The Spending Review and Autumn Statement saw the headline-grabbing announcement of 400,000 affordable homes starts over the current parliament. This comprises:
- 200,000 Starter Homes
- 135,000 Help to Buy: shared ownership homes
- 10,000 Rent to Buy homes
- 8,000 specialist homes for older people or those with disabilities
- The remainder (around 50,000) from “existing commitments”
Don’t be surprised if some of this sounds familiar. Starter Homes was first announced back in December 2014, with the coalition government aiming for 100,000 homes to be sold at a 20% discount to first-time buyers aged under 40. Ahead of the May election, David Cameron pledged that under a Conservative government this number would be doubled, followed by the announcement of a meagre £26 million fund in August, intended to cover the acquisition and remediation of brownfield sites. The Spending Review went one step further, allocating £2.3 billion to fund 60,000 units, equating to a generous grant of over £38,000 per home.
Likewise, shared ownership previously existed within the Affordable Homes Programme, but has now been given Help to Buy branding, as well as looser eligibility criteria and a budget of £4 billion to deliver 135,000 units.
But the key question is whether this creates any additionality in housing supply – does it lead to 400,000 additional units on top of what would have been built under existing affordable housing plans?
Under the current Affordable Homes Programme (AHP) 2015-18, the target is 165,000 affordable units over three years, equating to 55,000 per year. Under the assumption that the programme is extended over the remainder of the Spending Review period to 2020/21, a total of 330,000 affordable homes would be built.
So, should we assume that the government is aiming for 730,000 affordable completions?
It’s best not to. In all likelihood, with the Starter Homes initiative relieving private developers of their duties to provide affordable housing or other social contributions through Section 106 and the Community Infrastructure Levy, what they would have built through these routes will simply be replaced by activity under Starter Homes.
Furthermore, for shared ownership, the OBR assumes that 90% of the £4 billion funding will go to housing associations when it’s dished out from 2018/19. If we assume that 90% of the homes (121,500) will also be built by housing associations, this suggests 40,500 shared ownership completions per year by housing associations in the last three years of the Review period. This compares to an average of 14,000 per year of this tenure built over the last ten years. In fact, and perhaps conveniently, this 40,500 figure is closer to the total number of new build affordable housing units completed on an annual basis (an average of 44,600 over the last ten years), giving a further indication that shared ownership is likely to replace construction of homes for affordable or social rent after the AHP ends in March 2018.
In all, it’s fairly safe to say we’re not going to get 400,000 affordable homes on top of existing plans. Compared to the current Affordable Homes Programme (and the assumption that it would have been extended for another three years), last week’s announcements provide just 70,000 additional affordable homes over the five-year parliament.
This assumes 1) they meet their target and 2) we still get around 50,000 completions under existing commitments, which is conceivable if housing associations stick to their social housing remit and provide a small volume of homes for social and affordable rent. However, this is far from guaranteed given finance for housing associations is still up in the air following the swathe of unfavourable measures announced in the July Budget. Indeed, following the Budget, Genesis Housing Association announced it would no longer be building homes for social rent.
Is it really affordable housing?
What is notable is that the largest component of this drive to increase affordable housing, Starter Homes, does not actually meet the NPPF definition of affordable homes:
“Affordable housing should include provisions to remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision”
That is, as an affordable rent tenant vacates the property, it is offered as affordable rent to the next tenant, or when sold, the sale proceeds are used to fund the development or purchase of additional affordable units. On the contrary, there is no recycling of government grant with Starter Homes as purchasers are free to sell the property at market value after five years, pocketing the original discount and any additional price gains themselves.
Or a self-defeating mission?
If we consider the affordable housing measures in this Spending Review to be akin to a new Affordable Homes Programme, it seems a less efficient use of government investment than previous incarnations. The £2.3 billion Starter Homes funding is a one-off expenditure that won’t be recycled to perpetuity through the affordable housing system like previous grants. Furthermore, we don’t know if any of the measures will enable new homeowners onto the housing ladder, or whether it will simply bring forward purchases that would have been made anyway. In either case, these outcomes represent a demand-side stimulus and, coupled with what appears as only a marginal increase to supply, the risk of raising house prices surely threatens the goal of what the measures are trying to achieve in the first place.
This demand-side effect is made worse by the ‘free’ £3,000 on offer from a Help to Buy ISA and the new 40% Help to Buy equity loan available in London. Taken on a maximum £600,000 property value allowed under the scheme, this amounts to government equity of £240,000.
In addition, there’s been no confirmation on whether these are standalone policies or whether they can be combined. If this is allowed, then combining the maximum purchase price allowed under Starter Homes, the Help to Buy ISA and the Help to Buy London equity loan means 53% of the purchase is underpinned by government subsidy.