Affordable housing will be squeezed out by ‘Starter Homes’

Richard Petty, lead director for affordable housing at JLL, looks at the implications of the Housing Bill’s promotion of discounted ‘Starter Homes’.

Richard Petty

The Housing and Planning Bill, published this week, sets out the bare framework of how the government intends to promote the supply of starter homes in England.

Almost all the detail will emerge in regulations yet to be published, but it is clear that local authorities are going to be compelled to implement the government’s wishes – and that the secretary of state will have the powers for enforcement if necessary.

This represents a new and worrying centralisation of planning policy which presents a significant challenge to local government autonomy, and overturns the principles of the coalition around “localism” and “the Big Society”.

We recognise the need for more new homes in large numbers, and the aspirations of many people to own their own home. Starter homes will make a big contribution towards meeting this demand, and we agree they have a part to play.

But if local authorities are forced to prioritise starter homes over affordable housing, that would be in direct contradiction of their existing obligations, via local plans, to house those in greatest need, as identified by housing needs assessments. The Bill does not include the figure, but the government is aiming for 200,000 starter homes to be delivered within the life of this Parliament.

Assuming – optimistically – first supply in 2016-17, that gives them four years and means an average of 50,000 starter homes a year. That is roughly equivalent to all the affordable homes, of all tenures, built last year. We are deeply concerned that starter homes will displace genuinely affordable homes on a huge scale, meaning the housing needs of many would be swept aside in an ideological rush for ownership.

We can’t see how both starter and affordable homes can be accommodated within developments, at current proportions, whilst maintaining viability for developers. Moreover, we don’t think that the house building industry is capable of supply on that scale. 50,000 homes a year represents roughly half the annual total built for private sale in England in recent years.

House builders are not going to want – or be able – to see such a high proportion of their output sold at a 20% discount; and the industry does not look capable, simply in terms of capacity, of building 50,000 additional homes a year, on top of current supply.

But perhaps the biggest challenge will come from the level of subsidy that will be given to buyers of starter homes. Unless there are effective and lasting restrictions on onward sale, and on buy-to-let, relatively small numbers of people each stand to make big profits in just five years, at the expense of house builders and of people denied affordable housing.

The implied annual cost of that subsidy – or gift – to them is far greater than the subsidy given to many households in the form of submarket rents. We question whether that is the right or most equitable approach, when we have over four million people registered in housing need in this country.

Lastly, from a valuation perspective, we foresee real difficulties for valuers in determining the right sale prices – 80% of market value sounds simple; but what is the market value of a home when there are conditions attached to its purchase, and when it is a highly desirable product, in limited supply? We see clear scope for confusion, and thus inflation of sale prices, arguably a licence to cheat? 

This article was originally posted here on JLL’s website