Leasehold reforms are likely to have unintended economic consequences, warns former Treasury economist Martin Beck.

Labour’s proposed annual cap on ground rents could deliver an unexpected windfall to property investors rather than just benefiting owner-occupiers, as a significant number of rental properties are leasehold, according to analysis carried out by consultancy firm WPI Strategy.

Its Chief Economist, Martin Beck (pictured), says: “While the intention of reform is to support leaseholders, the economic reality of a £250 cap is that much of the financial benefit will accrue to buy-to-let landlords rather than owner-occupiers.

“Our analysis suggests the policy could deliver around £8.7billion in windfall gains to property investors, including foreign investors, because a large share of leasehold homes are already privately rented.”

Excessive charges

The Government announced its plans to overhaul the leasehold system in England and Wales in January, with the ground rent cap intended to protect the more than five million leaseholders from excessive charges.

The report warns, though, that it could have wider economic consequences. WPI estimates that reducing ground rents will wipe up to £18 billion from the value of ground rent investments, which is roughly 0.6% of UK GDP, and reduce business investment by as much as £9 billion a year.

WPI also raises concerns that the policy could affect housebuilding if investor confidence weakens. It says housing starts could fall by between 15,000 and 20,000 homes a year, particularly in London and the South East, where flat developments rely heavily on long-term investment structures.

“Ground rent is money for no clear service in return, and in the worst cases, leaseholders face spiralling costs.”

A spokesperson for the Ministry of Housing, however, rejected the claims, telling GB News: “Ground rent is money for no clear service in return, and in the worst cases, leaseholders face spiralling costs.

“The notion that this cap will harm housebuilding is nonsense, it will reduce costs for leaseholders and make the housing market more efficient by simplifying the buying and selling process.”

The research was commissioned by the Residential Freehold Association.

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