Doubts grow about government emphasis on shared ownership
In his latest blog, CIH policy advisor John Perry, unpicks the Government’s announcement for new investment in affordable homes, including shared ownership and what this could really mean for housing in this country.
While making homeownership more affordable is very important, there are growing concerns about the way it is being prioritised in the Affordable Homes Programme (AHP) and the snags that might arise.
Half of the new AHP will go to shared ownership (SO), with important changes to the model. The key ones are the repairs responsibility staying with the provider for ten years, buyers being able to buy smaller shares (minimum ten per cent) and then being able to ‘staircase’ up in tranches as small as one per cent, with no transaction fees. Most new rented homes will also have a ‘right to shared ownership’ attached to them.
The usefulness of some of the measures aimed at making SO more attractive – notably the ability to buy only a ten per cent share and then staircase in small increments – will really depend on take-up. Housing providers may be concerned about the possibility of some buyers taking on SO without really being able to afford it, given that the new entry threshold is much lower than the old one (25 per cent). But if the steps genuinely make SO more affordable, they’re to be welcomed.
Shifting the responsibility for repairs and maintenance onto the provider for the first ten years will also make SO more affordable, but at the cost of extra liability for the provider unless rents are raised. But higher rents contradict the aim of making SO more attractive, so could the cost be covered by extra grant? Yes it could, but only by reducing the pot of money available to build new rented homes. At the moment, SO is typically about £5,000 cheaper per unit in grant costs met by Homes England, but this advantage could disappear.
Of course, if costs were borne entirely by the provider instead, this would also have knock-on effects. Right now, SO sales provide very useful cross-subsidy for rented homes, but the funding generated would be reduced. Will this be a sufficiently big difference to affect the viability of schemes? David Montague of L&Q warns that it could. He notes that SO provided through developer contributions (‘section 106’) will be particularly at risk, since there is no grant for this at all.
Wider issues arise from the fact that half the programme will now go to SO. With Homes England getting a bigger share of the overall programme, more development will take place in lower value areas in the Midlands and North. But in these areas, will SO be attractive to buyers? They will want assurance that market conditions won’t worsen and affect their ability to sell. Lenders will be reluctant to fund SO in areas where it is perceived as risky, including providing funds for staircasing.
Overall, the viability of the new model depends as much on lenders offering attractive mortgages to buyers as it does on the changes made by the government. And in choosing where to put their money, buyers will of course weigh the attractions of a new home bought via SO against the costs and perhaps ease of transaction in buying a second-hand property instead. Sue Rossiter points out that, according to Zoopla, an average new build is £65,000 more expensive than a similar older home in the same place. As she says, ‘It is tempting to buy a property that has a dishwasher in the fitted kitchen, and a 10-year guarantee against major property defects. But is it worth £65,000?’
A big issue for the AHP as a whole arises from the push to make half the funding go towards SO schemes. Under the current programme due to end next March, roughly 35 out of every 100 homes are for SO, the rest are for rent. Given that SO demands slightly lower grant, if half the funding goes towards it that implies, perhaps, SO accounting for 55 out of every 100 homes built. That is a huge growth in this area, especially as Homes England’s programme itself is bigger than before. It inevitably makes the achievement of the programme as a whole riskier, because it is entering new territory.
The funding for rented provision is duly squeezed, and, given that grant levels for social rent are to be no higher than for affordable rent, this will make it harder to fund homes accessible to tenants on the lowest incomes. There will also be no grant for homes replaced in schemes to regenerate existing estates. Furthermore, the stronger emphasis on promoting homeownership in the AHP sits alongside the even bigger sums that continue to be invested in private housing through Help to Buy, the Home Building Fund, and a whole range of other initiatives. If government investment was distorted in favour of homeownership before, the latest changes only make the imbalance even worse.