Our Conference Message: Security, Stability, Opportunity
- We are modern, compassionate Conservatives who are truly on the side of working people – whatever stage of life they are at.
- A home-owning revolution: Generation Rent to Generation Buy
Summary: The Prime Minister has announced a major boost to affordable home ownership. We will ensure affordable housing includes low cost home ownership, so young people are not locked into renting when what they really want is a home of their own.
- For years, politicians have been talking about building what they call ‘affordable homes’–but the phrase was deceptive.It basically means homes that were only available to rent. What people want are homes they can actually own. Old rules said to developers: you can build on this site, but only if you build affordable homes for rent. We are replacing them with new rules: you can build here, and those affordable homes can also be low costs homes to buy.We are helping Generation Rent move to Generation Buy.
- Current planning rules prevent Starter Homes, which give first time buyers at least a 20 per cent discount on a new build home, as counting as affordable. But such homes are a key way for many to turn their dream of owning their own home into a reality as part of a sensible affordable housing mix. This will help deliver more homes for first time buyers, more quickly.
- Starter Homes are only a part of the Conservative proposals on home ownership. We will extend the Right to Buy to housing association tenants, support Help to Buy up to 2020, and increase the supply of new homes by helping small and medium sized builders,and ensure councils deliver enough homes to meet their local housing need.
Background
- Extend the definition of affordable homes to include Starter Homes.Starter Homes are a new Government programme to build low-cost homes for first time buyers, under 40 years old. Prices are at least 20 per cent lower than the market rate. However, they are not currently classed as ‘affordable’ housing under government planning rules. The current policy says: ‘low cost market housing may not be considered as affordable housing for planning purposes.’1
- Holding out for unrealistic types of‘affordable’housing hinders house building. While house builders need to support affordable housing, in some cases local authorities demand a particular type, or level, of a particular type of affordable housing that is simply not financially viable to sell and maintain. This stops homes from being built in the first place, and prevents house builders from meeting the untapped market demand of low cost homes to buy. By introducing more flexibility, more sites will be built out, and as a result, more affordable housing provided than would otherwise be the case.
- People want a home of their own: Thanks to these rigid rules, young people are being locked in to renting, when actually they want to buy their own home –at an affordable price. Given the choice, 86 per cent of people want to own their own home rather than rent, and a fifth say the high cost of housing is the barrier.2 There is massive untapped demand for low cost homes to buy, which the market is being prevented from providing due to state rules.
Our solution
- We are going to change the rules to include Starter Homes in the affordable housing definition. At present such a model of a discounted home for outright purchase is not covered by the definition. We want this model of discounted home ownership to be seen as part of the affordable housing mix. This does not reduce the total financial value of affordable housing provided –but actually can help increase the total level of affordable housing by making more sites economically viable.
- We will also make it clear that councils cannot hold out for one type of affordable housing over another. We will be making clear that significant delays based on the type of affordable housing rather than the overall cost of affordable housing are not acceptable,giving flexibility to developers to bring forward sites with different types of affordable housing.This will not reduce the total amount of support toward affordable homes. Existing guidance already states that councils should be flexible in delivering affordable housing through Section 106 agreements. DCLG will be strengthening this guidance, writing to the Chief Executive of the Planning Inspectorate, writing to Chief Planning Officers, and considering any other measures necessary if these measures fail to have the desired impact. Local authorities should be flexible on the type of affordable housing on any specific site in order to make sites viable and get homes built.
- This will go alongside measures to ensure Starter Homes on all reasonable sized sites. As set out in our Productivity Plan we have said that all reasonably sized sites should have Starter Homes on them. We will also take forward measures at the Spending Review to refocus support on low cost home ownership rather than primarily homes for sub-market rent.
Conservative record
- Delivering affordable homes. We have built 260,000 affordable homes since 2010–with a quarter of them in London.1
- Higher level of council houses built. Twice as many council homes were built between 2010-11 and 2014-15 than under 13 years of Labour Government.2
- Housing starts are at their highest since 2007. Moreover, last year, councils across England granted permission for 261,000 new homes–showing that our locally-led planning reforms are working.3
Costing and funding
- There is no cost to taxpayers.This is about allowing affordable housing to be for sale as well as for rent.
October 9, 2015
for a person on minimum wage working a forty hour week the maximum mortgage they could raise is £40k are you proposing that houses will be built for this amount if so what are they pig stys
October 10, 2015
Thinking about affordable homes made me think of an experience I had in the late 80’s and early 90’s which I thought I would share. How relevant it is I do not know probably not much but it is a lesson of how things are never what they seem.
At that time I decided to go into property development and as luck would have it a recession set in. The land was designated to be for the construction of homes for the better off. However the recession killed demand for them so in desperation I built affordable homes instead and they sold like hot cakes to first time buyers young couples to the most part much to may amazement. The downside was that I did not make much of a profit but at least if I had either mothballed the site or gone ahead with the original plan I would have made a massive loss.
