Persimmon sank to the bottom of the FTSE 100 and Redro fell to the FTSE 250 as the government asked the industry to stump up up to £4 billion to address the cladding crisis.
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 18 million unsafe buildings. Developers must fund and fix any issues with buildings higher than 11 meters that they have worked on and provide the government with data on developments made over the past three decades. The government threatened that legal action would be taken if the companies failed to comply.
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 around £40bn, so £4bn would cost the equivalent of ~10% on a pre-tax basis.” “It recognizes that the listed sector will bear the brunt of the cost, although some private companies are likely to pay as well.”
Gov’s announcement comes on top of a building safety levy and residential property developer tax. The two were announced last year to help fund the government’s £5 billion commitment to tackle the problem.
The new measures are a twist on the government’s previous position, which saw lessees burdened with fixing cladding issues on high-rise buildings.
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 to fix the affected buildings and have recently Just announced Property Developers Tax will raise 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.”
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 failed to meet their responsibilities.”