almost everything leasehold, there’s a perverse implication: the freeholder may select the insurer which offers them the most generous commission fee rather than the best policy available for the price. Leaseholders ultimately pick up the tab.
Last month the insurance scandal was addressed in a damning report by City regulator the Financial Conduct Authority; official recognition of the dire implications for 5 million leasehold households, without further intervention. In response, Secretary of State Simon Clarke rightly described this practice of grossing up leaseholders’ premiums with secret commissions as “amoral” and ordered that it “must cease as a matter of urgency”.
Truss can be the strong-willed leader who defends free markets and empowers consumers by confronting the vested interests and banishing our globally unique feudal leasehold to the history books. In doing so, she will do something no prime minister has done: fulfil Thatcher’s wish for commonhold to become, well, common – as it is elsewhere.