As much as I hate government interference in any market it perhaps indicates that subsidising private builders to build affordable homes could be one solution.
October 10, 2015
Perhaps I should clarify one thing and offer another lesson learnt.
Mothballing a site is the normal thing to do under such circumstances and wait for a market upturn a good profit is then pretty much assured if somewhat inconveniently deferred. However in my case I bought the land by taking out a loan credit was very easily available at that time so mothballing was not an option for me. So the moral is beware of easy credit it.
October 10, 2015
The secret is not to buy the site until you need it. Instead, offer a sum of money as an option to purchase at your discretion over a period. That way you only have to borrow to fund the purchase when the market is profitable. The premium you pay is your maximum loss should the market never reach a profitable level during the term of the option. The higher the pre-agreed strike price you guarantee to pay if you exercise the option the lower the inducement you need to offer (but the greater the chance it might not be profitable).
In fact, this is how housebuilders maintain a large part of their land banks, as a delve in the footnotes of their financial reports will reveal. It tends to have an effect of encouraging prices to rise to allow more profitable development to take place.
October 10, 2015
The part BEFORE you add ingredients that can’t be frozen or, the part when you want to pick up the recipe again.
October 10, 2015
Jr wrote:
There is no cost to taxpayers
But Antisthenes wrote:
…. perhaps indicates that subsidising private builders to build affordable homes….
No anomaly there?
October 10, 2015
Some numbers:
Out of 140,000 built in the most recently available year (to Q1 2015), just 2,000 were Council homes, 27,000 were for Housing Associations, and a further at least 14,000 “affordable” homes were provided as “private sector property purchased for use as an affordable home” – mainly from newbuilds, and some to Registered Social Landlords in the private sector. BTL accounted for around 75,000 newbuilds (a figure of 56% of newbuilds was quoted by one landlords’ organisation recently) – ranging from upmarket new flats bought by overseas purchasers in London through some of the “affordable” homes, which should more properly be called inadequate shoeboxes. That leaves under 40,000 newbuilds for other purchasers, from lavish footballer mansions through to starter homes and retirement flats.
The CML tell us that the BTL sector bought around 200,000 homes with a mortgage in 2014 – and therefore more than that in total, allowing for cash purchases by rich overseas buyers, etc.: there will have been other additions to the BTL portfolio through change of use as owners let out homes when they move abroad or to another part of the country on a “temporary” posting, or let out “my wife’s old flat” to quote a radio advertisement. Meanwhile CML recorded some 310,000 purchases by “first time buyers” with a mortgage.
Landlords are therefore buying at least 125,000 second hand homes, while first time buyers are buying at least 270,000 second hand homes – almost 90% of their purchases.
Some things to note:
Supply to net acquirers of housing (a total of well over 510,000 homes after you include those bought for cash or inherited and not resold) is dominated by resale or transfer of existing homes. BTL tenure increased from 2.9 to 5.2 million homes in the decade to 2013 (latest available data), demonstrating the few BTL homes are ever sold, and rather more than the total of 1.75 million homes built.
There seems to be little change in the distribution of household sizes among owner occupiers – and indeed there has even been a slight fall over five years in the number of single person households, which account for about 29% of first time purchasers, with another 39% being couples, and the remainder being households with children or other adults.
The new policy merely seems to open competition between BTL landlords and first time purchasers for the same properties mandated by the unreformed Sec 106 – the state continues to dictate what is built, rather than leaving it to the market. Instead of subsidies going to favoured BTL and state landlords, they will now go to favoured first time buyer purchasers, whose 20% subsidy is a £50bn commitment of someones’ money (if not taxpayers’, then whose?) on the million homes (taking £250,000 as the average price of sale, ignoring the £90,000 per home offered in London) – to be added to the subsidy the state will be providing to keep Housing Associations whole over sales they make under Right to Buy.
Since 86% of households would prefer to own than rent, we need a far more drastic policy in favour of promoting ownership, and that has to start by reining in BTL purchases. The best way to do that is to limit severely how much they can borrow to purchase. That would at a stroke open up another 200,000 homes a year to first time buyers, and the increased supply would result in lower prices, not a bidding war. With lower prices, there is no need of subsidies for purchase. BTL landlords might be persuaded to sell some of their properties were it not for the swingeing imposition of CGT: offering them a substantial discount on CGT when they sell to any owner occupier would help to ensure more homes returned to owner occupation.
October 11, 2015
Mark
Given it would seem that governments of all colours want to encourage home ownership, I never understood why MIRAS was scrapped.
At least it treated all purchasers with mortgages the same, not just a few chosen ones.
Surely if you do not want to distort the market and give some people a windfall, then all purchasers should be treated the same ?
October 12, 2015
I think we have a MIRAS equivalent at the moment in the form of artificially low interest rates. New mortgages granted in Q2 this year averaged just 2.83% interest, with nearly 80% of them being at fixed rates according to BoE data. That’s a new record low over three centuries since the Bank was formed.