The general election concluded with a decisive outcome not many people were expecting. Now that we have a Conservative majority government, it gives us an opportunity to revisit a previous blog that looked at all the parties’ pre-election pledges on housing and look at what lies ahead for the sector under the “party of home ownership”.
Extending Help to Buy – the Conservatives were the only party to commit to an extension of the Help to Buy scheme: until January 2017 for the mortgage guarantee and 2020 for the equity loan. In its first two years of operation, just over 87,000 properties have been purchased under both arms of the scheme, 1,959 per month, on average, using the equity loan and 2,672 using the mortgage guarantee. The new government aims to support a further 120,000 transactions using Help to Buy, but based on current uptake, it would reach this figure by the beginning of 2018. There is no indication on whether it is the volume of transactions or expiry date that is the overriding constraint.
Help to Buy will also be broadened to the Help to Buy ISA to be launched in Autumn, whereby potential first-time buyers saving for a deposit will see their balance topped up by a further 25%, to a maximum of £3,000. This potential pot of £15,000 is labelled as a 10% deposit on the average first home, but according to the ONS, the average UK house price for first-time buyers was £203,000 in 2014. The scheme is unlikely to help those struggling to start saving for a deposit, but the bonus payment may bring forward purchases by potential buyers already on their way to building a deposit, especially outside London.
Extend Right to Buy to housing association tenants – the latest incarnation of Right to Buy has been met with wide derision from the housing industry. Under the scheme, 1.3 million housing association tenants in England would be eligible to buy their homes at a discount of up to £77,000 (£102,700 in London), subject to a qualifying period of three years’ residence. Pre-election, the manifesto envisioned a 1:1 replacement, funded by local authorities selling their highest value properties and bringing in a projected revenue of £4.5 billion. However, this throws up three major issues:
1) Whether councils will be able to replace sold-off properties in the same area. The original idea from Policy Exchange suggested a 30-mile limit for classing a property as a ‘replacement’.
2) Instead of 1:1 replacement by local authorities, there has been only one start for every nine dwellings sold through Right to Buy since it began in 1980.
3) Housing associations secure their borrowing for housing investment against the revenue stream generated by rents. Losing this, and selling at significant discount, risks jeopardising their borrowing capacity and, consequently, house building activity. Two credit ratings agency have already flagged up the negative effect on housing associations’ creditworthiness.Furthermore, the National Housing Federation (NHF) has estimated the cost of the scheme at £11.6 billion, leaving a potential £7.1 billion funding gap. Incidentally, both this figure and the £4.5 billion projected to be raised by selling off council homes are well above the initial £886 million allocated in grant funding under the Affordable Homes Programme (AHP) 2015-18, which is being used by housing associations to deliver over 43,000 homes for affordable rent.
This brings us on to the black mark the scheme scores from an equity point of view. Right to Buy helps those already housed in good quality homes, paying below-market rent. It seemingly ignores the 4.4 million households renting in the private sector, which presumably includes the famous ‘hard-working families’ targeted throughout the election campaign.
These policies have overwhelmingly taken a demand side slant, but even without an overall house building target for the new parliamentary term, the Conservatives’ manifesto does include measures that attempt to increase housing supply.
200,000 starter homes – Intended to be sold to first-time buyers aged under 40 and at a 20% discount. Homes should be developed on brownfield land, not currently assigned to residential development, with the 20% discount financed by exempting developers from Section 106 contributions and the Community Infrastructure Levy. Firstly, this gives rise to concerns over whether these brownfield sites would be in a desirable location on former industrial or commercial land. After all, if the land was viable in the first place, it is highly likely to have already been snapped up by developers. In addition, there are concerns over whether local authorities can afford the consequent local infrastructure needed, and whether the higher cost of developing brownfield land and selling at a discount would render the scheme unviable for private developers. Furthermore, the crucial question remains that if these starter homes are the first to be built on the land, there is no way of benchmarking prices with existing, comparable properties in the area and policing the discounting process.
275,000 additional affordable homes by 2020 – Between April 2010 and September 2014, there were 217,000 new affordable homes delivered in England (new build and acquisitions). The Conservative plans equate to 55,000 new affordable homes per year, a level that has not been achieved since 2011/12 in light of the sharp drop in funding available under government programmes. An additional 10,000 homes will be offered for affordable rent, which suggests the headline figure will focus on affordable home ownership. This marks a shift from the current Affordable Homes Programme, under which housing associations have had to prioritise properties for affordable rent. In 2013/14, 46% of affordable homes delivered were in this category, with 27% delivered for affordable home ownership programmes. Indeed, it is conceivable that housing associations have already exhausted their capacity to build new affordable homes due to their commitments under AHP 2015-2018. Will the existing allocations be discarded? Or will housing associations be expected to provide these affordable home ownership dwellings on top of existing plans?