Widening homeownership appears the key priority for this Government and the property world now has a new tenure to grapple with following the introduction of First Homes. Pushed out ahead of the now stalled wider planning reforms, First Homes is a new discount market sale tenure which may become compulsory across all sites with discounts starting at 30% and potentially increasing up to 50%.
The Conservatives focus shouldn’t be a surprise. Where they have enjoyed most electoral success is within the so-called “Red Wall” seats. It is these places where house price to earnings ratios offer a fighting chance to buy a home and where Help to Buy has had a meaningful impact. However, First Homes should not be considered a replacement for Help to Buy and will create new complexities and challenges.
A central mistake of this new policy is the mandatory requirement to provide First Homes on each and every site. Pocket’s long experience of delivering discount market sale is that it works best in central, more urban locations.
A better approach would have been to ask Councils to plan strategically and think about which areas might offer the best match for local First Homes. For example, I see a big opportunity for First Homes in town centres which might be transitioning away from retail to more mixed use. However, on fringe sites, perhaps in more suburban locations, discount market sale may be less attractive and other forms of affordable housing might be more appropriate.
First Homes can be up to a 50% discount off the price of a home. The Pocket experience, however, is that a 20% discount works well. It means buyers who acquire a Pocket home are not too far out of step with the open market. Too great a discount risks trapping people in this tenure. A First Home could become the last home.
There is also the mortgage market to consider. Mortgage companies are more inclined to lend where a buyer has decent skin in the game. The greater the discount, the greater the perceived moral hazard and the mortgage products on offer start to dry up fast.
Pocket has shown there is a place for discount market sale in the property development world but it tends to work best on smaller central sites and with smaller homes. The data shows 70% of first time buyers are singles and couples wanting one and two bedroom homes. The larger the home, the greater the cross subsidy which also means less money for other forms of affordable housing.
A more imaginative approach would be to give Local Authorities strategic powers to plan positively and developers routes to innovate through a range of tenures. From open market sale through to rent and everything in between, different solutions are needed for different sites. Pocket thrives in some places and there is very much local choice at play with some Local Authorities recognising the need for first time buyer accommodation and others choosing to focus elsewhere. This is healthy. It is not healthy to compulsorily mandate where a tenure may not be wanted or needed.
With a new Secretary of State in town, we will wait and see how Gove grapples with the anticipated challenges ahead.
