The Government must focus availability of starter homes more tightly to avoid merely transferring sales from Help to Buy
Housing played a key role in the last election with the Conservatives’ flagship pledge being the creation of 200,000 starter homes for first-time buyers. This was a doubling of a promise first made in September 2014 and undoubtedly appealed to many of those priced out of the market.
There is still some way to go before we know exactly how the scheme will work and we are unlikely to see any completions until the middle of 2016. However, one thing is for sure: this scheme will go ahead. So here is what we do know.
Starter homes will be new-build homes available to first-time buyers under the age of 40 at a discount of at least 20 per cent of the market value. The precise process for determining the open-market value is still to be worked out between the Government and key stakeholders, in particular lenders.
Following the formation of the Conservative Government, the proposal was encapsulated in the Housing and Planning Bill presented to Parliament on 13 October. The bill includes the basic provisions for starter homes, including the enabling powers for the Government to set the proportion required on individual sites, as well as imposing a duty on local authorities to promote their supply and associated enforcement measures.
The bill also states that properties purchased as starter homes will be subject to restrictions on sales and lettings, likely to remain in place for a five-year period from purchase, and reaffirms the price caps: the maximum discounted market price will be £450,000 in Greater London and £250,000 elsewhere.
Interestingly, these homes will be available for purchase by a “qualifying buyer” but, rather than leave the definition to regulations, the Government intends to put it in statute, thereby making future alteration more difficult. This means purchasers would have to be first-time buyers as defined in the Finance Act 2003 (the same definition used for Help to Buy Isa eligibility).
The Housing and Planning Bill seeks to impose a starter homes requirement on most new housing developments. The exact requirement will be determined through regulations and could vary by region or locality. The Government has also stated that only “reasonably sized sites” will have to make provision for them. It is envisaged their requirement will take precedence over other affordable housing obligations sought by the local authority.
The present definition requires affordable products to be “provided to eligible households whose needs are not met by the market. Eligibility is determined with regard to local incomes and local house prices”. However, other than being for first-time buyers aged below 40, starter homes have no household eligibility requirements and thus no link to local incomes.
There is also no requirement for starter homes to meet the needs of households “whose needs are not met by the market”.
The current definition also includes what is usually known as the ‘in perpetuity’ principle: namely that the affordable dwellings “should remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision”. Starter homes do not have to meet these requirements.
With this in mind, there is a potential for market distortion if high numbers come onto the market. The effect is likely to be highly localised and could impact upon the saleability of units on new sites where another site in the area is selling a large proportion of starter homes at below market value.
The impact could also be felt in the wider local housing market, encompassing second-hand homes as well as new-builds. This is something both surveyors and lenders have already aired their concerns about.
To achieve the target of 200,000 sales by 2020, and allowing time for the Housing and Planning Bill to become an act, the scheme will require more than 50,000 sales a year from 2017 until the general election in May 2020.
The Home Builders Federation anticipates the majority will come through S106 agreements rather than via exception sites. The most recent data (for 2013-14) shows there were approximately 16,200 affordable housing units delivered through S106 agreements.
With its ambition to promote homeownership opportunities to as many people as possible, the Government must consider ways to focus availability of starter homes more tightly. If not, it could merely transfer sales from Help to Buy to starter homes, which could cannibalise existing sales made by homebuilders.
Andy Frankish is new homes director at Mortgage Advice Bureau