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Housing and Planning Bill: the risks and opportunities

What positive moves can HAs make in the face of the Starter Home Initiative?

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Housing and Planning Bill: the risks and opportunities

The Starter Homes Initiative is, says the government, a ‘national crusade’ for house building.

But will it, as some have suggested, simply replace social housing delivery – and particularly those homes hitherto provided through s106 agreements?

Under the new Housing and Planning Bill, local authorities in England must ‘promote the supply of starter homes’.

Although there is no mention of a figure in the Bill, the government has previously said it expects a total of 200,000 starter homes by 2020 on all reasonably-sized new developments, offered to first-time buyers at a 20 per cent discount.

Policy shift

As the value of new affordable rented homes fell due to the rent cut, the number of such homes would need to be reduced.

This policy shift – with the aim of ‘transforming generation rent into generation buy’ – has raised concerns that affordable rented housing delivery will fall as developers replace it under s106 obligations with homes for sale.

At first glance, the Bill appears to be the latest challenge to the sector.

Shrinking government grants plus welfare cuts – impacting on tenants’ incomes – have led many to build homes for sale to cross-subsidise the development of other tenures.

In addition, analysis by Savills suggests tens of thousands of rented homes could be lost through the extended Right to Buy over the next decade.

More recently, the 1 per cent annual cut in social rents in England for four years was already set to, in many areas, dramatically alter the mix of homes provided through s106 agreements.

Prior to the announcement of the Starter Homes Initiative, analysis by Savills had already demonstrated how, as the value of new affordable rented homes fell due to the rent cut, the number of such homes would need to be reduced to maintain overall scheme gross-development values.

As a result, the proportion of shared ownership homes would have to rise.

Questions

There are still a number of crucial details to be worked through regarding the Starter Homes Initiative:

  • Will the policy apply to all large residential sites (as Savills expects) or will brownfield sites be prioritised?
  • Are only those aged under 40 eligible, or will the flexibility allowed for in the Bill be available to local authorities?

So it is not yet possible to say what impact the policy will have on this already much-altered development picture. It seems likely the number of affordable rented homes will fall to accommodate the required starter homes, although these could replace some shared ownership properties in some areas.

Action

So what actions should housing associations take in the wake of the Bill?

The last time there were major changes to the affordable house building model in 2010 (when grant rates were cut 60 per cent), there was a development hiatus by housing associations.

A repeat of this would be politically risky, particularly in light of the clear government focus on housing associations maximising their financial capacity and using this to build homes for sale.

Equally, many housing associations have a social and charitable mission to provide homes at sub-market rent. The solution is for housing associations to embrace the supply agenda, adopting the lead developer role, for example, where practical.

They can prepare for this by taking the following steps:

  • reviewing development strategy and capacity as well as funding arrangements will enable a stronger understanding of the development options available.
  • revising the development model in response to the Bill (and in anticipation of the spending review on 25 November) would be useful.

While organisations differ, a structured activity to better compete with house builder developers is vital. This could involve scaling up to buy land for housing. New performance measures and risk management frameworks are important, as is the ability to take on more planning, development or sales risk.
Organisations may also choose to focus on partnerships, sharing risk under joint ventures.

  • collating evidence to inform development so local markets can be effectively segmented.
  • and, the understanding of product demand, including:
    age profiles, income and affordability, household size and aspiration, optimum project scale, market absorption rates by tenure, supply timings, and potential competition between tenures.

If the ‘national crusade’ sparks an increase in scale and supply, it should also spark a focus on opportunity, not simply on risk.

Sue Cocking is a director in the development and regeneration team at Savills

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