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Member Briefing: Government publishes more details of Starter Homes requirement on all residential development

Date: 24/03/16

Government publishes more details of Starter Homes requirement on all residential development

The Department for Communities and Local Government has published a long awaited consultation paper on the regulations that will inform much of the detail underpinning the Starter Home initiative. It gives the clearest indication yet of the details of the Starter Homes requirement on most developments which is expected to come into force later this year.

The Government was elected last year with a manifesto commitment to create 200,000 Starter Homes, available at 80% of open market value to first-time buyers, in the period up to 2020. Since then ministers have announced an altering of the definition of ‘affordable housing’ to include Starter Homes and introduced the Housing and Planning Bill to bring forward a statutory requirement on all reasonably sized sizes to provide starter homes and place a duty on local planning authorities (LPAs) to promote the development of Starter Homes.

Included within the consultation is a clearer understanding of the Government’s thinking on crucial issues relating to:

a)      The level at which the statutory Starter Homes requirement on ‘reasonably sized sites’ will be set

b)      The definition of ‘reasonably sized sites’

c)       Exemptions from the statutory Starter Homes requirement

d)      The principle and operation of commuted sums to deliver Starter Homes

e)      The period before which a Starter Home purchaser can realise some or all of the uplift in value  (the ‘sales and lettings restriction period’)

f)       Age restriction on buyers

g)      Transitional issues

h)      Monitoring and reporting

i)        Impact assessment (including on site viability)

The implementation of the Starter Homes initiative, the broadening of the definition of Affordable Housing to include Starter Homes and, in particular, and the Starter Homes requirement being introduced via the Housing and Planning Bill represents a fundamental change to the way that new housing sites are planned and developed.

This consultation is both the best indication yet as to Government’s likely thinking on key aspects of Starter Home delivery and a useful opportunity to shape its implementation.

In summary, the Government is proposing:

  • A 20% Starter Homes requirement on all sites of 10 units or more
  • Greater flexibility on the sales and lettings restriction period, with a tapering extending to ‘up to eight years’
  • Exemptions from the Starter Homes requirement for specialist developments and on sites where there are general viability concerns
  • Off-site commuted sum contributions for developments such as housing for older people and purpose built private rented sector housing
  • Flexibility for joint-purchasers where one of the buyers is over the age of 40

HBF will be consulting members and submitting a response to the consultation which closes on 18th May.

The Starter Homes requirement

Having first announced last July that all reasonably sized residential sites would be required to provide a proportion of Starter Homes, the Housing and Planning Bill, currently progressing through the legislative process will – as currently drafted – provide the Secretary of State with the power to prevent local planning authorities from granting planning permission for schemes that do not meet the Starter Homes requirement. Until now there has been a lack of clarity around the level at which the requirement will be set.

The Government has determined, on balance, that the Starter Homes requirement should be set a single national minimum requirement of 20% of all homes on residential developments, and invites opinions on this conclusion. Based on calculations of affordable housing contributions over the last three years, the Government believes that a requirement of 20% would be viable on ‘the average development’. Unlike with the previous consultation on the change to the affordable housing definition within the NPPF, the calculation has not applied any arbitrary and potentially misleading ‘substitution ratio’ as part of these calculations. However, a full impact assessment is expected shortly.

The paper outlines alternative options: Notably (i) 15% which would, on most sites, allow for other forms of affordable housing to be delivered alongside Starter Homes but produce lower overall output of Starter Homes; and (ii) 25% which could deliver more Starter Homes towards the Government target of 200,000 but could affect viability where sites are marginal and constrain the mix of affordable housing on sites.

The regulations will include some degree of flexibility to allow a lower proportion of Starter Homes to be provided where viability constraints mean that the single national minimum requirement cannot be accommodated.

Exemptions from the statutory Starter Homes requirement

General viability exemption

An exemption from the Starter Homes requirement is proposed where the provision of Starter Homes on a site would render a development unviable as a result of high infrastructure costs or weak market areas. The exemption could only be triggered in cases where no other forms of affordable housing are to be provided and where developers can offer evidence that Starter Homes would make the site undeliverable.

