Affordable housing: Is David Cameron’s starter homes plan the solution?
A proposal to create ‘starter homes’ selling for 20% below market rate may be good news for developers, but is unlikely to make them build more houses
It's not the first time we've heard of David Cameron's plans for starter homes – the idea got an airing a year ago, although some of the details have changed. Since then, housing starts have dropped, councils have sold off more homes through right-to-buy, and house prices have continued to rise. The need for affordable housing is even greater than when the plan was first mooted – it's a shame that it doesn't seem to be the solution.
The scheme will allow builders to fulfil their obligation to build affordable homes as part of a new developments by creating "starter homes" that sell for 20% less than the market rate.
On Wednesday morning, one minister, Michael Fallon, told BBC Radio 5 that he expected the idea to be welcomed by developers as well as buyers. And why wouldn't they ? Easier negotiations with councils over the section 106 obligation to supply social housing or payments in lieu, no more working with housing associations to provide what they want for the local market – simply build a few that are for sale for 20% less than the rest and job done. Will it speed up the process so much that plots that are already in the pipeline are brought forward? Possibly. Is it appealing enough to make them want to build more homes? That seems unlikely.
The builders have all reported good business on the back of help to buy, which offers an interest-free loan to borrowers with a 5% deposit. But despite this government-backed boost in demand, newbuild homes have clung to a long-term trend of accounting for 10% of transactions. Planning is an issue, but so is the cost of land and labour, the fact that developers do not want to get caught out if the market turns so have no motivation to bring stock flooding on to the market.
Even if the starter homes plan does lead to an uptick in building, these are homes that will be on the market to buy, not for rent. They will give those who might have used the existing help to buy scheme an alternative choice, but they don't offer an affordable alternative to homeownership, or an option for the priced-out. Mortgage rates mean that homes are relatively cheap to own, but expensive to buy, and raising a deposit for a home that can cost up to £250,000 outside London and £450,000 in London is no mean feat. To take a 95% mortgage on a £200,000 property you are looking at £10,000, plus stamp duty and other charges. Try saving that up when your rent is rising each year.
The housing charity Shelter says families on average earnings will be priced out of these new "affordable" homes in 58% of local authorities by 2020, while those on George Osborne's new "national living wage" will be priced out in 98% of the country.
There will always be some people who won't be able to afford to buy. With the chancellor reasserting his plans to allow housing association homes to be sold off, the last thing they need is for builders to be told that they no longer need to provide affordable rented homes. Generation rent is set to get little out of this.