Demand for lettings shot up 22% in Great Britain after the lock down according to Rightmove. It’s a clear signal of pent up demand returning to the market.
This is of course a short-term spike. However, the long-term trend of renting as a lifestyle choice is here to stay. For many, the affordability challenge is too great to make the leap to owning a home.
The macro figures will give the Government discomfort. Mortgaged home ownership in England has fallen from 42% to 29% since 2000. Private renting has doubled in that time (to 20%).
Like all Conservative Governments, this one has a clear commitment to expanding homeownership. The Party takes the view that there are votes to be had from homeowners. Less so from renters.
First Homes
Let us welcome to the stage First Homes, the latest initiative to rectify the decline of homeownership. It follows on from the now defunct Starter Homes policy which made it onto the statute books but no further.
The central difference between the two: Starter Homes were at a 20% discount. The new policy is potentially at 30% discount.
Opportunities and challenges with a new tenure
One of the drivers for introducing this new tenure is because shared ownership, the most established intermediate offer currently delivered has become increasingly unpopular with policy makers. Many local authorities do not consider it affordable and many prospective homeowners find the part own, part rent structure complex.
First Homes will only partly address affordability concerns. Recent analysis by Savills suggests First Homes would be affordable to 12 – 18% of households who currently cannot access the housing ladder. This means this new tenure is not going to be able to price in significant cohorts of new buyers in higher value areas. The same problems of affordability which bedevil after intermediate tenures will remain.
Taking the second issue around complex ownership, First Homes as a discount market sale tenure means there is no part rent. This is an attraction for buyers. The customer owns 100% of the home equity and the deliverer of the home swallows the value of the discount. First Homes does offer a positive here but it will be a negative for Housing Associations who have in the past used the rental stream of shared ownership to subsidise deeper discounted affordable tenures in Section 106 deals.
The next challenge is how to deliver a new tenure at scale. The Government consultation suggests that as many as 19,000 of these new homes will be delivered through the Section 106 regime. This figure represents 80% of all affordable housing delivered through developer agreements. Such an approach will lead to displacement and very significant resistance from local councils who will want flexibility over the affordable housing options they choose to negotiate on site.
The Government suggests that such concerns can be mitigated by increasing grant for affordable housing. However, this is expensive and unlikely to be practical given the wider financial climate. Again, Savills estimate it would take between £952 million and £1,905 million in additional grant each year to make up the shortfall in affordable supply that First Homes would cause.
A mixed economy in housing
Discount market sale has its place in the world and a nuanced policy should recognise that whilst First Homes can be an important new tenure, it should not be as a replacement of other affordable housing options. Not everyone can be a homeowner and a policy which removes discount rental tenures to enable a more expensive affordable homeownership tenure is not an equitable solution.
There are ways of harnessing the opportunity of discount market sale. Rather than bending large site Section 106 Agreements out of their local context, a policy which incentivises small sites to yield higher levels of discount market sale should avoid displacement and potentially provide a new route to market. Let me know what you think.