Views are sought by Government on the best approach for demonstrating viability constraints on a site-by-site basis, and whether a prescriptive test could be considered.

Specific exemptions

The Government is proposing exemptions for sites where specialist housing development ‘could be incompatible’ with a Starter Homes requirement. This encompasses ‘specialist accommodation for a particular group’ which includes an element of support, such as residential care homes. Views are also invited as to whether estate regeneration schemes, custom build developments and purpose built student housing should be eligible for an exemption.

The principle and operation of commuted sums

The Housing and Planning Bill explicitly allows for off-site commuted sums to be made by developers in lieu of on-site Starter Home provision. LPAs would have to use receipts to provide Starter Homes elsewhere. In particular, it is expected that housing specifically designed for older people and purpose built private rented sector housing would not be required to provide Starter Homes on-site but that obligations would be met through off-site contributions.

Sales and lettings restriction period

All previous expectations and the pre-existing exception site policy has centred on a five year restriction on purchasers being able to sell or let their property, after which Starter Home buyers will be able to sell the home at full market value. Ministers have made it very clear that the aim is to ensure maximum mobility and the creation of a tenure that is as close as possible to a genuine market product.

Following feedback and consultation with many groups and with parliamentarians that the full realisation of the 20% uplift after five years had the potential to distort markets and unhelpfully alter behaviours, the Government is now proposing a tapered approach before a homeowner can realise the full market value of the Starter Home. The views sought through the consultation document are based on more open questions than had previously been intimated.

The tapered approach would allow purchasers to gradually step up towards full realisation of 100% of the market value. The document explicitly states that this period will not be any longer than a maximum of eight years, as this could ‘unreasonably limit people’s ability to move on’.  During the period of restriction, the Government is proposing that the homeowner would only be able to sell to a qualifying first-time buyer, i.e. someone under the age of 40.

Restrictions on lettings will be in place for the full duration of the period.

‘Reasonably sized sites’

As expected, the Government is proposing a threshold of 10 units meaning that small sites will not have a compulsory Starter Homes requirement. This corresponds to the overarching small sites exemption for Affordable Housing on small sites, also being legislated for in the Housing and Planning Bill.

Age restriction on buyers

The Housing and Planning Bill and the pre-existing Starter Homes exception sites policy in National Planning Practice Guidance (NPPG) is unequivocal in stating that Starter Homes will be available to first-time buyers under the age of 40. However, until now the Government has been somewhat silent on the technical aspects of the age restrictions. Notably the consultation proposes that in cases where one of the purchasers jointly buying a property is over the age of 40 the couple will be eligible for the Starter Homes initiative provided that both are first-time buyers.

The document does not deal with issues that have been raised by members with regard to the point at which the buyer’s age is determined, i.e. at reservation, exchange or completion. We will seek further clarity through discussions with officials and, of course, via the consultation process.

Special consideration and possible exemption from the age 40 restriction will be given to ex-service personnel or those who have suffered bereavement when a partner has died in service.

Transitional issues

The consultation document invites views on transitional arrangements for the move from the current affordable housing obligations model to the new Starter Homes regime. The relevant regulations will apply on planning applications submitted after the date that the regulations come into force. This is expected to be in October.

Monitoring and reporting

To monitor the delivery of Starter Homes, to establish where and when permissions have been sought and subsequently to determine when development has begun, the Government will require LPAs to submit data returns, including information on planning applications, number of exception sites, exemptions granted and actions taken to identify Starter Homes opportunities.

Impact assessment

The Government is seeking views to inform its full impact assessment of the changes proposed. It is particularly interested in how viability will be affected, the cost and time associated with Section 106 negotiations and opinions on what proportion of sites would be able to deliver 20% Starter Homes on-site.

The consultation will be open until 18th May. HBF will be making a submission. Please contact David O’Leary if you would like to discuss the consultation or inform the HBF response. The document is available to view here.

David O’Leary

Policy Director / 020 8966 1612