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It's a good question. And here's the answer: Because it's just the tip of a huge stinking iceberg that threatens to sink the UK property market.
Dunnem, what properties make up this potential 4.5m?Dunners wrote: ↑Thu Jul 02, 2020 3:02 pmIt's a good question. And here's the answer: Because it's just the tip of a huge stinking iceberg that threatens to sink the UK property market.
That’s the lt:dr version. I appreciate that you may want me to expand upon that a bit more, however…. (sorry, but there's no quick way of explaining this)
Any building built in the last twenty years or so has problems. Due to a lack of quality control, peel back the surface, and you will find faults with the insulation materials, breaches in fire compartmentalisation, sprinkler systems (if they're even installed) that meet lower grade specifications than what was intended etc etc etc. I really could go on, but I'd never end.
Due to artificially inflated land prices, in order to avoid property prices going even higher than what they are, developers have chosen to 'value engineer' and build cheap. Sure, they'll spend on the kitchens and bathrooms (because that's what sells), but where it matters the quality of materials and workmanship is rubbish. All new build is absolute junk, and I'd never advise anyone to buy it.
The banks are now alert to this and are crapping themselves that they've been lending to buyers who now risk being hit with eye-watering levels of charges to pay for investigations and remedial work. This will push tens, if not hundreds of thousands of households into bankruptcy, and the bank will be left with a worthless asset.
They're therefore increasingly insisting on an 'EWS1 form' to be certified. This form is used to present to anyone interested that a building's external wall system is safe. Nobody has an EWS1 form, because they were only issued in December 2019 and originally were only intended for buildings over 18 meters. But the banks don't care - they want them now for every building because they can no longer take the risk.
Now think about what it takes to get an EWS1 form:
1. You need to find a qualified person who is willing and able to sign this form. There's not many and, because of the cladding crisis, they're kind of busy.
2. They then need to check that they have sufficient indemnity insurance to sign the form. They don't. That's because their insurance providers have a conflict of interest, as they've also indemnified the people who signed these buildings off as compliant in the first place.
3. But, putting aside the minor issue of insurance, they are not able to rely on construction plans. So that means carrying out detailed investigative works to the building.
4. So now you need to find a company that has some capacity to take on this project. They're all kind of busy too. But, let's assume you get lucky and find one who can. Think scaffold, huge holes cut into wall and ceiling cavities at multiple locations throughout the building, surveys taking weeks and months to complete etc. The investigations alone will be enough to bankrupt many households, and that’s before any remedial work take place.
5. Now you’ve peeled back the surface, you will almost always find something that compromises the safety of the residents. You cannot ignore that because, should there be a fire, you could be held criminally liable. So you have to put in place mitigating measures, such as a ‘waking watch’. That will start eating money like its going out of fashion. I know a few buildings where the cost is about £25,000 a week!
6. Anyway, you eventually managed to find someone who has capacity to carry out any remedial work that is required. Congratulations. It will cost tens, hundreds of thousands, if not £millions, depending upon the size of the building. And when that’s all done you need to go back to points 1 and 2 above.
So, who should pay:
1. The developers? They will argue that they built using materials which met regulatory standards at the time - which they did. You may be able to pursue a latent defects claim for any genuine defects, but be prepared to spend a fortune in litigation. Plus, in many cases, these developments are constructed using Special Purpose Vehicles. Therefore, if you're looking likely to be successful in your claim, the directors will just wind the company up.
2. The landlords? They will argue similar to the developers. But they wil also point out that they have sold the flats in the buildings won leases and clearly flow down the liability to the flat owner. Which is also true. Sure, you can take them to a tribunal to determine if they have the right to flow these costs doom, but every single tribunal decision so far has concluded that they do.
3. The flat owners? They will argue that it's not fair that they should be forced to pay for what is effectively absolute systematic failure. And I agree with them. However, property and contract law does not. The cost per flat could be anywhere from £25,000 to £100,000.
4. The government? The Government have been next to useless on this issue, and are doing everything they can to ignore it. After much pressure they have announced a £1billion fund. But this only covers the cost of cladding replacement, none of the other issues. It will be totally insufficient as, so far, the total cost is estimated to be £70billion. And that's just with what we know about it so far. Nobody knows what the final cost will and, as you'll be aware, the government has a few other demands for money right now.
There are at least 500,000 flats now unsaleable due to all of this. We think that this figure will increase to 4,500,000. Putting aside where the money is going to come from, it will take years, if not decades for many of these buildings to be put right. And until they are, the banks will not lend on them. SO existing flat owners are unable to sell or remortgage and will be getting stuck on their standard variable mortgage rates.
