Starter Homes update: things we’ve learned from the technical consultation

Many peers expressed worries about the lack of detail in the Housing and Planning Bill during its early outings in the House of Lords. In fact they had an awful lot of concerns about some of the central parts of the bill, like Starter Homes. Many were exercised about the fact that the Bill includes remarkably little detail about how the sweeping reforms to affordable housing will actually work. Instead of specifying these vital details, the Bill will give the secretary of state powers to set them via regulations – which won’t be produced until after the Bill has passed into law. Not unreasonably, peers asked to see some of these draft regs now, so that they could properly scrutinise the bill.

Well, ahead of the Housing and Planning Bill returning to the Lords on Monday next week, the government has published some of that extra detail on Starter Homes with a technical consultation. Many who are worried about what the scheme will mean for the provision of genuinely affordable homes will have concerns about what it says. Here’s why…

1. There will be almost no other affordable housing on the average development after the Starter Homes Requirement is introduced

The Starter Homes Requirement will completely change councils’ ability to get new affordable homes built in their area – homes like social rented or shared ownership.

At the moment, when councils give planning permission they are able to require that a percentage of the development be built as affordable homes, based on the need for them in their area.[1] They are able to do this through Section 106 of the 1990 Town and Country Planning Act, so this sometimes gets called making Section 106 obligations or affordable housing contributions.

However, the Housing and Planning Bill will introduce a new duty on councils to get Starter Homes built in their area, and it will take precedence over building any other type of affordable home. So councils will only be able to set Section 106 obligations for social rented or shared ownership homes after they have obliged ‘enough’ Starter Homes to be built first.

This is going to be called the Starter Homes Requirement.

The big uncertainty has been over what level the Starter Homes Requirement would be set at – how many Starter Homes will be ‘enough’ Starter Homes. This makes all the difference, because if it was a pretty small duty, then it wouldn’t get that much in the way of councils’ ability to get those other genuinely affordable homes built.

But it isn’t going to be a small duty: the requirement will be that 20% of all new developments of over 10 units should be Starter Homes.

The way the government has worked out the requirement level is to look at the maximum viable level it could be set at for the average development, and then set it just a tiny bit below that maximum level. The technical consultation sets out how they’ve calculated this:

  • Across England during 2012/13-2014/15, on the average development over 10 units, the amount of Section 106 obligations that councils secured was equivalent in cash-terms to 22% of the homes on that development being built as Starter Homes
  • So they are going to set the Starter Homes Requirement at 20%, just 2% below that level, leaving a tiny cash-terms equivalent on the average development for all the social rented or shared ownership homes a council might want to see built

Of course, this doesn’t mean that there won’t be sites where it’s viable to build more affordable homes. But it also means that there will be a lot of sites where councils will only be able to deliver Starter Homes, and no other types of affordable housing.


2. The public subsidy will be locked in for longer – but not much longer

It has been a longstanding principle of affordable housing that the homes remain affordable forever – what gets called remaining affordable ‘in perpetuity’. This perpetuity requirement means that the public purse gets value for money and taxpayers don’t have to shell out every few years in order to retain a stock of affordable homes. Instead, the investment in subsidy gets properly locked in.

However, when they were first announced Starter Homes looked set to change this by only remaining discounted for a period of five years. Instead of the subsidy getting locked in forever, the up-front cost to the public purse to pay for the 20% discount would only apply for five years, after which the owner could sell the home on at full price – and pocket the difference.

After much nervousness from mortgage lenders about what this will do to the valuation of homes, as well as people worried about affordability, the housing minister suggested at the developer conference MIPIM that the discounted period might be pushed up from 5 to 10 or 15 years. In the technical consultation this has been scaled back to a proposed 8 years, and a taper for removal of the discount floated.

One major mortgage lender has already said that such a small increase in the discount period won’t allay their fears, and while it is an improvement to the original five year period so far value for money is concerned, it’s not a huge one.

3. Restriction on buy-to-let, but no talk of restricting eligibility based on income

There is some good news in the technical consultation on buy-to-let. It makes clear that there will be restrictions on letting out Starter Homes, so they can’t bought at a discount only to be rented out by the owner at market rents.

However, the broader question of whether the subsidy needed to build Starter Homes is going to be spent on people who actually need it isn’t addressed. At the moment, the only eligibility criteria for a Starter Home are being younger than 40 and a first time buyer. This means that young people on high incomes who don’t need help to buy, will still be able to access public subsidy.

In sum, concerned peers reading the new information on Starter Homes are likely to be left unsatisfied. Where the government has moved, peers might reasonably think they have not moved nearly far enough. And when they think through the implications of the Starter Homes Requirement, they are bound to fear for the future development of genuinely affordable homes at all.

[1] Taking the viability of the contributions into account, etc.