The government has called on private firms to come forward with proposals for building new shared ownership schemes without a government grant.
The recent Budget, the Ministry of Housing, Communities and Local Government (MHCLG) has now launched a consultation inviting private investors and ‘delivery organisations’ to put forward ideas that will create new routes into affordable home ownership. In consultation papers published following the Budget yesterday, the ministry said it was “particularly interested” in ideas for shared ownership products which would be funded by the private sector.
The publicly listed real estate investment trust (REIT) ReSI acquired a portfolio of 34 new build homes in Barnet to convert into shared ownership homes and has a stated intention to invest further in the tenure. Meanwhile, Heylo Housing – a for-profit registered provider – has built up a portfolio of 1,650 shared ownership homes, following its launch in March 2017. Shared ownership properties, which are typically offered by housing associations, allow buyers to purchase a percentage of the equity in a property while paying rent on the share they don’t own. This reduces the monthly mortgage costs and is attractive to buyers with smaller initial deposits.
Currently, shared ownership homes have typically been developed using government grant, cross-subsidy provided by housing associations from their market sale profits or via planning obligations imposed on private developers – known as Section 106 contributions. The government is now seeking proposals which would see private sector investors develop shared ownership homes without public money. Under the criteria for proposals released today by MHCLG, the government said successful proposals must target households earning under £90,000 in London and £80,000 per year in the rest of England.
The new products must also allow households the right to the staircase on demand, meaning owners would be able to buy greater stakes in the property at any point. Rent levels must come in no higher than 3% of the value of the owner’s stake in the property per year and mortgage protection clauses must be maintained. Organisations were expected to submit proposal templates before the deadline on 1 February 2019, with the government then assessing the viability of the schemes. The MHCLG has also called for other privately funded affordable homeownership schemes and innovative routes into homeownership which would be primarily privately funded. All proposals should not rely on government grant funding, government guarantees or developer Section 106 contributions.
“Please note that the information contained above has been directly created and is owned by Insidehousing and full credit and thanks is given to the author, Jack Simpson. For the complete unabridged version of this article, please click here.”
Read XUSA founder Alex Impey’s personal take on shared ownership schemes
In this week’s long read article, I have looked specifically at an article published by Insidehousing and their review of the current budget changes brought about by the chancellor in relation to shared ownership schemes, within the Social Housing Umbrella. The new initiative from the government puts some power back into the for-profit and developers hands. However, the restriction on the end sales values imposed by the government, in my opinion, will also prevent the level of growth in this sector. This is mainly due to the rising cost of construction coupled with the lack of uptake on shared ownership schemes across certain parts of the UK. I see modular construction schemes supporting this initiative in the relative future (2-5 years) once factories become standardised and the cost of production and operation lowers with increasing economies of scale.
However, currently, the cost to build vs GDV is still highly restrictive for many places in the UK, especially in the North of England where properties prices are further depressed. Without continued support from the government or a radical change in good nature and profit margins of developers, I fear these kinds of initiatives will fall by the wayside like many others in the past. To tackle the issue of affordable housing a sustainable model, similar to XUSA’s mixed tenure model, is needed to be embraced at a wider level along with contributions from both the private and government sectors. Hopefully the new chancellor will help support this in his Autumn 2019 revision.
- Alex Impey, Founder of XUSA
As promised, XUSA has compiled some valuable reading materials that will further elucidate the budget changes’ implications on the lives of developers and investors.
Current Budget: The key housing policies at a glance:
- £1bn to help fund the implementation of Universal Credit over the next five years
- £500m in Housing Infrastructure Fund to unlock a further 650,000 homes
- The next wave of strategic partnerships with nine housing associations, which will deliver 13,000 homes
- British business bank guarantees for SME house builders
- ‘Simplification’ of process to convert commercial properties to new homes
- Providing funding to empower 500 neighbourhoods to allocate homes to local people in perpetuity
- Help to Buy equity loan scheme extended by two years to 2023 and limited to first-time buyers
- Retrospective inclusion of first-time buyers of shared ownership in stamp duty relief
XUSA Properties
1 Aug 2019Be sure to leave comments, engage, and let us know your thoughts about the article!
-Alex
Scott H
2 Aug 2019Why does the Social Housing System in the UK make things so complicated for private investors to support?