The costs fall on leaseholders, who are least able to pay and not remotely to blame for the crisis while the government protects builders, developers and cladding manufacturers.
On Monday evening, the House of Commons had a golden opportunity to make the lives of millions of lower income people materially better. All they had to do was pass a proposed amendment to the Fire Safety Bill that sought to ban leaseholders* from bearing the costs of cladding remediation. Those costs could rise as high as £15-20 billion in the coming years. The government’s bill placed the responsibility for removing cladding on leaseholders, but peers in the House of Lords proposed a plan that would force the government to pay the initial costs before recouping them from developers, construction firms and cladding manufacturers.
In all likelihood, it’s the second part of the plan — in which builders and manufacturers shoulder the burden — the government objected to. Despite a rebellion by 29 Tories, the House of Commons rejected the amendment by a margin of 322 votes to 253.
A Fitting Legacy
As a result of the vote, the brunt of the remediation costs will now fall on those who are least able to pay and who hold zero responsibility for the problem in the first place. They are the victims, not the offenders, of the UK’s cladding crisis. This is the sad, twisted but predictable legacy of the Grenfell Tower fire, which claimed the lives of 72 people on June 14, 2017. Their lives never meant much to the government. Nor, it seems, does the welfare of the millions of people who live in similarly fire-prone buildings.
If the bill passes the House of Lords, leaseholders in blocks of flats less than 18 meters high will have little choice but to take out tens of thousands of pounds in loans. The estimated cost of remediation per property is between £40,000 and £50,000. The value of the apartments is sinking as insurance premiums and service charges soar. Lenders are refusing to write mortgages on affected properties, which further limits their options. To avoid bankruptcy, some are selling at a big discount to cash buyers.
“Interim costs at the moment are bankrupting leaseholders up and down the country,” said Conservative MP Stephen McPartland ahead of the vote. “Leaseholders are screaming for help, they are screaming in pain and what are we doing? Today we are saying to them ‘Thanks for paying the interim costs, once you’ve finished that we’re now going to load you up with remediation costs on top’ – tens of thousands of pounds that people just don’t have the funds for.”
In the wake of Grenfell, it became quickly apparent that thousands of tower blocks across UK towns and cities had, like Grenfell, been rigged with highly flammable insulation and cladding and were essentially multi-storey death traps. Those living inside these buildings, as well as smaller structures with similar problems, have had their lives upended. Most of the buildings have yet to be inspected, leaving their occupants trapped in financial limbo, in buildings that may also be a firetrap. A survey by the UK Cladding Action Group found that nine out of ten cladding victims say their mental health has suffered.
Many are on the brink of financial ruin. According to a survey by Inside Housing, one in six are exploring bankruptcy options and 62.5% face repair costs of more than £30,000. As if that were not enough, many are also having to shell out hundreds of pounds a month — in addition to the mortgage payments and other costs — to cover the costs of round-the-clock fire-patrols (“waking watches” as they’ve come to be known) to make sure the building they occupy doesn’t suddenly go up in flames.
Zero Responsibility for the Real Offenders
Naked Capitalism has been following developments closely ever since the Greenfell Tower fire (most recently here, here and here). In the previous article Lambert laid out some of the most disturbing revelations of the ongoing Grenfell Inquiry, including the behavior, actions and motivations of the multiple actors that ultimately paved the way for the fire:
- Cost cutting by Grenfell’s Building Control Board, the Kensington and Chelsea Tenant Management Organisation (KCTMO). Determined to cut costs and corners in its refurbishment of Grenfill Tower, the property’s landlord, KCTMO, swapped more expensive zinc cladding panels for aluminium alternatives. Aluminium composite cladding usually comprises a layer of highly flammable plastic sandwiched between two aluminium sheets. This became the main cause of the spread of the fire that claimed 72 lives.
- Manipulated safety tests and fraudulent product claims by the three cladding and insulation manufacturers, Celotex (from France), Kingspan (from Ireland) and Arconic (from the US). The inquiry revealed that all three firms manipulated the fire safety tests in order to get their highly inflammable products certified for use in high-rise buildings. Internal emails have shown that employees at all three firms knew about the huge safety risks posed by their products but sold them anyway.
- Widespread incompetence and conflicts of interest at government and standards bodies, including the British Research Establishment, the British Standards Institute (BSI) and British Board of Agrément (BBA), all of which were privatized in the years preceding the fire. The Fire Brigades Union has published a damning indictment of the revolving door between construction firms and regulators. The Labour government also played a part in paving the way to the Grenfell fire by lifting a ban on combustible insulation for high rises in 2006.
