Please see below a briefing note on the Starter Homes which covers the background to the initiative, sets out the key features and explores some of the issues still to be worked on. As ever, we will continue to keep you updated on the progress of the Starter Homes initiative on a regular basis.
Background: Evolution of the policy
The creation of 100,000 Starter Homes, available to first-time buyers under 40 at a 20% discount on market price, was a pledge first made by the Conservatives in September 2014. The home could then be sold by the initial purchaser for full market value after a period of five years.
Starter Homes were to be built on exception sites, defined by DCLG as ‘under-used or unviable industrial and commercial land that has not been currently identified for housing’ upon which local authorities are encouraged not to seek Section 106 or Community Infrastructure Levy (CIL) payments. Initially a policy intended for the Conservative election manifesto, the initiative was incorporated into Coalition Government policy in March 2015 through an addition to National Planning Practice Guidance (NPPG).
The Conservative manifesto, published in April 2015, promised to double the ambition of the Starter Homes initiative, to build 200,000 homes for sale to young first-time buyers below the age of 40 at a minimum 20% discount should the Conservatives form a majority government. This extension would be met by requiring a proportion of all ‘reasonably-sized housing sites’ to be set aside to deliver Starter Homes. Following the formation of the Conservative government, this proposal was reaffirmed at the Queens Speech in May. The exception policy is still in place.
The Housing and Planning Bill was presented to Parliament on 13th October 2015 and includes the basic provisions for Starter Homes, including the enabling powers for Government to set via Regulations and guidance, the proportion of Starter Homes required on sites, as well as imposing a duty on local authorities to promote the supply of Starter Homes and associated enforcement measures (HBF’s summary of the Bill is available here). Ahead of this, the Prime Minister announced at the Conservative Party Conference that the Government would alter the definition of affordable housing to include within it the provision of homes for purchase.
The Bill will now go through Parliament and is subject to amendment. It is expected to receive Royal Assent before Summer 2016 and the relevant guidance and regulations, which will be developed in parallel with the progress of the Bill, will likely follow shortly afterwards. A consultation on some of the rules and operational imperatives of the initiative is due to be published in the coming weeks.
What is a Starter Home, and who will be able to buy one?
Starter Homes will be new build homes (or a property adapted for use as a dwelling) which are available to first-time buyers under 40 at a discount of ‘at least 20%’ of the market value. The precise process for determining the open market value is still to be determined and is the subject of a great deal of discussion between government and key stakeholders, in particular lenders. The Bill also states that homes purchased as Starter Homes will be subject to restrictions on sales and lettings specified in regulations. These restrictions are likely to remain in place for a five year period from purchase during which the buyer must not let the property and resale at full market value will not be possible.
The Bill reaffirms the price caps already outlined in the existing exception site policy in the NPPG while allowing for the Secretary of State to amend the price caps through regulations at a later date. The maximum discounted market price will be £450,000 in Greater London and £250,000 elsewhere. This translates to respective open market values of £562,500 and £312,500.
Starter Homes will be available for purchase by ‘a qualifying buyer’. Rather than leave the definition of ‘qualifying buyer’ to regulations, the Government intends to put the definition in statute thereby making future alteration more difficult. This represents a very strong commitment to the main principles of buyer eligibility. Buyers would have to be:
A first-time buyer as defined in the Finance Act 2003 (the same definition used for Help to Buy ISA eligibility)
Under the age of 40 (precisely how this is to be defined is yet to be determined e.g. age at reservation or completion? Age of one partner or both?)
Compliant with other characteristics to be specified in regulations
In relation to the last point on the list, the Bill specifically makes reference to characteristics such as nationality and minimum age but regulation could also cover other eligibility areas.
We believe that there may be a case for including within the eligibility criteria measures which would prevent the initiative being taken advantage of by those who would otherwise be able to relatively easily afford to get on the housing ladder. We are also keen to ensure that these homes do not merely replace homes that would have been built anyway and are exploring ways the regulations could assist with that objective.
Starter Homes requirements
The Housing and Planning Bill seeks to impose a Starter Homes requirement on most new housing developments. We understand this will be in the form either of a percentage of the overall site or a commuted sum to be used to provide Starter Homes. The exact requirement will be determined through regulations and could vary by region or locality. The nature of any exemptions, and local authority discretion over local Starter Homes requirements, are also to be determined by regulation. We would also expect provision to be made either on the face of the Bill or in subsequent regulations for viability testing to determine the precise nature of the Starter Homes requirement on a site-by-site basis.