The reason why you're not yet hearing about how bad this is, is because there's been one or two other things dominating the news recently. And the economic impact has flattened property market activity. But as things pick up, more and more people are going to realise how f*cked they are.
So, there you have it. That's why the government is keeping its head down right now. It's all absolutely f*cked.
Dunners wrote: ↑Thu Jul 02, 2020 4:35 pm What, you want the addresses?
It basically just about any flat located in a block for which a mortgage lender decides they'll only lend if an EWS1 form is provided. As they are becoming increasingly risk-averse, they are now demanding this form for flats in just about any block, regardless of the height of the building or the materials used in the external wall system.
Nobody now the exact number of leasehold flat in this country, but the upper estimate is between 5.5m and 6m. If you deduct maisonettes and leasehold houses (which appear to have been common in the north west) you're left with an estimated 4.5m flats.
It effectively kills off the first time buyer market in London and other high value/demand areas of the country.
Yes, it could be most flats. Pressure is being put on government to start working with stakeholders to find a political solution, as it's now pretty much accepted that a technical or financial isn't an option. But, so far, government just lack the head-space to deal with this.RedO wrote: ↑Thu Jul 02, 2020 4:38 pmDunners wrote: ↑Thu Jul 02, 2020 4:35 pm What, you want the addresses?
It basically just about any flat located in a block for which a mortgage lender decides they'll only lend if an EWS1 form is provided. As they are becoming increasingly risk-averse, they are now demanding this form for flats in just about any block, regardless of the height of the building or the materials used in the external wall system.
Nobody now the exact number of leasehold flat in this country, but the upper estimate is between 5.5m and 6m. If you deduct maisonettes and leasehold houses (which appear to have been common in the north west) you're left with an estimated 4.5m flats.
It effectively kills off the first time buyer market in London and other high value/demand areas of the country.
Are you only talking about flats? All flats?
That's a really detailed piece of work - thanks for that. I have to wonder just how developers have been able to get around the building controls that should ensure minimum acceptable quality/safety standards for new-builds. Or is it that the building controls themselves have somehow been "watered down" enough for the developers to make hay.Dunners wrote: ↑Thu Jul 02, 2020 3:02 pmIt's a good question. And here's the answer: Because it's just the tip of a huge stinking iceberg that threatens to sink the UK property market.
That’s the lt:dr version. I appreciate that you may want me to expand upon that a bit more, however…. (sorry, but there's no quick way of explaining this)
Any building built in the last twenty years or so has problems. Due to a lack of quality control, peel back the surface, and you will find faults with the insulation materials, breaches in fire compartmentalisation, sprinkler systems (if they're even installed) that meet lower grade specifications than what was intended etc etc etc. I really could go on, but I'd never end.
Due to artificially inflated land prices, in order to avoid property prices going even higher than what they are, developers have chosen to 'value engineer' and build cheap. Sure, they'll spend on the kitchens and bathrooms (because that's what sells), but where it matters the quality of materials and workmanship is rubbish. All new build is absolute junk, and I'd never advise anyone to buy it.
The banks are now alert to this and are crapping themselves that they've been lending to buyers who now risk being hit with eye-watering levels of charges to pay for investigations and remedial work. This will push tens, if not hundreds of thousands of households into bankruptcy, and the bank will be left with a worthless asset.
They're therefore increasingly insisting on an 'EWS1 form' to be certified. This form is used to present to anyone interested that a building's external wall system is safe. Nobody has an EWS1 form, because they were only issued in December 2019 and originally were only intended for buildings over 18 meters. But the banks don't care - they want them now for every building because they can no longer take the risk.
Now think about what it takes to get an EWS1 form:
1. You need to find a qualified person who is willing and able to sign this form. There's not many and, because of the cladding crisis, they're kind of busy.
2. They then need to check that they have sufficient indemnity insurance to sign the form. They don't. That's because their insurance providers have a conflict of interest, as they've also indemnified the people who signed these buildings off as compliant in the first place.
3. But, putting aside the minor issue of insurance, they are not able to rely on construction plans. So that means carrying out detailed investigative works to the building.
4. So now you need to find a company that has some capacity to take on this project. They're all kind of busy too. But, let's assume you get lucky and find one who can. Think scaffold, huge holes cut into wall and ceiling cavities at multiple locations throughout the building, surveys taking weeks and months to complete etc. The investigations alone will be enough to bankrupt many households, and that’s before any remedial work take place.
5. Now you’ve peeled back the surface, you will almost always find something that compromises the safety of the residents. You cannot ignore that because, should there be a fire, you could be held criminally liable. So you have to put in place mitigating measures, such as a ‘waking watch’. That will start eating money like its going out of fashion. I know a few buildings where the cost is about £25,000 a week!
