Starter for 20

The government’s plan for starter homes with a 20 per cent discount begs all sorts of questions. Today we got some of the answers.

The scheme announced by David Cameron this morning was first trailed in his conference speech in October as an idea for after the election but has now apparently been brought forward to start early next year.

Some of the details of Dave’s Dream Homes seem to have changed along the way. According to a DCLG consultation also published today,  the starter homes initiative seems to amount to an extension of rural exceptions sites to urban areas. So how will it work?

How will the government ensure that the discounted homes are only sold to first-time buyers under 40? Safeguards against them being snapped up by buy to let investors or overseas buyers were a key part of Cameron’s original pledge. The consultation says buyers should be ‘first time buyers under 40 years old, i.e. young people who have not previously owned a home’. The mechanism for this is to:

‘Ensure through either planning obligations or conditions that these newly built starter homes are only available to buy or occupy or young first time buyers and are sold at a minimum 20 per cent discount below open market value.’

The same obligations would prevent the resale of the homes at market value for a five to 15-year period. The government seems to have ruled out a permanent condition that they be sold at a 20 per cent discount (something that might form the basis of a secondary market, as in the Channel Islands) because of concerns about getting a mortgage. However, the consultation does not mention buy to let landlords or overseas buyers and it’s unclear what that mention of ‘to buy or occupy’ means. Could someone buy a starter home, then rent it out and buy somewhere else before pocketing a profit five years later?

What elements make up the 20 per cent discount? Media briefings ahead of Cameron’s speech suggested that the scheme would be an extension of Help to Buy and work by using cheap brownfield land and by exempting the developments from requirements on affordable housing, community infrastructure and zero carbon.

On the land, the answer to this one seems to be that the scheme will operate as an ‘exceptions site planning policy’ to enable starter homes to be built on under-used or unviable brownfield sites not currently identified for housing on public and private land. The land will ‘most likely be of relatively low-value and under-utilised, although with only limited remediation and infrastructure costs’.

The consultation proposes the removal of section 106 obligations, which ‘could save an average of £15,000 per home’, and an exemption from CIL, which ‘could save £6,000 per home’.

According to the most recent ONS house price index, the average price of a new home was £251,000 in September and the average price paid by a first-time buyer was £209,000. Clearly, there is some way to go to meet a 20 per cent discount of, say, £40,000.

Neither the press release nor the consultation mention zero carbon requirements. Perhaps because the standard itself has been watered down so much already.

That stipulation about the land not being currently identified for housing appears to answer concerns about the impact on other affordable housing schemes as any homes that are built will be additional.However, that does not seem quite so clear cut in a section at the end of the consultation:

‘We are already considering how suitable land under the control of the Homes and Communities Agency could be used to help develop the Starter Homes model for public sector land. We are also in discussion with a number of local authorities and developers to identify early adopters who might be able to bring forward private sites, but would welcome views from others.’

Hmm.

What will make former industrial or commercial sites suitable for housing? Relaxing the rules on the conversion of former office blocks to housing has already led to concern from local authorities worried about the potential loss of employment in their area. Could this mean homes stuck on the edge of rundown industrial estates miles from public transport? The consultation says that ‘unless the local planning authority can demonstrate that there are overriding considerations in relation to health, safety or infrastructure that cannot be mitigated’.

It also says that ‘there may be a case for avoiding development in isolated locations that cannot easily be served by infrastructure, or where there would be conflicts with key protections in the National Planning Policy Framework such as the Green Belt’.

Who decides what the pre-discount price should be and who verifies that the discount is genuine? At a conference soon afterwards, Eric Pickles suggested that ‘the market will decide’, which seemed a wholly inadequate answer. And even if there is some sort of independent verification, we’ve all seen how open to manipulation viability calculations can be. According to the consultation, the government also proposes that housebuilders be allowed to develop a limited amount of full market price homes (as on rural exceptions sites). However, a section on ‘making the first-time buyer discount more financially viable’ is focussed entirely on reducing costs, which leads on to another question.

Where is the commitment from housebuilders to reduce their margins in return for a guaranteed new market? Yet again we seem to have a government initiative that cuts their costs and de-risks development without a visible quid pro quo. Little wonder that so many of them are interested.

What safeguards are there against cuts in design and build quality? On this concern at least, the government seems to have acted. A Design Advisory Panel led by famous architects ‘will be established to ensure that new homes are not only lower cost but also high quality and well-designed, giving hardworking house buyers attractive homes that meet the demands of modern life’.

The plan seems to be that the panel will look at all new homes, not just starter homes. It sounds such a good idea in fact that you wonder why one of the government’s first acts when it came to power was to abolish its architecture watchdog CABE. Was it just part of the bonfire of the quangos or was it because its audits of the design quality of new homes used to annoy housebuilders?

When can I buy one of these starter homes? Cameron seemed to mean after the election in his conference speech. The No 10 press release suggests the start of the initiative has been brought forward to now.The consultation makes it clear that the policy will require a written ministerial statement to parliament. This will be drafted after responses have been considered and will be published ‘at the end of March 2015’.

What’s the overall verdict? It would be easy (and accurate) to dismiss this idea as yet another coalition initiative when what’s needed is a strategy. As Brickonomics blogged earlier, it looks like yet another example of the coalition doing too little and doing it too late. However, subject to the caveats above, it does at least have some potential. Rural exceptions sites do generate some affordable housing for villages even if they are not enough on their own. In the context of a litany of coalition policies that claim to help first-time buyers while actually helping existing owners and housebuilders, it’s not the worst idea of the last four and a half years.