Wider community will pay the price for discount starter homes - RSA

Wider community will pay the price for discount starter homes

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No one has a sure-fire way of raising the number of houses and flats that are under construction each year. We are systematically and chronically building fewer homes than are required by population growth and changing demographics. Today another silver bullet was cynically loaded into a toy policy gun. It’s misguided to the point of being patronising. It doesn’t address the structural, systemic failures that shape our housing challenges and distracts attention from those who feel the harshest impacts of high housing prices.

The policy idea is that we should double the size of the already-announced ‘Starter Home’ scheme. If you are under 40, you will be able to buy a newly built home at a 20% discount provided that the new home was developed on an ‘exception site’ - under-used or unviable industrial and commercial land that has not already been identified for housing development. This basically means the locations won’t be the attractive ones where demand is high and affordability most challenging.

And never mind that the policy consultation on the originally announced scheme only closed four weeks ago, asking some pretty fundamental questions like ‘Do you think there are sufficient existing mechanisms in place to police this policy?’. A 20% discount is a tricky thing to enforce. London councils have already complained that in response to the new definition of ‘affordable rent’ – 80% of market rents – a developer could, in a booming market, simply raise the market rent asking price 25% only to later discount the private tenancy rate if properties go unfilled. And what about couples where one person is over 40 and the other under 40?

The way that property developers will achieve the saving, and pass it on to buyers, is through an exemption from legal requirements to contribute money to the physical infrastructure, amenities and facilities in the place they are built. When we start talking about Section 106 agreements and the Community Infrastructure Levy most people glaze over. But please pay attention: before the crash developers were contributing £5bn per year to build affordable housing, roads, schools and libraries, and fund apprenticeships, bus services and other key facilities.

The law is set up to ensure that new developments don’t dump new problems, like overcrowded roads and schools, on inadequately prepared neighbourhoods. As we argued in a paper last year, planning is a ‘doorstep issue’ that links to a whole range of important public concerns. The implication of the Starter Home scheme is either that everyone else pays for this infrastructure, or that it doesn’t get built at all. And it is this problem that often leads local people, who understand the big picture, to object to specific planning applications: “we need more housing but our streets and public services can’t cope”. (The government has yet another scheme premised on this problem: a New Homes Bonus is paid to local authorities based on the number of homes built).

We label people as NIMBYs, but people often have other rational reasons to oppose new housing. More than two-thirds of adults in the UK are investors in homes as assets that appreciate greatly in conditions where demand is growing faster than supply. This represents a strong disincentive for these individuals to support additional housebuilding in their local market. I think our Britishness -speaking discretely about our own money - means we politely ignore this fundamental driver.

Nevertheless, all political parties agree that ‘something needs to be done’. Since World War Two, when half of households rented private, a higher and higher proportion of people came to own their homes – 69% in 2001, among the highest in the world. This reversed in the last decade, and both parties can smell the votes among disaffected adults who aspire to own their own home. The numbers renting from private landlords or letting agents went from 1.9 million in 2001 to 3.6 million in 2011.          

Without any convincing ideas on how to encourage more homes to be built, the Labour party has given policy attention to tenants in the private rented sector (and they are picking up their votes). Anyone who has rented recently will find it hard to disagree with the need for better regulation. Administration charges are numerous and mysterious. I have a friend who had a termination clause relating to the noise made by his newborn son. Another friend is a successful freelance digital artist, working on a visa from Turkey. Agents asked for 6 months rent as deposit, and a guarantor with a salaried income of over £60,000. At least Labour’s proposed 3-year tenancies would help provide stability from the uncertainty and disruption which can disrupt education and work.

The Conservatives, meanwhile, have basically found new ways of providing public subsidies to first-time buyers. Help to Buy has provided government loans which allow households (average income £45,000) to get mortgages with smaller deposits. While the NAO and the Public Accounts Committee have criticised government for not considering alternative policy options, or evaluating the impact of the scheme, it’s likely that Help to Buy kept the market supplied with demand at a time of price uncertainty. This is only ‘good’ for house prices if you already own a house. Everyone else is hoping prices will fall (the favoured euphemism of economists is ‘market correction’). Mainstream right-of-centre ideology would consider government-as-banker to be a textbook example of interfering with both the housing market and private finance; but initiatives to support property prices find a comfortable exception.

Both Starter Homes and Help to Buy continue the ‘Right to Buy’ tradition in social housing: the rationale seems to be to court a group of ‘hardworking families’ (of course) who – precisely because they don’t rely on state benefits – are virtuous enough to deserve a hugely expensive state subsidy.

The problem is systemic. We have come to view home ownership as an entitlement, an important status of adulthood. We talk about a ‘housing ladder’ as if it really is a magic escalator. We demand that everyone should be able to get on at the bottom, and end up becoming wealthier by clinging on. It is totally unsustainable for the housing market to simultaneously be a vehicle for upward social mobility, retirement savings and getting children into the best schools.

We can’t have rising values for the grown-ups and cheap housing for our kids. Public support for subsidising housing for the poor is simply crumbling, as the Housing Benefit bill rises. There isn’t an easy solution. Even if we doubled housing production, this wouldn’t necessarily make homes accessible and affordable: it’s a stark reminder of income and wealth inequalities when so many new homes are sold as instant buy-to-let investments.

We must keep housing at the top of the political agenda for any new government. It is connected to our daily, personal lived experience as more couples are (prematurely?) ‘hutching up’ to save money; we increasingly rely on property value to fund social care services for an ageing population; and housing market hotspots make public services untenable – evident in the challenges of London Ambulance Service in filling roles and keeping staff.

So don’t patronise us. Starter Home bargains won’t support communities that will hold social value in the future. We’re being offered a bowl of stale crisps; our hunger for homes demands a three-course meal which provides a rich mix of policy approaches.

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  • Great article. The execrable, pork-barrel, vote-buying base politics of Help to Buy were bad enough – but with the Conservative-led UK Coalition’s Government’s policy of Starter Homes it has seemingly added financial and economic illiteracy to blinkered ideology in creating policy-on-the-hoof. Anyone in any doubt need only have listed to some Conservative MP called Chishti (?) on the BBC Daily Politics programme today. He delivered a barely coherent rambling attempt to rationalise the policy. Even worse was the car-crash of an interview with Conservative Chair Grant Shapps on with Murnaghan on Sky news. That may go down as one of the all-time inept Ministerial performances – a must view: