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First Homes falls short of responding to home ownership demands
13 May 2020
In February, the Ministry for Housing, Communities and Local Government quietly published a consultation that would see new homes built and sold only to eligible first-time buyers. The First Homes policy aimed to cut the cost of buying a new home by a third, potentially shaving up to £100,000 off the price. That 30% market value discount would get locked into the property so future first-time buyers would benefit and the scheme would prioritise key workers and veterans.
The government has made clear its intention to get more people onto the property ladder but with the cost of homeownership out of reach for the average first-time buyer, particularly in London, this has proven a difficult task. Lifting first-time buyers onto the housing ladder is not a new project. In 2014 the Starter Homes initiative was announced to great fanfare, tasked with providing 200,000 new homes for under 40s at a 20% discount. However, Government failed to place a statutory duty on local authorities to deliver Starter Homes and so no homes meeting that criteria were ever built.
When thinking whether First Homes can meet the needs of first-time buyers where Starter Homes failed, the devil is in the detail, which unfortunately is lacking. While buyers must be local, the definition is up to the local authority’s discretion and frontline key workers would be prioritised. These restrictions would fall away if no eligible buyers are found. In those cases, homes would then revert to normal market prices, ultimately diluting the purpose of a policy to support first-time buyers.
Second, the discount of 30% is viewed as a minimum with local authorities given discretion to set a higher level. Yet for areas of high housing demand and high prices, such as London, the level of discount required would need to be far higher than that proposed. Crucially, whilst the discount aims to address mortgage affordability, it does not address the issue of a deposit, which would still be unattainable for many first-time buyers even at a discounted rate.
Finally, and most critically, Government has proposed that First Homes be delivered either as a prescribed percentage of affordable homes through a section 106 agreement or as all homes on a ‘suitable site’. Though the consultation highlights the need to deliver truly affordable housing, the policy risks cannibalising affordable housing delivered through the section 106 process in favour of First Homes. Furthermore, the consultation does not elaborate on what a ‘suitable site’ is and whilst it does discuss the use of exceptions sites as primary deliverers, such sites are not applicable to London where arguably the greatest need for First Homes is required.
All in all, it would be fair to say that the policy would benefit from a bit more thought, but in the light of COVID-19, this may all be academic. It is likely that affordable housing for rent is going to play an important role in supporting construction activity if demand for market sale properties post-lockdown remains challenging. Home ownership will always remain an aspiration for many, but existing programmes, like the current Help to Buy scheme, may be better placed to service this demand. First Homes’ incompatibility with the London housing market offers further evidence for refining the policy. However, maybe now is not the time to introduce top-down housing products and instead look to ease and reform existing policies in support of our recovery.
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