Why developers deserve to pay for the cladding crisis

In recent months, Michael Gove has been upsetting not only the house-building industry but its defenders, too. The Levelling-up Secretary has been accused of ‘blackmail’ by online newspaper Cap X, which compared his actions to ‘Putin’s Russia or Erdogan’s Turkey’. The Telegraph mocked him up on a wrecking ball Miley Cyrus-style, and several trade press articles have accused him of ‘declaring war’ on the industry.

The reason? Gove has ordered housing developers to pay for ‘life safety’ remediation measures on blocks they built, which have been found to have serious fire safety defects in the aftermath of the 2017 Grenfell Tower fire – regardless of whether they were to blame for the flaws or still own the building.

This order comes on top of a couple of new taxes – a 4 per cent boost to corporation tax and a forthcoming levy on new building projects – aimed at extracting money to fix problem blocks. All of this adds up to a lot of money – north of £5 billion over the next decade – to come from the house-building industry to fix dangerous buildings.

Builders have not been given much of a choice about whether they sign up to Gove’s plan – last year, he passed legislation which awarded him the power to effectively bar companies from building new homes if they didn’t. This would have shut down building sites and frozen income. It was a threat which left (most) builders in a position where they had no choice but to accept.

The builders say this is all too much. While most were happy to make some provision for contributing to fixing blocks they built and still owned, this will open them up to much wider historic liability. Shouldn’t they just pay for those where they were to blame?

The developers may howl, but practically this crisis needs money up front and there is no painless way to get it

The problem with this argument is the difficulty in figuring out exactly who is ‘to blame’ for the thousands of blocks around the country that still need fixing. Take an imaginary, but representative, building found to have combustible cladding on the upper floors, combustible insulation on the lower floors, timber balconies, missing fire breaks and internal defects which would allow smoke and flame to spread unhindered from flat to flat. Who is to blame for this block?

The balconies and cladding may well come down to defective government guidance which failed to ban them. The insulation might be the fault of the company that made it, the architect that specified it, the specialist subcontractor that fitted it, the building control officer who signed it off or (in most cases) a combination of the above. The missing fire breaks might come down to workmanship or design, and it will take a pretty detailed analysis to say for sure. The internal defects may be down to the original construction, the way the building has been maintained in the years since or both.

It should be obvious that any effort to establish who is truly to blame will be little more than a decade-long exercise in enriching construction lawyers. In the meantime, the building will have remained unfixed, which means the fire risk will have persisted and everyone who lives in it will have been unable to sell and move on with their lives. Now multiply this one case by the 10,000 or so buildings involved in the crisis and you can see why asking those who are ‘to blame’ to pay is no solution at all.

Some might say we should simply forget about these risks, fit fire alarms and sprinklers and carry on. But we have tried that too. Leaving to one side the obvious danger of failing to prevent a future catastrophe, insurers and mortgage lenders simply don’t accept blocks with these defects in their portfolio. That means they need fixing ­­– at least if you want people to live in them. And that means someone has to pay for the fixing.

What Gove has done is find a responsible party with deep pockets, grant himself leverage over them and soak them for as much as he can get. The developers may howl, but practically this crisis needs money up front and there is no painless way to get it.

Builders are right to say Gove should be doing more to get funds from others as well. Product manufacturers are a particularly culpable party and yet to pay a penny. But the size of the remediation job the country faces (conservative estimates put it at £15 billion) mean that any other sources of funding will need to be in addition to the builder’s contribution, not in place of it.

It is also worth saying that the industry has had six years to make this right on its own terms. The government spent the first few years after Grenfell limply calling on developers and freeholders to ‘do the right thing’ and pay the costs without taking the (legally available) route of shifting them to residents.

From the earliest days of the cladding crisis, the industry was warned that government was ‘ruling nothing out’ if the industry didn’t fix the problem themselves. The industry effectively gambled on this being an empty threat and it has now lost.

While builders did pick up the tab for a few blocks which they still owned, they were also very willing to let their former customers pay where liability could be denied. The awkward truth is that the position they bemoan finding themselves in now – paying the tab for someone else’s mistakes – is one they had been happy for their former customers to face.

Builders also brush over the fact that our legal system places an obligation on them to ensure the walls of homes they built ‘adequately resist the spread of fire’. This is not caveated by excuses about dodgy contractors, dishonest marketing from product manufacturers or even faulty government guidance. It is a responsibility which belongs to them.

It was their own lobby in the 1980s which pushed for this loosely worded approach, insisting industry was better placed than a bureaucratic state to know how to achieve it. Forty years on, they cannot blame others. They built the homes, they took the profits and they deserve to be handed their slice of the liability.

The best thing they can really do is eat it quietly and try to make the money back by building more homes. Doing so remains a highly profitable enterprise. Hopefully, this time, they will try that little bit harder to make sure what they build meets the basic standards of life safety. Knowing that they will be the ones to pay if it doesn’t can only help focus their minds.