Jeremy Beecham on the deep flaws running through David Cameron's flagship new homes initiative
The government launched its starter homes scheme to a fanfare, proclaiming the creation of 200,000 affordable homes for first time buyers under 40 years old would be created by 2020. Homes that would benefit from a discount of 20% that would not be repayable on a sale after five years.
The previous, Coalition, government helped drive up council rents, deeming ‘affordable’ to be 80% of that paid in the private sector. But given the chronic housing shortage and the boom in buy-to-let mortgages which dramatically drove up costs, the definition is fundamentally flawed. Affordability must surely relate to what the would-be owner occupier or tenant can reasonably be expected to pay, having regard to his or her income – not with an artificial comparison to the market rate.
Prices will be capped at £450,000 in London and £250,000 elsewhere after the 20% discount, representing prices of £562,500 and £312,500 respectively. But Ministers claim the average price of starter homes would, after the discount, be £291,000 in London and £169,000 elsewhere – something that will clearly not be affordable to a huge number of people. In any case, the government’s figure for average starter homes prices appears to based on all house price averages, whereas the cost of newly built homes is likely to be significantly higher.
In Newcastle, the 5,900 applicants on the council’s housing list have average earnings of £20,000. Enough to support a mortgage of £70,000 but leaving an effectively unbridgeable gap between that and the discounted price. Even the national average income (£26,000) would fall short of the amount required to obtain and sustain the required mortgage. And that’s at the historically low levels of mortgage interest rates currently on offer.
The Local Government Association cites a report by leading estate agents Savills that starter homes would be out of reach for everybody in need of affordable housing in 220 local authority areas. The definition of starter homes as affordable, and which councils will have to promote, together with Help to Buy, will, in Savills’ view, “leave a gap in housing provision for those on lower incomes” while benefitting those in London with incomes between £45,000 and £90,000.
There will also be an impact on what councils can achieve under Section 106 planning agreements. The government’s own figures suggest that for every 100 starter homes built, between 56 and 71 affordable council and social rented homes will not. A reduction of around 50% over the four year period of the starter homes scheme when compared to the past four years. And Savills also question the impact on shared equity schemes, and warn of the “risks of reducing the number of new homes built”.
As with so much of the current government’s approach, those involved in announcing the starter homes initiative know what makes for a great headline but fall short when they get to the policy detail. Something that many Peers across the House consider to be the worst way of approaching legislation.
Lord Jeremy Beecham is a member of the Shadow Housing and Planning team in the House of Lords. He tweets @jeremybeecham
Published 29th February 2016