Fears are growing that a government proposal on starter homes could snuff out investment in the emerging build-to-rent sector. While others in the sector have pointed out the new policy proposal appears to contradict existing planning rules.
There are also concerns that, in London at least, the “starter homes” moniker is already being used by developers to spike sale prices by encouraging investors who have no intention of living in their properties.
The Housing and Planning Bill proposes forcing new developments on “reasonably sized sites” to deliver starter homes for sale. The idea has been floated with planning minister Brandon Lewis saying it would be down to local authorities to negotiate with developers, over the mix of affordable and starter homes within a project.
The “starter home” concept was reborn in a speech by David Cameron at the Conservative conference in October, when he appeared to challenge the accepted notion of affordable housing, as cheaper rental homes run by housing associations or councils.
He said: “For years, politicians have been talking about building what they call ‘affordable homes’. But the phrase was deceptive. It basically meant homes that were only available to rent.”
Instead, Cameron said his new version of affordable starter homes would be at no more than 80% of market price, and must be sold to a first time buyer of less than 40 years of age. There would be an absolute cap on the price of £250,000 outside London and £450,000 in the capital.
But a series of professionals giving evidence at the committee stage of the proposals have suggested the concept needs more work.
Ian Fletcher, director of policy (real estate) at the BPF warned: “A site-specific requirement for starter homes does not really work with build to rent and could kill off that sector before it gets going. The institutions that invest in that sort of accommodation do so for 10, 20 or 30 years and want to have control over the development to ensure it remains a quality place to live.”
“Many of them are introducing new concepts to the private rented sector in the UK in terms of branding and so on, and once you lose control of a part of your development you cannot get that back and you do not know where it will go. An individual may buy a starter home and sell it after five years into the buy-to-let market, so you cannot keep control of that development.”
Meanwhile, lawyers point to an apparent contradiction. “It is very hard to see how a centrally defined target for starter homes fits with the NPPF, which says authorities should use evidence to ensure that their local plan meets the full, objectively assessed needs for market and affordable housing,” says Duncan Field of Norton Rose Fulbright.
There is also a lack of clarity currently about where the 20% discount comes from. Doing it by removing other section 106 obligations will stack up better in some areas of the country than others,” said Steve Turner of the Home Builders Federation. “If there is a big concentration of starter homes in a particular area, it could distort the market by reducing demand for full-price homes.”
A second issue is where the discounted homes sit, when they come to be passed on. Pocket Living’s homes, for example, are a live practical example of a discounted starter home product, where a secondary market has been created from those only on an approved local authority list, with admission controlled by local connections via work or family.
Planners have expressed their concerns. “If starter homes were discounted in perpetuity, then you can see how the policy would work,” said Mike Kiely, chairman of the board of the Planning Officers Society. “But allowing them to be sold at market rates after a few years threatens to undermine the whole economic rationale. If you know that you’re going to get a 20% cash bonus after five years, mortgage lenders will have to take that into account in valuing the house.”
Meanwhile, the “starter homes” brand appears to have already been hijacked by savvy developers. Galliard, an established developer in the London market that has seen great success from advance sales, often to Asian investors, recently used the term to help build hype at a project in Hounslow.
“Trinity Square is part of our ‘Get on the Ladder’ Campaign to provide hundreds of new homes priced below £300,000 in order to help Londoners get a foot on the housing ladder,” said Stephen Conway, Chief Executive of Galliard Homes. “We are proud to continue our role in providing much-needed housing and contributing to the regeneration of London.” Studio apartments sold at a reported average price of £250,000 – some well above the asking price.
And one consequence could be the delay of schemes already in the pipeline. Warned Kevin Gibbs, planning and infrastructure partner at Bond Dickinson: “There may already be schemes which could be withdrawn because their business case is likely to change so radically.”
LPA Perspective: Here is another potentially dangerous piece of leglislation being trailed by the government. Let’s hope they listen – and react – to the response from a concerned industry. This is not about turkeys refusing to vote for Christmas, it is about potentially far-reaching consequences of a change that may have its gestation in a naïve ideological wish to see more owning their own homes.
As plenty have said over other recent government housing discount initiatives, an increase in supply would solve many of the issues for good; while discounts merely create a spike in demand for the market.
Of course, the devil is in the detail. Despite Cameron’s party conference boast about affordable housing being all for cheap rent, others point out that more than a quarter of government-defined “affordable homes” in 2013/14 were actually provided for some sort of sale.
But already, the impact is being felt, way ahead of any change in the law. A recent example of a housing association and developer working up a bid showed that, under the new starter homes regime, a (much!) higher price could be paid for the same site. The government needs to sort this one out, and fast, before a whole bunch of schemes is stymied as developers sit on their hands, unclear quite how the lie of the land is changing. Or, as with so many ill-thought out changes to the planning regime in the past, the law of unintended consequences will apply.