Living the dream? The design and delivery of first homes

The Issue - According to Government figures, more than 240,000 new homes were delivered in 2018-19 which is more than at any point in the last 30 years.

However, the Government acknowledges that …the dream of home ownership still remains out of reach for many people, not least because of a lack of supply of homes in their area and what is seen as the biggest barrier: affordability.

While many affordable homes have been provided via Help to Buy, Section 106 planning agreement obligations, Registered Providers and in some cases by local Councils themselves (with a resurgence of ‘council housing’ provision), more needs to be done to support home ownership for first time buyers in many areas.

Retention of homes as affordable dwellings is also high on the agenda, as a number of dwellings are lost from the affordable housing pool through the effects of Right to Acquire and Right to Buy legislation.

Government action

On 7 February 2020 the Government issued the First Homes Getting You On the Ladder consultation paper seeking views on the design and delivery of so called First Homes. 

This document identifies a number of steps that the Government believes need to be taken to help resolve the problems identified by them. These include:

• Increasing the number of new homes made available and sold to local people at a discount;
• Improving understanding within the planning system as to what is meant by “discounted homes”;
• Improving developers’ and funders’ knowledge/understanding of “discounted homes” as a product, so they engage more effectively with that product and increase delivery;
• Ensuring the level of discount is set realistically in the area to which it relates; and
• Introducing steps to ensure that the discounted sale price remains the same “in perpetuity”, so delivering long-term community benefits.

The consultation paper introduces a new discounted housing product called “First Homes” which the Government hopes will help assist with the resolution of the issues identified.

What are first homes?

These are new flats and houses which will be sold at a discount of at least 30 percent to local people who live or work in a particular area.

Priority for this housing will be given to first time buyers, serving or veterans of HM Armed Forces, and key workers including police, nurses, and teachers.

Critically, the discount is to be passed on to future buyers when a home is resold, to maintain future affordability.

For the same reason, First Homes will only be able to be bought and occupied by local people – they are not to be sold as buy to lets or holiday homes.

How will they be delivered and retained as affordable?

The Government is still assessing how best to ensure delivery of First Homes and has said that both legislative and non-legislative options are being considered. In other words, a change in the law or national planning policy or a combination of both.

The Government makes the point however that the 30% figure is a minimum and may need to be higher in areas where affordability is particularly challenging, such as London and the South East. Local planning authorities will be given discretion to set higher discounts in those areas.

The scheme is not, however, to be used to subsidise the purchase of exceptionally expensive property and the Government is considering the introduction of national and/or regional financial caps on the value of properties that will be eligible for the scheme.

In terms of retention, the Government says this will be achieved by use of restrictive covenants on title which will ensure that the property is sold as the original percentage discount in each subsequent re-sale.

Discussion

The use of low cost or discounted market housing as an acceptable affordable housing product has fallen in and out of favour with successive Governments since the days of the old PPG3/PPS3 guidance of the 1990’s.

Indeed, it remains a relatively small part of overall affordable housing delivery, with the Government estimating in the current consultation paper that only 1,000 Discounted Market Sale Housing properties are built each year.

The previous Starter Home initiative, unveiled in 2015, failed to deliver any of the 200,000 affordable homes for first time buyers promised. Interestingly, Starter Homes still remain within the definition of “affordable housing” as set out in Annex 2 of the National Planning Policy Framework, but no direct reference to this or its interaction with the new First Homes product is made in the consultation paper.

It seems clear, however, that First Homes will be given priority in the drive to get first time buyers on the housing ladder. Incentives for developers in that respect include a national exemption in England from the Community Infrastructure Levy for that element of a development providing First Homes.

In addition (and notwithstanding the reference to these homes being affordable “in perpetuity”), lenders/mortgagees are to be assured that they will not be prevented from realising full market value of any First Home over which they have a charge, if they take possession of the property following borrower default.

The Government is also looking at measures to put delivery of First Homes on a statutory footing, to avoid it being sidestepped, by landowners, developers or even local planning authorities unhappy that First Homes provision may result in other affordable housing tenures (social rented/shared ownership/affordable rent) being undelivered.

There is also a clear risk that, in the drive for First Homes, the overarching financial viability of schemes becomes a barrier to delivery of other much needed community benefits/infrastructure required by that authority.

Notwithstanding these initial concerns, any initiative that seeks to increase access to the housing market by first time buyers in their local area is to be welcomed. It is however important to remember that any such measures recognise and balance the various competing requirements arising from development of any site.

In the absence of that, there is a real risk that we fail to deliver mixed and balanced communities and the full extent of the infrastructure/community benefits arising from new development that they demand.

Consultation period

The consultation period commenced on 7 February and will run for 8 weeks until 3 April 2020.

These proposals relate to England only.