15 Feb 2022

What’s the problem with First Homes?

Despite what Kirsty Allsopp might claim I think most people would agree that saving money for a deposit on your first home is nowhere near as easy as cutting back on Netflix, takeaway coffee and gym membership. In fact, getting onto the housing ladder is completely impossible for many.

Young people are half as likely to be able to buy a home as 20 years ago (and this was pre pandemic so the situation is likely to be even worse now) and research has revealed that the bleak housing prospects of young people are significantly damaging their mental health. Therefore, a scheme to help first time buyers get a foot onto the housing ladder in the places where they live and work sounds like a great idea, doesn’t it? And it’s likely to be a real vote winner too - another tick for the government’s flagship First Homes policy! 

However, the Chartered Institute of Housing (CIH), like many others in the sector, expressed concern when the policy was first being consulted on. Despite good intentions, this discounted market sale scheme would likely fall far short of the mark in ‘fixing the broken housing market’ and turning ‘generation rent into generation buy’. 

Designed to offer first-time buyers a minimum discount of 30 per cent against market value on properties below £250,000 (£420,000 in London), the first First Homes properties went on the market in summer 2021 in the pilot areas. Now, except in some transitional circumstances, local authorities must ensure that a minimum of 25 per cent of all affordable housing units secured through developer contributions are First Homes. As the reality of this begins to bite, we have been in discussions with members working in several local authorities about their experiences, frustrations, and concerns around the government’s new ‘preferred discounted market tenure’.

In high value locations First Homes still won’t be affordable

In high value areas, the depth of the discount on properties would need to be considerably deeper than 30 per cent to make them affordable compared to average earnings. Indeed, the scheme is designed so that local authorities can offer a discount of 40 or even 50 per cent. However, given the price cap of £250,000 (£420,000 in London) in high value areas this would likely only get you a one-bedroom property – immediately making the pool of potential beneficiaries for this scheme much smaller (and not necessarily for those who most need it).

In addition, perhaps in attempting to make the administration easier, guidance stipulates that the discount should be applied at a Local Plan wide area. This again generates affordability problems as the reality is that many authorities have very mixed markets. Whilst 50 per cent might be appropriate in one area of a large authority, only 30 per cent may be needed in another.  However, as only one discount can be set the lowest will have to be used for viability reasons. This means that in the high value areas most middle-income first-time buyers and key workers (who this scheme is also intended to prioritise) will simply be priced out.

Then there is also the very real risk that following in the footsteps of its predecessor Help to Buy, First Homes will inflate prices by more than their subsidy values, and merely give a helpful leg-up to those who would have eventually gone on to buy anyway rather than tackling any read ‘need’.

First Homes will displace other affordable tenures

With 25 per cent of all affordable homes provided through Section 106 having to be First Homes, there will clearly be an impact on the provision of other affordable tenures since there will have to be an equivalent reduction in shared ownership and affordable rent homes to accommodate this. Evidence from members indicates that this will be felt most acutely in shared ownership. This is extremely worrying as shared ownership fills an important gap in the market and is also an effective mechanism for receipts to be recycled back into the delivery of new homes.  

A hugely complex administrative burden

With a lack of planners nationally and authorities stretched to breaking point after years of austerity, members working in local authorities have expressed concern that they will not have the resources to carry out the additional administration needed for First Homes. Particularly for non-stock holding authorities who do not have an allocations team, the administration of the prioritisation criteria for First Homes will be complex.  Authorities will also be tasked with monitoring the marketing of these products as, if First Homes have been marketed for six months and there is no demand, they can be flipped back to full market cost. To add insult to injury, anecdotally we have been told that many developers do not actually like the product – First Homes will not be profitable for them and are complicated for them to administer too. As a result, many are pushing back the responsibility of engaging with potential purchasers to local authorities.  

First Homes Exception Sites and the impact in non-designated rural area

For rural areas that are not designated as 'rural' (the criteria for which are surprisingly quite narrow) or in the Green Belt, First Homes exception sites can apply. This is a significant concern to members we have spoken to whose authorities have a rural element. Exception sites deliver affordable housing as an ‘exception’ to other policies in the development plan which otherwise restrict development. Traditionally, exception sites have been developed next to villages and small settlements for affordable housing to meet an identified local need. However, First Home Exception Sites, can now be brought forward in similar locations. This means that rural areas which aren’t designated will really struggle as First Homes will be able to deliver schemes at a higher land value, resulting in landowners releasing land for this use rather than for a lower value rural exception site. In short, First Homes risk undermining local authorities’ ability to meet local needs and runs counter to the aspirations set out in the Levelling Up White Paper.

Perhaps not a such great idea after all then?

There may be a limited number of situations where First Homes will work well, and I am sure that on paper they are likely to be very appealing to first time buyers desperate to own their own home (although once they get under the skin of the detail, they may find themselves still priced out in many situations).  But the reality is that they seem to be a rather blunt tool for complex issues.  A national obligation over-riding local needs assessments is unlikely to work well.  A better local needs-based alternative would surely be to give local authorities discretion to include First Homes in their planning requirements where they consider it best meets need.

Given the analysis to date, now is the time to look again at whether this policy delivers on its aims. Let’s hope this is in the in-tray of the new Housing Minister.