Housing Market

Viscount Hanworth Excerpts

Thursday 17th November 2022 Lords Chamber

[Viscount Hanworth (Lab)]

Margaret Thatcher had a vision of a property-owning democracy, in which citizens should own the dwellings they occupy. In 1980, the Conservatives’ Housing Act gave council tenants the right to buy their homes at discounted prices. Surely, the belief was that property owners are more likely to vote Conservative than are the dispossessed or people who are reliant on public authorities to provide their housing. Home ownership had been increasing since the 1950s, when roughly 30% of occupants were owners. Following the Housing Act of 1980, the growth of ownership continued, with the proportion rising to a peak of 70% in 2000. Since then, it has been steadily declining towards 60%.

Social housing in the form of council houses and flats had been steadily increasing since the 1920s. The expansion was at the expense of private renting, which often involved severely substandard dwellings. Since 1980, social housing has experienced a radical decline in consequence of the sale of the council properties and the cessation of council house building. Since 1990, the proportion of private renters has increased from a mere 12% to the present 20%, and we have heard much about the pathologies of the sector. In consequence of the failure to build sufficient numbers of houses, there is now a crisis and the shortage has led to inflated property prices. When these are affected by the current high rates of interest on mortgages, the impact on personal finances becomes severe.

In talking of home ownership, as I shall, one must be precise in the definitions, both of the nature of the properties and the conditions of their ownership. The majority of dwellings are flats, rather than houses, and the majority of the occupants of flats who are classified as owner-occupiers are, in fact, leaseholders who own a tenuous right to occupy their dwellings for a limited period.

Most newly built houses are nowadays sold to leaseholders, many of whom are reported to have been surprised to discover the limits of their ownership. There have been angry accusations of mis-selling. Leaseholding is an insecure and problematic form of tenure, which has been increasingly subject to abuses originating with the freeholders, who can be powerful and exploitative. The law grants leaseholders the right to buy the freeholds of their properties, but the cost of doing so is subject to a negotiation with the freeholder, who is in a position to make it unaffordable. There is an urgent requirement for legislation to reduce or eliminate the scope for abuses, but the Government have been slow or unwilling to act, in spite of promises to do so.

Building contractors, large and small, are responsible for enabling the abuses of leaseholders of newly built properties. Once the leaseholds of the properties have been purchased for the first time, the constructors are liable to sell the freeholds to a property company. A substantial price can be commanded because the freeholder will be able to derive a large income by charging the unwitting leaseholder exorbitantly for a variety of real or imaginary services.

One of these charges will be the ground rent, albeit that this will no longer be available on properties sold after 2022. There are also service charges attributable to communal areas in housing estates or for the upkeep of roads on an estate that have not been adopted by the local authority. Service charges for drainage and sewerage are not uncommon, albeit that these services are charged for by the local rates. These costs should normally be attributable to the costs of the housing development. Other charges levied by freeholders concern permission to make alterations to the property, including painting the front door, for example.

However, the major burden imposed on leaseholders results from a regular escalation of the service charges, which can be doubled every few years. Such charges can severely affect the value of the properties so as to render them virtually unsaleable at a reasonable price. Under the Landlord and Tenant Act 1985, a so-called fixed service charge, which does not reflect the actual cost of any services provided, cannot be challenged for reasonableness. It can escalate in an unbridled manner.

Occupants of flats are liable to face far worse abuses than are suffered by the leaseholders of newly built houses. The freehold can be sold over their heads without consultation or agreement. Property companies intent on deriving large incomes have purchased many such freeholds, and service charges can be levied when no services are provided. A management company that is the ostensible provider of the services is typically a subsidiary of the property company that has acquired the freeholds, even if it does not go by the same name.

A leaseholder has the right to appeal to a so-called tier one tribunal against the levy of unfair charges. A Minister declared recently in the Lords that service charges are governed by the law and must be reasonable, but this is far from the case; a leaseholder would be strongly advised against making an appeal to the tribunal. The reason for this advice is that freeholders nowadays issue contracts in which the small print declares that their leaseholders will be liable to pay any legal costs that the property companies might incur if they are called before the tribunal. One might have imagined that the costs of litigation would be assigned by the tribunal in view of the outcomes of the legal processes, but this is far from the case. Freeholders may call on expensive legal representation to make their case with the assurance that they will not pay for it.

A wealth of horror stories regarding this abuse can be found on a website called Leasehold Knowledge. This is the creation of two financial journalists who have been horrified by what they have uncovered. A litigious leaseholder can find themselves bankrupted by their attempt to seek redress against unfair charges. If a leaseholder in financial distress can no longer pay the charges for non-existent services, the freeholder can take possession of the property and no compensation for the loss is payable to the leaseholder.

These matters urgently demand legislative intervention but, so far, little has been forthcoming from the Government. Instead, the prospective legislation is the product of Private Members’ Bills. The Leasehold Reform (Ground Rent) Act 2022, admittedly a piece of government legislation, effectively abolished ground rents, which had been a vehicle for exploitation, but it leaves open many other avenues for freeholders to fleece leaseholders.

Presently, three Private Members’ Bills that address the problems of leaseholding have been introduced into the Lords. I am heartened by these initiatives, but I fear that they will fail to get a Second Reading before the end of the Session. I ask the Minister why the Government cannot adopt these Bills as their own. The Leasehold Reform (Reasonableness of Service Charges) Bill would compel the freeholder or the managing agent—liable to be a subsidiary company—to be transparent in itemising its costs. At present, the leaseholder has no means of knowing the details of the insurance on their property, which is liable to be charged at an exorbitant rate. The Leasehold Reform (Disclosure and Insurance Commissions) Bill seeks to make these matters more transparent. Finally, there is the Leasehold Reform (Tribunal Judgments and Legal Costs) Bill. This would nullify the clauses in the leaseholder contracts that burden leaseholders with the freeholder’s legal expenses. It would also prevent the freeholder using the service charges to burden the other leaseholders in a building with the costs incurred in defending a case brought before a tribunal by one of their number.

How have these abuses arisen? I fear they are the consequences of an increasingly dysfunctional society in which opportunities for gainful employment are diminishing. In such circumstances, rent-seeking and extortion flourish, and dogs eat dogs. The larger and the more powerful dogs can wreak havoc.