There are three main divisions within capitalist society which share the surplus-value which is socially extracted from the working class; the industrialist, the landlord and the banker. Having been the but of popular resentment, the bankers have now recently been pushed of the radar by the land-owners. Builders are to be banned from selling houses as leasehold in England and ground rents on flats could be cut to zero following widespread outrage over exploitative contracts. The ban, while welcomed by campaigners, leaves the position of existing leasehold homeowners unclear.
Traditionally, houses have been sold as freehold, and the buyer has complete control over their property. When a house is sold as leasehold, the buyer is effectively only a tenant with a very long term rental, with the ground the home is built on remaining in the hands of the freeholder. The home buyer has to pay an annual “ground rent” to the freeholder, and has to ask the freeholder for consent if they want to make any changes to the property, such as building a conservatory or changing the windows. In the past, leasehold property owners were generally charged just a “peppercorn” ground rent, sometimes as little as £1 a year, and many freeholders did not bother to collect it. But the picture changed earlier this century, when developers started to insert clauses into leasehold contracts where the ground rent was set at £200-£400 a year, doubling every ten years.
There were 4m residential leasehold dwellings in England in the private sector in 2014-15 and of these 1.2m were leasehold houses. In 1996, just 22% of new-builds in the UK were sold as leasehold, but this has doubled to 43% today. In London, nine out of 10 new-builds are now leasehold. Leasehold houses are an absolute racket: a means by which developers have managed to turn ordinary people’s homes into long-term investment vehicles for shadowy investors, often based offshore. In short, housebuilders have been systematically cheating their own customers, who must have known that creating this second lucrative income stream for developers would ultimately be at the cost of their customers. Although unsuspecting first-time buyers were frequently told that 999-year leases were “virtually freehold”, the clauses meant that the ground rent would soon spiral to absurd levels. The government quotes a family house where the ground rent is expected to hit £10,000 a year by 2060. A rent that doubles every ten years is effectively a return on investment of 7% a year. That’s a guaranteed, and legally enforceable income that is worth a phenomenal amount to financiers when Bank of England base rate is now just 0.25% a year. Aristocrats and tax-haven shell companies are among the freehold owners that have made millions from spiralling ground rents.
In Ireland, much-hated ground rents extracted by the Anglo-Irish aristocracy, and dating back to the Cromwellian era, were partly behind the rise of the Land League in the late 19th century, and the country’s fight for independence. Once a republic, Ireland legislated to give leaseholders the right to demand the freeholder sell up, at a relatively low price using an agreed formula. Legislation passed by the Scottish parliament, including the Abolition of Feudal Tenure (Scotland) Act 2000, and the Tenements (Scotland) Act 2004, effectively brought leasehold to an end in the country. More recently, the Long Leases (Scotland) Act 2012 automatically converted remaining long leases to outright ownership. Large parts of Australia were originally leased to farmers by the government, but the country rejected that form of tenure in the 1960s. However in New Zealand, 15% of residential apartments are believed to remain as leasehold, mostly towards the bottom of the market, with what are called “Glasgow” leases, again dating to the colonial period. In Auckland’s super-hot property market, issues similar to those in England about soaring ground rents have emerged. However, the sector is much smaller than in England because New Zealand banks are far less willing to lend against leasehold homes. Although the Glasgow leases date back to Scottish settlement in the Otago region of New Zealand’s South Island.
Paula Higgins, the chief executive of the HomeOwners Alliance, said: “Unscrupulous players within the industry have turned what has been a form of tenure for centuries into a money-grabbing scheme that has left thousands of buyers across the country trapped in properties that are now essentially unsaleable. Property speculators is an out-of-control sector that greedily exploits the desperate need for homes.