The problems with shared ownership

Posted: April 11, 2024 | Author: julesbirch | Filed under: Section 106, Shared ownership |Leave a comment

Originally written as a column for Inside Housing.

Is shared ownership at a crossroads or a dead end?

The fact that the question has to be posed at all is an indications of the issues now facing the part-buy, part-rent product that has been a mainstay of the affordable home ownership market, Section 106 planning contributions and housing association development programmes over the last three decades.

But after a month that has seen a critical report published by an all-party committee of MPs and relentlessly negative media coverage based on the personal experiences of shared owners, it is also a question that needs answers urgently.

A front-page story in The Observer featured shared owners who have fallen victim to soaring service charges and increases of more than 40 per cent in a year.

With grim irony, they had bought homes at Elephant Park in south London, site of the controversial demolition of the Heygate estate that was meant to be a showpiece for market-led regeneration.

BBC London has reported on cases including a shared owner in King’s Cross in north London whose annual service charge for 2024 rose 274 per cent from £4,200 to £16,000.

There may be many shared owners out there who are happy with their home but these are far from the first horror stories and sadly they will not be the last about a tenure that is meant to offer buyers an affordable way to staircase their way up the housing ladder.

The all-party Levelling Up, Housing and Communities (LUHC) Committee published a report just before Easter highlighting above-inflation rent increases, uncapped service charges, repairs and maintenance liabilities and complex leases that it said make shared ownership ‘an unbearable reality’ for people looking to become full owners.

Similar concerns have been raised for as long as I can remember without ever really being answered. The tilted scales that mean part-ownership still leaves you liable for the full costs of repairs and maintenance may rebalance if you staircase to 100 per cent ownership but the LUHC Committee heard evidence that only 3 per cent of shared owners a year succeed in doing that.

The government has responded by introducing a new lease for shared ownership homes delivered under the 2021-2026 Affordable Homes Programme. This includes a minimum lease term of 990 years and requires landlords to meet repair and maintenance costs of up to £500 for the first 10 years.

That’s welcome but, as the MPs point out, it also creates the risk of a two-tier market for previous shared owners (ie the vast majority) still on the old lease with full liability for repair costs and a minimum 99-year lease that will have to be expensively extended within a few years.

These will also be less energy efficient homes that need to be decarbonised, increasing costs again and re-emphasising the point that only some things about shared ownership are shared.

And those specific concerns have been turbocharged by wider scandals over leasehold, building safety and new-build quality.

In these, of course, shared owners suffer the same problems as 100 per cent owners, fall through the same gaps in the Building Safety Act and are frustrated by the same timidity in the Leasehold and Freehold Reform Act.

It is noticeable how many of the worst stories reported in the national press involve shared ownership blocks delivered via Section 106 in which housing associations are themselves leaseholders with limited influence over charges imposed by the managing agent and freeholder.

As Pete Apps reported in February, even without fire safety issues, leaks and disrepair can add up to a nightmare for shared owners on glossy new developments like Nine Elms thanks to complex management arrangements in which somebody else always seems to be responsible for fixing them.

All this adds up to some more fundamental questions that need answers. If shared ownership becomes ‘financially unsustainable’ over time, and if service charges can add up to more than the rent, to what extent can it still be called ‘affordable’ enough to get AHP funding?

Should housing associations be buying ‘affordable’ Section 106 homes on a head lease that only gives them limited influence over what their tenants get charged?

Some have already pulled out because of this complexity and Fiona Fletcher-Smith, chair of the G15, warned last month that wider cost pressures on associations could force more to stop buying Section 106 homes.

Even if for-profit companies make up some of the gap, that would also hit developers for whom the provision of affordable housing is a condition of planning permission.

But should developers even be allowed to discharge their affordable housing requirements with homes that are not really affordable?

The case for shared ownership being at a crossroads is well put by Matthew Bailes, who says it should be reformed and expanded on the basis that paring it back would have undesirable knock-on effects.

And that is essentially what the LUHC Committee is arguing too when it recommends that the government should explore ‘how it can ensure shared owners are only ever liable for repairs and maintenance costs proportionate to the size of share they own’

It also calls action to buy back shares from shared owners trapped and unable to sell because of building safety issues, with extra grant from government to cover additional costs for providers.

End Our Cladding Scheme has welcomed the report but says much more must be done in the context of the building safety scandal: ‘We are contacted regularly by shared owners facing incredibly difficult circumstances, including some about to lose their homes. We hope that the Committee’s report will be a wake-up call and force the Government, local government and housing providers to act.’

From a producer perspective, housebuilders, private equity-backed for-profit housing associations and asset management companies all see shared ownership as a good thing, which is hardly surprising when it offers an index-linked return on their investments.

Shared ownership may still offer a more secure alternative to the rental market and it may help people on to the housing ladder. Many of its problems may be down to wider issues with leasehold, building safety and new-build quality that obscure its benefits.

But the way back from a dead end has to start with improvements and reforms based on the consumer perspective if shared ownership is to offer an affordable route to home ownership.  

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