For the moment, none of the organizations, companies or individuals that bear responsibility for Grenfell have paid a price. In fact, The Guardian revealed last week that a UK subsidiary of Arconic, three of whose employees refused to give evidence to the inquiry, tapped UK taxpayers for £500,000 under the furlough scheme.
As for the government, it has thrown leaseholders a few crumbs of comfort in recent months. After all, it doesn’t want to come across as completely insensitive to their plight.
In February, ministers announced an extra £3.5 billion in funding to fix inflammable cladding on high rises in England (but not Scotland or Wales) — on top of the £1.6 billion already earmarked last year. But it’s still a fraction of what is needed. As The Guardian reports, the funding does not cover cladding removal work on low-rise buildings (of six stories or less). The government instead unveiled a scheme to offer loans to fix cladding issues in these buildings. Also not covered are fire safety assessments (though the Scottish government has agreed to stump up the cash for Scottish leaseholders); other fire safety problems that are emerging as blocks undergo inspections; problems with balconies; the cost of “waking watches”; and increased insurance premiums.
In the meantime, the financial limbo affecting millions of homeowners is setting off ripple effects across the UK’s housing market. Lenders have refused to offer loans for any properties in high-rise buildings that have been flagged as firetraps or have yet to be inspected but could prove to be firetraps. As a result, the vast majority of the UK’s high-rise apartments, which sit at the bottom of the property ladder, are for the present moment impossible to sell or buy, apart from to cash buyers at much lower prices.
* When an apartment is purchased as a leasehold, the buyer is little more than a tenant, albeit one with a tenancy agreement that typically lasts for up to a century. The “freehold” — the building and the land — usually belongs to the developer or another entity that the developer sold it to. They are able to extract annual rent on those assets. The terms of the leases have become increasingly onerous as global investors have bought up the “freeholds.” The government has finally been shamed into at least pledging to change this archaic system.
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“…all of which were privatized in the years preceding the fire.” The “Market” knows best! Maggie would be so proud.
Sadly, there is literally zero surprise about this decision. At a time when the government has been handing out no bid contracts to its donors on the ratio of at least 10-1 return on investment, I read on one source.
Meanwhile, Buckingham Palace is being refurbished at no cost to the tenants (sic) – probably the richest family in the country, for an originally estimated £380 million (which I fully expect to be much more)
In Ontario the building inspector “Authority Having Jurisdiction” passes or not each stage in the construction. Which puts the municipality which employees him/her at fault for not doing due diligence, which means the Municipalities Insurance should pay. After that the fight with manufacturers etc goes on and on.
Would be nice to be able to trace the kickbacks, give-me’s, grifts, scams, cons, docs doctering, watering, scale-on-thumbery, cooking, flipping, slight of hand, skulduggery, flim flaming and et al. but, I guess, that would deprive to many of their hard won pat of butter on their cut of bread.
After all— it’s only gambling with peoples lives.
Maybe a little hint from the past -approximately 1772 BC
Code of Hammurabi.
229 – If a builder builds a house for someone, and does not construct it properly, and the house which he built falls in and kills its owner, then that builder shall be put to death.
230 – If it kills the son of the owner, the son of that builder shall be put to death.
231 – If it kills a slave of the owner, then he shall pay, slave for slave, to the owner of the house.
232 – If it ruins goods, he shall make compensation for all that has been ruined, and inasmuch as he did not construct properly this house which he built and it fell, he shall re-erect the house from his own means.
233 – If a builder builds a house for someone, even though he has not yet completed it; if then the walls seem toppling, the builder must make the walls solid from his own means.
Remember, though, the now-widespread and greedy acceptance of the concept of houses as financial assets that supposedly only appreciate in financial value. How many of the leaseholders voted for a party which created or furthered the right to buy a council house, or whose policies were deliberately aimed at increasing the general price of a house? Labour and Conservative parties are at fault, as the article points out, and both attracted tens of millions of voters eager to become part of the capitalist, neoliberal revolution to enrich both themselves and, potentially, their privileged offspring. Now they are seeing that a dwelling can be a liability of enormous proportions. Publicly owned, community managed social housing for all should have been their ideal. Climate change will eventually make the private, single-family home untenable, anyway.
