Shared vision

Shared ownership seems an obvious solution to the housing problems of people on low and middle incomes – so why does it remain on the margins?

A report out this week from Shelter looks at perceptions of and problems with the part rent-part buy tenure and ways that it could be reformed to take it into the mainstream.

In the process, it makes a pretty convincing case that the piecemeal, alphabet soup of government ownership schemes has done little to make housing more affordable for the squeezed middle and more to create confusion about the options available. In particular, it shows how shared ownership could make more homes in more places more affordable for more people than either version of Help to Buy. The report finds that almost eight out of 10 low to middle income families could not afford a family home with a 95 per cent Help to Buy mortgage.

So what are the problems with shared ownership? According to Shelter, one is scale: there are now 174,000 shared owners in England, just 0.8 per cent of all households, and not many of them have moved up to full ownership. And every time the government creates a new scheme, the eligibility rules change, creating confusion for prospective buyers and extra work for lenders.

Another is the way the market works. Buying and selling a shared ownership home is much more complicated, and finding information and getting a mortgage can be harder, than for conventional ownership.

A third is that because shared ownership focuses on new build it brings with it many of the same problems: the 10 per cent new build premium means you get less for your money and you can quickly go into negative equity; and new build economics can put a squeeze on space.

The report argues that the housing options for low to middle income families will not improve on their own and that the market will not fix itself. Unless the government acts, more and more of them will be forced into insecure private rented accommodation. Instead:

‘A bigger, better shared ownership market could provide these families with the balance of affordability, flexibility and stability that they need in their home. But it cannot be done by halves. A functional middle market needs scale to work like a proper market and move from being a rationed, niche part of housing in England. Shared ownership needs a bold, long-term commitment from policy-markets to make this happen.’

The scale could come from the case made by business secretary Vince Cable for one per cent of GDP to be spent on direct capital investment in house building. A £12 billion budget would be enough for 600,000 homes at £20,000 per home, a grant rate that Shelter argues would give providers the flexibility to offer lower initial shares for sale (as low as 12 per cent).

Much of the confusion could be swept away by having one scheme with clear eligibility rules and a buying and selling process that emulates the mainstream market more closely. Increasing the size of the sector could enable homes to be sold back into a larger secondary market that is less restricted than the current one.

Problems with new build could be tackled by making criteria for setting headline values and a requirement to meet sensible space standards a condition of getting grant.

The report has much to commend it but, as the title (Towards a mainstream shared ownership market) implies, it is just a beginning.

Media reports like this of shared owners’ problems with rising rents, repair bills and service charges and complaints about inflexible contract terms suggest that providers have some way to go with improving the consumer experience. Are those issues that can be ironed out or do they suggest a more fundamental problem?

The legal position of shared owners is another major concern. Do they have the best or the worst of both worlds? In particular, if the provider takes out a possession action for rent arrears, what happens to the tenant/owner’s share in the property? In the best (only?) known case so far (Richardson v Midland Heart), the tenant/owner faced losing all of her original capital outlay of almost £30,000 over £3,000 of rent arrears incurred when she fled her home in fear of violence and her rent was no longer covered by housing benefit. It was apparently only because the housing association offered an ex gratia payment that she got anything back – and even then nowhere near her capital stake in the property at the time. The message to shared owners seems to be that they risk losing everything if they fall into rent arrears but some of the details remain unclear and the case does not seem to have gone to appeal. Clarification of the legal position is surely needed before a major programme of investment. See here and here for more on the case.

A report last year by the Cambridge Centre for Housing and Planning Research for Thames Valley Housing Association and the NHF highlighted problems with the secondhand market for shared ownership homes. It called for action to improve mobility, encourage staircasing and improve the sales process.

And then there is the money. Despite that quote from Vince Cable, the case for massive investment will seem unconvincing to a Treasury that has found £15.5 billion for Help to Buy equity loans and mortgage guarantees without it counting as public borrowing. The investment that is being made by the coalition is going into Affordable Rent at a similar £20,000 per home grant rate.

Finally, even if a future Treasury accepted the case for investment, would it be at a scale big enough to change the market given the desperate need for homes to rent for people on even lower incomes? As the report accepts, both are needed.

But the alternative is to continue with piecemeal ownership schemes that fail to address the housing shortage or improve the options for people on low to middle incomes. The report offers a big housing idea that could have wide political appeal and appears to go with the grain of the housing aspirations of people on low and middle incomes. Staircasing receipts offer a future income stream to providers. And for those politicians prepared to look beyond the next election the report has a long-term warning about the costs of doing nothing and letting the private rented sector (or Affordable Rent) take even more of the strain.

As I’ve blogged before, the implication of falling ownership and rising private renting is a burgeoning housing benefit bill once renters reach retirement. The report estimates that if just half of today’s Generation Rent never buy a home the housing benefit bill for them alone will be £16 billion a year. Shared ownership could halve rents – and that bill – in retirement and be a key way of shifting subsidy back from benefits to bricks and mortar.