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Artillery Row

Britons need real ownership, not feudal leaseholds

We should shake up an outdated and restrictive system that offers a simulation of property ownership

The focus of UK housing policy debate today is quantitative — that is, how do we deliver more high-quality housing, faster? 

This is understandable. Our constrained housing supply, as we at Policy Exchange have long argued, is one of the key barriers to delivering sustainably higher economic growth in Britain. 

Why then, if that is the case, is the government dedicating a proportion of its very limited parliamentary time to leasehold reform? Shouldn’t we simply be concerned with expanding the total number of housing units in the UK, rather than worrying about how people own the limited number of homes we already have? More interestingly perhaps, why should it be a conservative government that is introducing leasehold reform? It all comes down to the meaning of ownership. 

If you currently own a flat in the UK, there’s a 94 per cent chance you’re a leaseholder. From the middle of the twentieth century, leasehold emerged as the principal framework for apportioning property rights for residential units in buildings with shared spaces. In this regime, a freeholder retains perpetual property rights over the building and the land it sits upon, whilst leaseholders acquire the right to reside in a particular residential unit for a limited period. Freeholders are responsible for the upkeep of the building, for which leaseholders contribute towards the cost. 

When a couple in this country have eventually saved up for a deposit, obtained a mortgage and purchased a flat, they believe they are realising a profoundly British aspiration — of becoming a property owner. They believe that they have acquired something fixed and stable that they can build their lives around, and which will give them a stake in society.

Quite quickly, however, that same couple will come to see that the leasehold they have acquired is not an authentic form of ownership at all. It is a simulation of it. 

Think about all the reasons why owning property is so valuable. Property is a medium for self-expression. It offers a reliable store of value. It provides independence, and freedom from the arbitrary will of others. And it offers something that can be passed on to loved ones and future generations.

Leasehold properties are a very imperfect medium for self-expression

All of these things are fundamentally undermined by the leasehold system. Leasehold properties are a very imperfect medium for self-expression, because leaseholders are limited in their ability to change (or indeed improve) their flat. They are not a reliable store of value — their value diminishes as the lease elapses. Leaseholders are subject to the arbitrary will of others presently: they are liable for charges over which they have no control or agency. And perhaps most importantly of all, a leaseholder only owns the temporary rights to a wasting asset; a leasehold property can only be passed onto future generations for the duration of the lease, after which it must be returned to the freeholder.

In the form of the Leasehold and Freehold Reform Bill, the government is promising the most significant change to property tenure in England and Wales in a generation. As currently drafted, this legislation will markedly improve the situation of millions of leaseholders across the country and expand their opportunities to claim a more meaningful form of ownership over their property through the “collective enfranchisement” process. More broadly, and as both the current housing minister Lee Rowley and his immediate predecessor Rachel Maclean have identified, it will greatly advance the cause of a property owning democracy that Policy Exchange has been advocating. Such a cause is not only conducive to conservatism, but is also in the electoral interest of the Conservative Party.

In the Government’s own pronouncements, they have made it clear that they consider leasehold to be outdated and “feudal”, that it represents a “fundamentally unfair system and a fundamentally inequitable tenure”, and that they were seeking “the effective destruction of the leasehold system”.  This is the principled basis upon which this legislation is founded. With that being the case, however, I believe there are some important technical improvements that could be made to the bill which would help give practical effect to its intent.

Firstly, so-called “structural dependency rules”. To allow more leaseholders to claim a share of the freehold (collective enfranchisement) in mixed-use buildings, the government is raising the maximum threshold of non-residential floor-space usage for a qualifying claim from 25 per cent to 50 per cent. This is laudable. But the 1993 Leasehold Reform Act says that if such a building has shared services between residential and commercial units, it is ineligible for collective enfranchisement. This provision must be removed.

Secondly, a “right to participate”. As the bill is currently drafted, someone who does not participate in a collective enfranchisement claim with other leaseholders — possibly because they lack the liquidity at a particular moment — is unable to enfranchise in perpetuity. A right for leaseholders to purchase a share of their freehold at a date after a successful enfranchisement claim should be introduced. Provisions should be made to ensure that this does not incentivise freeloading on the leaseholders putting together the initial claim. 

Thirdly, “right to manage”. Leaseholders are subject to charges and fees over which they have no control. This is entirely at odds with the idea that property should provide the owner with a measure of autonomy and independence. The threshold required for leaseholders to set up a right to manage a company, through which they can have a say on the upkeep and maintenance of their building, should be lowered to 35% of a block’s residents.

And finally, all future flat sales ought to come with a share of the freehold. The government’s intention to ban leasehold houses is welcome. But failing to simultaneously ban future leasehold flat sales risks generating a two-tier property market between rural homes with secure property rights, and urban flats with all the abiding flaws of leasehold discussed above. Rightly, the government’s wider housing strategy is predicated on the densification of our urban centres. Ending leasehold for future house sales but not flats will disincentivise urban home ownership and create a wedge between town and country.

The Conservative Party, as I’ve put it before, is the party of property. But it should be the party of extending property ownership to as many people as possible. Of enabling more and more people to enjoy the rights and responsibilities of meaningful ownership. The Leasehold and Freehold Reform Bill is the greatest opportunity the government has before the election to deliver on this distinctively conservative theme. With a few small tweaks, it could be transformative.

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