How England’s flats became second-class housing

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If Zoom, Peloton, and pet stores were some of the unexpected winners of the early phase of the global pandemic, one of the biggest losers was apartment living. As of March 2020, trends in home and apartment prices diverged sharply as lockdowns and remote working placed a premium on home space.

So ubiquitous was this sudden feeling of mild claustrophobia that it can be hard to remember that, until the lockdowns, apartments and houses had enjoyed the same status almost everywhere. Previously, their prices had moved at virtually the same pace as they rose steadily in the early 2000s, crashed in 2008, and then resumed their rise over the decade after.

I say almost everywhere because there are two glaring exceptions: England and Wales. Whether you look across the Atlantic, to the Irish Sea or north to the Scottish border, flats held their own with houses in the pre-pandemic years. But in England and Wales, house prices rose by just 0.6% between January 2017 and March 2020, while house prices rose by more than 5%.

The stark contrast to the other nations of the United Kingdom is especially significant, because it helps to identify the culprits. General economic conditions were similar during this period, and the only significant regulatory change that affected the real estate market: an additional 3 percent stamp duty rate in 2016 for people buying additional homes – it was across the whole of the UK, so it cannot explain a divergence that occurred in only two of the four nations.

Instead, the statistical smoking gun points to two prime suspects. Firstly, the deeply dysfunctional tenancy system in England and Wales, which applies to 95 percent of owner-occupied flats, but only 8 percent of homes. And second, the cladding crisis caused by the Grenfell Tower fire.

Despite paying hundreds of thousands of pounds to become ‘landlords’, renters in England and Wales they do not fully own their propertyThey are subject to arbitrarily determined service charges whose increases sometimes far exceed inflationand can spend years tied up in disputes with the property owner about building repairs and maintenance.

On the contrary, flat owners in scotland and condominiums in Australia, Canadaand the United States are shareholders, meaning they own their individual unit outright and jointly own and manage the larger building, cutting out the middleman and keeping fees in line with maintenance costs. And although the lease exists in Ireland and Northern Ireland, actually their structures are more similar to commonholdand the owners have the right to buy the rent of the land, make them owners.

The particular situation of tenants in England and Wales was highlighted after Grenfell, when a review of security measures found that Hundreds of high-rise blocks in England, housing tens of thousands of tenants, have been built using dangerously flammable materials.. There there were fears that the costs of replacing the siding would be passed on to tenants. The use of aluminum composite cladding in residential blocks. chosen primarily because it was cheaper than safer alternatives -was widespread in England and Welshbut only found in one development in scotland, a single building in Northern Ireland and none in the republic.

Taken together, this dysfunctional form of tenure, which privileges developers over residents, and is absent from the rest of the developed world along with a cheap-and-constructioncharge exorbitantly approach to high-rise development paint a damning picture of the English approach to dense housing.

In a particularly sour twist, the pain of leasing and siding issues falls disproportionately on first-time buyers, who are more likely to purchase new-build apartments as an affordable way to climb the housing ladder, especially light of the government’s help to buy program. House prices in London have risen 17 percent since 2017, but flat prices in the capital are down 1 percent over the same period. An analysis earlier this month by The Times found that two-thirds of new London builds bought using the scheme had lost value.

There may be some light at the end of the tunnel. Labor leader Keir Starmer has now pledged to abolish tenancy for new development, although it has not come to end the system for current tenants. But all things considered, it’s no wonder The British are especially reluctant to live in high-rise developments..

john.burn-murdoch@ft.com, @jburnmurdoch