Government has also stated that only ‘reasonably-sized sites’ will have to make provision for Starter Homes. The qualifying site size is still to be determined. Because of precedents set through other measures and exemptions, it is possible that this will be set at a site size of 10 units.
Interaction with other forms of affordable housing
The Government has signalled that it intends to amend the definition of Affordable Housing to allow Starter Homes to be treated as Affordable Housing products. It is envisaged therefore that Starter Homes requirements will take precedence over any other affordable housing obligations sought by the local authority. This does, however, raise questions around how sites that would otherwise not be required to make affordable housing obligations (e.g. very marginal or regeneration sites) will be dealt with.
There would seem to be two key elements of the current definition of Affordable Housing (NPPF Annex 2: Glossary), that will have to be changed.
The present definition requires affordable products to be “provided to eligible households whose needs are not met by the market. Eligibility is determined with regard to local incomes and local house prices.” However Starters Homes have no household eligibility requirements other than first-time buyers aged below 40, and thus no link to “local incomes”. There is also no requirement for Starter Homes to meet the needs of households “whose needs are not met by the market”.
The current definition also includes what is usually known as the “in perpetuity” principle, namely that the affordable dwellings “should remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision”. Starter Homes do not meet these requirements.
Local authority duty to promote Starter Homes
In addition to legally preventing planning authorities from granting permission on developments without the necessary Starter Homes requirement being met (aside from under special circumstances), local authorities will have a general duty to promote the supply of Starter Homes.
The Home Builders Federation is supportive of the principle of any initiative intended to extend homeownership and increase housing output. For some time, HBF has advocated the introduction of a more flexible approach to affordable housing to make more provision possible overall. We continue to work with government ministers, advisers and officials to develop the vital detail behind the Starter Homes initiative.
Our primary objective is to ensure that the introduction of the Starter Homes initiative, and in particular the requirement for Starter Homes to be available on most housing sites, has a positive overall effect on the housing market and, more specifically, on new build housing activity. There is potential for market distortion if the numbers of Starter Homes that ministers are targeting to be built actually come onto the market. The effect is likely to be highly localised and could impact upon the saleability of units on new sites where a site in the area is selling a large proportion of Starter Homes at below market value. The impact could also be felt on the wider local housing market, encompassing second hand homes as well as new build.
The Government wants Starter Homes largely to replace existing Affordable Housing tenures within S106 agreements. In order to achieve the target of 200,000 sales by 2020, and allowing time for the Housing and Planning Bill to become an Act and the necessary secondary legislation and guidance to be published, the scheme will require in excess of 50,000 sales per year from 2017 until the general election in May 2020. We anticipate a majority will come through S106 agreements rather than via exception sites. The most recent data, for 2013-14, show that there were approximately16,200 Affordable Housing units delivered through S106 agreements. One option would be for the Government to define the 200,000 target as not just legal completions, but to include housing starts, or possibly even permissioned plots not yet built.
Crucial to achieving the objectives we share with government – namely, increasing housing output while expanding home ownership – is the need to limit the cannibalisation of existing new build housing sales. The creation of the Help to Buy Equity Loan scheme in 2013 invigorated the industry, has boosted output and is supporting more than 20,000 households per year into home ownership. Merely replacing those Help to Buy purchases, and existing affordable homes provided through Section 106 agreements with Starter Homes will limit the initiative’s capacity for increasing housing supply.
With its ambition to promote home ownership opportunities to as many households as possible we believe that the Government could consider ways to focus availability of Starter Homes more tightly and minimise the ‘deadweight’ that could otherwise be caused by merely transferring sales from Help to Buy to Starter Homes which would cannibalise existing sales made by home builders. There are several ways that this could be achieved, and further exploration is required to consider these options.
We believe that more effective targeting at households that would otherwise not be able to purchase a home could help to minimise any possible negative effects on the housing market caused by Starter Homes competition with other forms of housing and cannibalisation of other new build sales.
There is significant detail of the initiative still to be fleshed out. As we try to support the government in ensuring the policy is constructed so as to meet its fundamental objectives, we are paying particular consideration to:
Transitional issues – Ensuring a suitable lead-in time is built into the implementation plan and complete clarity
The new definition of Affordable Housing
Minimising the impact of Starter Homes on other new build sales, especially Help to Buy Equity Loan, and any wider distortions to sales and valuations in local housing markets
Combining Starter Homes with Help to Buy Equity Loans to make 20% equity loans available on top of the Starter Homes purchase (at 20% discount)
Administration of the initiative and role of a possible Starter Homes Agent
Home Builders Federation
London, SE1 9PL
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