Climate change will eventually make the private, single-family home untenable, anyway. James Simpson
Otoh, Covid and other diseases (and high-speed Internet) may make concentrated city living untenable.
The best-laid schemes o’ mice an’ men gang aft a-gley Robert Burns
The future you describe is not one I wish to occupy
Hi Yves:
I see you have touched upon one of the topics I write about and have done so over the last decade – Student Loans and Alan Collinge’s Student Loan Justice Org. In my public discussions with Alan and his followers on Facebook, I have pointed out the $1.6 trillion or $1.8 trillion as pointed out in this article are important numbers to remember. What most people do not understand, this number takes into account the principle and interest on the principal if all things are going according to plan.
The $1 trillion+ owed also includes penalties for being late, the interest associated with the penalties, rehabilitation of a loan in default, interest on the fees to rehabilitate, forbearance interest, etc, I am guessing here, and as I pointed out to Alan, these addition costs are forgotten in the total calculation of debt owed. These additional costs are not taken into consideration when discussing total student loan debt and much of the application of these penalties and fees do not exist in regulated consumer loans. A couple of examples:
– IBR or Income Based Repayment and REPAYEE plans allow a person who does not have enough income to forgo loan payment. If they are unable to pay back due to a lack of income over an ~ 25 year period, the loan is forgiven although it may appear as income. During this time period, interest is applied to the loan. If a person is declared to have enough income to begin to pay back a student loan as determined from submission of an income tax return (automatic today) , payment will begin and the payments are applied to interest first and no principal is paid.
– A person has borrowed $40,000 in federal student loans, at a 7 percent interest rate, and has a 25-year repayment period. If the person made four years of on-time payments, but then fell into default, interest would accrue at a rate of around $230 a month during her nonpayment.
If the borrower went through rehabilitation to take her loan out of default, a collection fee of 16 percent would be added to her new loan, increasing her debt to around $50,000.
In other words, even after the four years of on-time payments, the debt would still be $10,000 more than first borrowed. More than 40 percent of borrowers who go through rehabilitation will fall back into default within three years. (For some, student loan debt is doubling, tripling, and even quadrupling – CNBC)
This is another usurious form of interest applied to a loan disguised as penalties and maintenance. I estimate this to be 30-40% of the amount owed in student loans and not taken into account by “any” administration or political party. As I pointed out to Alan, these penalties should not be considered as debt owed by those holding student loans as they are just another form of usury and students are being held to a higher standard than our last president and multiples of others who could afford to pay back the money they owed rather than going into bankruptcy (some multiples of times).
Bankruptcy has been denied to those holding student loans by sanctimonious politicians amongst which Joe Biden resides. President Biden has been one of the instigators of holding students to a higher standard since the seventies. He needs to fix the disaster that he has helped to create over the years.
Sorry Yves for the length of this comment.
The first and second law of neoliberalism. Law #1, never take money from wealthy people. Law #2, never take debt away from poor people.
From the red flag:
It’s the rich wot gets the pleasure
It’s the poor wot gets the blame.
It’s the same the whole World over
Isn’t it a bleeding shame.
The UK’s leasehold system allows a landowner, the ‘freeholder’*, to permanently own a building and its land, while others, ‘leaseholders’, own the flats or business units within on a time basis. While having a single owner to sort all problems might sound good in theory, in practice, via the lease, the freeholder’s goal is to make money on the land and building at the leaseholder’s expense. Freeholders would normally never spend their own money for the leaseholder’s benefit !
By law freeholders are allowed to raise ground rents (the price the leaseholder must pay annually for the leasehold), and service charges (the pro-rata prices for managing, maintain, repairing and improving the overall building), and also to collect additional fees whenever the leaseholder wants to vary the lease terms. Taken together, these can add up to a substantial profit opportunity, expecially when there are many leaseholds involved.
So, given this historical property-value-capital-extraction system’s use throughout the UK, it is no surprise that a Conservative majority government maintains the position that all costs are to be paid by leaseholders as usual, except in the most politically exposed circumstance – for buildings which closely match the Grenfell case.
* A freeholder can be: person(s), company, or company owned by another company etc.
Freeholders are, in many if not most cases, still not “developers”. “The Duke of Westminster, the Queen and the Earl of Cadogan are still London’s top landowners, holding nearly 700 acres of central-London land between them.” https://www.standard.co.uk/showbiz/celebrity-news/who-owns-london-6308427.html
The Grenfell story is a horrific one; I was there the day after the fire, and the grief and anger were overwhelming.