6. Anyway, you eventually managed to find someone who has capacity to carry out any remedial work that is required. Congratulations. It will cost tens, hundreds of thousands, if not £millions, depending upon the size of the building. And when that’s all done you need to go back to points 1 and 2 above.
So, who should pay:
1. The developers? They will argue that they built using materials which met regulatory standards at the time - which they did. You may be able to pursue a latent defects claim for any genuine defects, but be prepared to spend a fortune in litigation. Plus, in many cases, these developments are constructed using Special Purpose Vehicles. Therefore, if you're looking likely to be successful in your claim, the directors will just wind the company up.
2. The landlords? They will argue similar to the developers. But they wil also point out that they have sold the flats in the buildings won leases and clearly flow down the liability to the flat owner. Which is also true. Sure, you can take them to a tribunal to determine if they have the right to flow these costs doom, but every single tribunal decision so far has concluded that they do.
3. The flat owners? They will argue that it's not fair that they should be forced to pay for what is effectively absolute systematic failure. And I agree with them. However, property and contract law does not. The cost per flat could be anywhere from £25,000 to £100,000.
4. The government? The Government have been next to useless on this issue, and are doing everything they can to ignore it. After much pressure they have announced a £1billion fund. But this only covers the cost of cladding replacement, none of the other issues. It will be totally insufficient as, so far, the total cost is estimated to be £70billion. And that's just with what we know about it so far. Nobody knows what the final cost will and, as you'll be aware, the government has a few other demands for money right now.
There are at least 500,000 flats now unsaleable due to all of this. We think that this figure will increase to 4,500,000. Putting aside where the money is going to come from, it will take years, if not decades for many of these buildings to be put right. And until they are, the banks will not lend on them. SO existing flat owners are unable to sell or remortgage and will be getting stuck on their standard variable mortgage rates.
The reason why you're not yet hearing about how bad this is, is because there's been one or two other things dominating the news recently. And the economic impact has flattened property market activity. But as things pick up, more and more people are going to realise how f*cked they are.
So, there you have it. That's why the government is keeping its head down right now. It's all absolutely f*cked.
As of now, nobody knows. Officials from MHCLG, UK Finance, RICS and other industry stakeholders are all scratching their heads.
The UK remains a bit of an outlier. Something like 70% of our household wealth is tied up in property values. Crash the housing market and you tank the economy. We've got ourselves into a right mess, and no Government has managed to find a solution.I suppose I did intimate that Boris & Co should fund the repairs. It'd be with tax payer's brass, of course. Can we really expect those who do not own their homes to help shore up those who do? Well, the working poor paid their whack to keep the banks afloat, didn't they? Some may think this is a parallel situation.
A bit of both.As for cause and blame etc.... The basics are simple. Either the regulations were inadequate - or they were adequate and not complied with.
This is all a result of a socio-economic strategy that was launched under the Thatcher government, and fully embraced in the Major and Blair years. But singling out any particular government is pointless. Collectively, it's what we've voted for.If the regs were no good, the government (probably Blair's) didn't discharge its duties responsibly. Then we all carry blame.
They weren't.If the regs were sound
...those in charge of administering and checking didn't do their jobs.
It did.The emerging privatisation of Local Authority Building Control Depts may have contributed to this; however, even then the checkers should have been checked.
They did.Also, the designers may have sought "work arounds" to circumvent rules and save money. ("Value engineering" I think you called it.)
They didn't.Manufacturers may have made fraudulent claims re performance. Christ, I hope they didn't.
Correct. And it's the 'market' that's calling the shots.Architects should have been on top of all this, of course. But these are the days of fee bidding and design and build. If they wanted to stay afloat, they'd have to make loss leading bids for work and find themselves with construction companies as their clients. Who calls the shots then?
Management standards will vary from block to block and by company. But generally, most property managers have discharged their duties to an appropriate standard. However, as the saying goes, you just can't polish a turd. But that's not going to stop certain quarters from trying to use the property managers as scapegoats where possible.Lastly, during occupation, these buildings had to be managed properly. eg: were fire doors propped open? Was rubbish left to accumulate in communal areas? Were fire alarms maintained? Were there periodic checks on electrical and gas installations? etc etc etc......
The solution has to be a political one. But there are only really two options, and they're both crap:Solution? 'Don't think there is one. We're all Thatcher's children aren't we? Rats in a sack. Look after No 1 and thank your lucky stars if you built your house with bricks.
In this case, for many flat owners, it will be up the arse.Up the Os.