Gove vows to reduce ground rents to ‘peppercorn’ levels over time

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Michael Gove has insisted ground rents in England and Wales would eventually fall to nominal levels under his leasehold reforms as he accused Conservative opponents to the changes of acting like “rentier” capitalists defending broken markets.

The housing secretary has struggled to push through legislation that would reform what he terms the “feudal” system of leaseholds and end no-fault evictions, which allow landlords to kick out tenants without giving a reason.

Both pledges were part of the 2019 Conservative party manifesto. But Gove’s attempts to put them into law have been watered down following strong pushback from landlords, investors and Tory MPs, many of whom are landlords themselves.

The plan to set all ground rents that are part of leasehold agreements at nominal, or “peppercorn”, rates, was blocked last month after the Treasury intervened. Instead, the government is expected to impose an annual cap of about £250.

But Gove told the Financial Times he would set out a timeline as soon as next week that would ensure ground rents fell to a nominal level after a period of transition.

“I wouldn’t say it’s halfway house, I’d say it’s a journey,” he said, adding, “you could not find a better encapsulation of rentier economics” than the investment managers and pension funds who own freeholds and benefit from the income that ground rents provide. 

“The idea that this is Marxist is absolutely preposterous,” he added. “If the Conservative party is the party of the already propertied rather than the aspirant, then not only are we losing the argument, we’re not fulfilling the moral purpose of conservatism, which is to make sure that people can understand that markets work in their interests.”

Gove insisted his decision last month to bow to pressure from landlords and investors to amend his flagship Renters Reform Bill and delay the end of no-fault evictions, known as section 21s, was only a temporary measure.

“We will abolish section 21,” he said, adding that he would lay out a timeline for eradicating the practice during the bill’s third reading, expected next week.

Gove was speaking ahead of the release of the latest official data on Wednesday that underlined the extent of the UK’s housing crisis. Rents rose on average by 9.2 per cent last month, the biggest annual increase recorded since the Office for National Statistics began collecting the data in 2015.

Higher mortgage rates have accentuated the country’s housing shortage, resulting in landlords passing the higher borrowing costs in the form of rent rises to tenants.

He said it was crucial for the Conservatives, which are trailing Labour by an average of 20 points in the opinion polls ahead of the general election later this year, to address the housing problem.

“The point that I’ve made to some people in the broader Conservative family is, ‘when you talk about property rights in a particular way . . . you sound as though you are defending the rentier, the already wealthy and the privileged, rather than being on the side of those people who aspire to — and in due course will — own a home of their own’,” he said.

He said the controversy around Thames Water, where shareholders have made huge profits from the failing utility, was a further example of “people and institutions which discredit capitalism”. 

He added: “Let’s fix the markets that are broken at the moment so that people can see that capitalism, free enterprise, can work in the interests of those who are currently excluded.”

Heavy lobbying by pension and investment fund managers played a large role in the Treasury’s decision to intervene on ground rents — an annual payment that is part of the centuries-old leasehold system that allows the owner to reside in a property and sell that right on, although ultimately the building is owned by a landlord or freeholder.

There are nearly 5mn leasehold homes in England and 86 per cent of owner-occupiers pay ground rent, according to the government. 

Gove also hit out at one of Labour’s main pledges to address the housing crisis by building 300,000 homes a year. He said the opposition party’s stated plan to allow building on the greenbelt was “unintelligible” given that it was already government policy should the plans have local support.

“I literally do not know what Labour would do that we are not already doing that would increase the rate of housebuilding,” he said.

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