By Oliver Shah
The stealth nationalisation of the property industry continues. A couple of paragraphs tucked away in housing secretary Michael Gove’s levelling up white paper and extracted by the Daily Mail yesterday propose giving councils the power to let vacant retail units forcibly. Yes, that’s right: those renowned entrepreneurs who populate town halls may soon be doing their bit to “revitalise high streets” by installing tenants against landlords’ wishes.
This populist gimmickry should come as no surprise to those who have tracked the government’s attitude to real estate since the start of the pandemic.
The moratorium on rent collection was designed to limit job losses among locked-down retailers and restaurateurs, but it also had the effect of shifting pain onto property owners, a less significant group in PR terms. The moratorium remains in place until September for Covid rent arrears, which are ring-fenced and subject to a cumbersome arbitration process if landlord and tenant cannot agree how to share the hit.
Image problem remains
Ministers’ thinking was made clear in other measures: for example, while tenants received business rates relief, there was no help for property owners with empty rates bills.
There has been a perception problem. A handful of landlords, such as Asif Aziz’s Criterion Capital, gave the industry a bad name with hardball tactics. The majority acted responsibly. And not all tenants are angelic mom-and-pop café managers: some private equity-backed giants such as Travelodge played a tough game with landlords over rents.
I’ve remarked before on the superior lobbying power of HospitalityUK versus the British Property Federation. The industry has allowed itself to be used as a provider of blank cheques. Adam Coffer, chairman of the Property Owners’ Forum, puts it thus: “The implication is that property owners are all pinstriped, cigar-chomping barons who whip our serfs whenever they step out of line. The reality is this is our livelihood.”
Gove has moral right on his side in his battles to save leaseholders from cladding remediation bills and to grab oligarchs’ London dachas, but his approach to both should induce queasiness in anyone who cares about the rule of law. He has raised £2bn from developers to fix high-rise buildings by threatening to shut them out of the market if they don’t cough up. His department is aggressively targeting nine hold-outs, including Galliard Homes, saying it will warn prospective customers against buying Galliard properties and shut it out of the Help to Buy scheme.
As for seizing Russians’ property, the legal system’s slow pace might be frustrating, but there are good reasons why someone must be proven to be in Vladimir Putin’s inner circle. Fairness matters, even – or perhaps especially – in emotional times, and state expropriation is not to be undertaken lightly.
The implication is that property owners are all pinstriped, cigar-chomping barons who whip our serfs whenever they step out of line.
ADAM COFFER, PROPERTY OWNERS’ FORUM
Which, in a manner, brings us back to high streets. The pandemic accelerated a retail shake-out that was already peppering town centres with vacant units. Some 276 big stores run by Debenhams, House of Fraser, John Lewis and Marks & Spencer have closed over the past five years. Two-thirds are vacant, with no plans on their rehabilitation. The idea of giving councils the ability to shoehorn in new tenants via a compulsory auction might be superficially attractive, at least to tabloid editors.
But hang on a minute: what rational property owner wants an empty property? Not only are they foregoing rental income, they’re being charged empty rates. The reason many of these sites remain unoccupied is that they are big, complicated and need repurposing. The former department stores that are been revived (such as Cheshire, where Bruntwood Works and Trafford council are carving up the House of Fraser into offices, shops and restaurants) are the ones where developers and local authorities are working hand-in-hand. Private sector capital plus a can-do attitude from the council is the answer. Forcing a landlord to let an enormous space like a former Debenhams to whoever wins a Dutch auction is not.
Private sector capital plus a can-do attitude from the council is the answer. Forcing a landlord to let an enormous space like a former Debenhams to whoever wins a Dutch auction is not
With smaller units, the market is doing its job perfectly well by lowering rents. The Financial Times yesterday highlighted how gym chains are taking advantage of bombed-out prices to expand. It cited a recent deal by Anytime Fitness to secure a city-centre rental site at £125,000 a year with a “significant” rent-free period, compared with a marketed value of £225,000 in 2019.
Business rates reform
But one thing the market can’t fix is the elephant in the room – business rates. This wouldn’t be a silver bullet for high streets, but it would help. Taking the “multiplier” used to calculate the tax back to 34.8p in the pound, the 1990 level, and bringing in annual revaluations would make the backdrop more positive.
Chancellor Rishi Sunak investigated business rates reform but, like all occupants of Number 11, ended up tinkering around the edges. He has proposed freezing the multiplier for two years – a meaningless measure – and moving to three-yearly valuations. Addressing rates properly should form part of any vision to repair high streets and – dare I say it – level up.
The plague of empty sites afflicting town centres is a complex problem. It requires cooperation between the public and private sectors, not antagonism. The idea of pitting councils against landlords over vacant units is a cheap bit of publicity. The consolation is that it’s unlikely to be workable.