Gove wrote to the industry, introducing a deadline of early March to agree a fully funded plan of action, including remediating unsafe cladding on 11 to 18-metre buildings, currently estimated to be £4bn.
He warned that the government will take any steps necessary, including restricting access to government funding and future procurements, the use of planning powers and the pursuit of companies through the courts.
Gove added that if the industry fails to take responsibility for the cladding crisis, the government may impose a solution in law.
Later today, Gove is due to make an oral statement to the House of Commons announcing plans to protect leaseholders trapped in unsellable homes due to cladding issues.
He will also unveil a package of further measures to address the issue.
In the letter, Gove said: “Our home should be a source of security and pride.
“For too many of the people living in properties your industry has built in recent years, their home has become a source of misery. This must change.”
He added: “It is neither fair nor decent that innocent leaseholders, many of whom have worked hard and made sacrifices to get a foot on the housing ladder, should be landed with bills they cannot afford to fix problems they did not cause.
“Government has accepted its share of responsibility and made significant financial provision through its ACM remediation programme and the Building Safety Fund.
“Some developers have already done the right thing and funded remedial works and I commend them for those actions.
“But too many others have failed to live up to their responsibilities.”
In the letter, Gove asked companies to agree to: make financial contributions to a dedicated fund; fund and undertake all necessary remediation of buildings over 11 metres that they have played a role in developing; and provide comprehensive information on all buildings over 11 metres which have historic safety defects and which they have played a part in constructing in the last 30 years.
Gove said developers must take forward all necessary remediation work at pace – prioritising those with greatest risks first and in all cases finding the quickest and most proportionate solution to make buildings safe.
He has called on the industry to enter an open and transparent dialogue with the government to hear their proposals, starting with a roundtable with the largest residential developers and trade bodies.
The government will invite leaseholders and those affected by the Grenfell Tower tragedy to discuss solutions at appropriate junctures to ensure discussions are not taking place behind closed doors.
The government will announce a decision on which companies are in scope for funding contributions following discussions with industry, but it expects to cover all firms with annual profits from housebuilding at or above £10m.
The statement follows the Secretary of State ordering the suspension of Rydon Homes, linked to a company responsible for the refurbishment of the Grenfell Tower, from the government’s Help to Buy scheme.
The announcement has seen the value of the five largest listed builders fall by at least 3% in early trading in London today, with Persimmon at one point more than 4% down on its closing price last Friday.
The decline has removed in the region of £1bn of the value of major listed builders, with Persimmon’s value dropping by more than £300m alone.
David Renard, housing spokesperson for the Local Government Association, said: “No leaseholder should have to pay the costs of making their homes safe and the secretary of state’s threat to use the legal system to ensure developers meet their responsibilities to leaseholders is a positive step in the right direction.
“However, leaseholders are not the only innocent victims of the construction industry’s failure to build safe homes.
“The construction industry must also be made to fix the fire safety defects it has built into blocks owned by councils and housing associations.
“Unless the government forces the industry to act – or provides funding – we are concerned that the costs of fixing social housing blocks will fall on council housing revenue accounts and housing associations.
“This will reduce the funding available to meet the government’s ambitions for improvements to social housing, net zero and the provision of new social housing, leaving tenants and those on the waiting list to suffer the consequences of decades of industry failure and poor regulation.
“Like leaseholders, council tenants and those on the waiting list are innocent victims and the government needs to help them too.”
Oli Creasey, head of property research at Quilter Cheviot, added: “Following leaks on Friday and over the weekend, Michael Gove is set to unveil a plan this afternoon asking property developers to contribute a further £4bn to the cost of cladding removal in the wake of the Grenfell fire in 2017.
“Progress on this issue is extremely welcome. Far too many leaseholders remain trapped in flats that are potentially unsafe and which they are unable to sell or borrow against.
“There will be little public sympathy for housebuilders, which have made exceptional profits during the pandemic and will be unable to push responsibility back on the government.
“Property developers are already expected to pay a 4% residential property developer tax from 2023 onwards, which will aim to raise around £2bn over the next decade to cover the cost of re-cladding buildings over 18 metres tall.
“Gove’s new policy is aimed at remedying problems in lower rise buildings between 11 and 18 metres high.
“This could either be in the same form as the RPDT, which would be a further 8% tax on top of the existing bill, taking the total tax bill to around 37%, or it could be a one-off hit equating to around 10% of the house building industry’s current market cap.
“Despite the government admitting some fault in the run up to the events of 2017, they will not be contributing any further funds to the work required and all costs unaccounted for will be covered by industry.
“It is understood at this stage that the £4bn cost will be put to the house building sector as a ‘voluntary’ expense, so it remains to be seen how effective this will be.
“A number of house builders have made provisions to cover such costs, for example Persimmon and Taylor Wimpey have provisions of £75m and £125m respectively for these lower-rise buildings, but their willingness to pay a substantially higher amount on a voluntary basis is probably very low.
“We would expect this to evolve into a more enforceable tax or similar in due course.
“Publicly traded house builders are not the only companies on the hook. They represent around 40% of the residential development market, with the remainder being built by privately help businesses, large and small.
“The indication is that large private businesses will be held accountable, although smaller businesses may slip through the net.
“The other players are the material manufacturers, who have so far not been discussed as on the hook for these additional costs.
“If existing provisions or other sectors are in scope the impact on the housebuilders could reduce substantially.
“There may also be unintended consequences for the government’s own housebuilding targets, should the higher tax reduce the output of housebuilders, particularly at lower margin sites.
“All else being equal, this could put further upward pressure on property price. However, the government will no doubt consider this a price worth paying.
“Ultimately, we expect this additional cost to stay with the housebuilders, though the government may need to enforce contributions rather than ask for volunteers.
“However, the entire £4bn cost should be spread across private and public companies, and we would expect the publicly-traded companies to cover around half of this sum between them.
“The sector is down c. 5% year-to-date, which is a broadly fair response.”
