House builders lost more than £1bn in value today, after the government gave the industry just weeks to come up with plans to fully cost the £4bn cladding scandal.
Michael Gove, Secretary of State for Leveling Up, Housing and Communities, wrote today to industry leaders asking them to plan to fix building cladding issues by early March.
Builders are being asked to contribute £4 billion to a fund that will repair unsafe buildings 11 to 18 meters tall. Developers must fund and fix any issues with buildings over 11 meters that they have worked on and provide the government with data on developments carried out over the past three decades. The government threatened legal action for non-compliance.
The fall in the shares of house builders Persimmon was the biggest loser on the FTSE 100, down 3.1%, while Redro fell 3.3% on the FTSE 250. Other major developers posted similarly sharp declines and £1.3bn was wiped out of the sector’s market cap in early trading.
UBS analyst Gregor Kuglisch said the cost of the new measures was “significant”.
He and his team wrote in a note to clients, “The current market capitalization of the sector is approximately £40bn, so a cost of £4bn would equate to ~10% on a pre-tax basis.” “It recognizes that the listed sector will bear the brunt of the cost, although some private companies may also be required to pay.”
Gov’s announcement comes on top of a building safety levy and residential property developer tax. Both were announced last year to help fund the government’s £5 billion commitment to tackle the problem.
Stewart Beasley, executive chairman of the Home Builders Federation, said: “The UK’s largest house builders, who have built only a minority of the affected buildings, have already spent or committed close to £1bn towards the treatment of affected buildings and have recently Declared in property developers tax will increase billions more.
“We will engage directly with the government but any further solution should be proportionate, and involve the people who actually built the affected buildings and specified, certified and provided faulty materials on them.”
Rico Wojtulevi, Head of Housing and Planning Policy at the National Federation of Builders (NFB), said: “The government has already introduced an industry specific cladding tax, and now another is on the way. This piecemeal approach is confusing, Unnecessarily complex and will likely affect the number of homes built.
“It is also worth noting that the developer paying for the treatment will almost certainly not be responsible for the cladding put on the property – much of which was re-applied long after construction and has nothing to do with the developer. -Do not give.
“Another construction industry-related tax is neither fair, nor proportionate, and the industry will be dismayed by the scarcity gun approach that many governments have set regulation to fix the issue.
“Maybe all MPs will sacrifice a percentage of their salary and pension to help fund repairs, see the real responsibility lies with the MLAs?”
A spokesperson for Taylor Wimpy said it has “already worked on this for its customers” and “has ensured that Taylor Wimpy customers do not have to pay for these improvements.”
“We are confident that we will not be penalized for our early action to do the right thing,” the company said. “There are many organizations involved in the issue of fire safety, including large business in our supply chain and indeed the government itself, and so the proposed response should recognize this.”
Gove said: “Some developers have already done the right thing and funded remedial works and I applaud them for those actions. But many others have also failed to fulfill their responsibilities.”