Addressing the Conservative Party conference earlier this month, Prime Minister David Cameron attacked what he dubbed a "deception" on the part of politicians. Announcing a "dramatic shift in housing policy" to create thousands of "starter homes" for sale at no more than 80 per cent of normal market price, he said: "For years, politicians have been talking about building what they call ‘affordable homes’. But the phrase was deceptive. It basically meant homes that were only available to rent."
It is not clear whether Cameron was intentionally creating his own deception for political purposes or whether he was genuinely unaware that more than a quarter of affordable homes built in 2013/14 fell within the government’s own definition of "affordable home ownership". Whichever is the case, the publication of the Housing and Planning Bill a week after the speech has left no-one in any doubt that the proposed duty for local authorities to approve affordable homes for sale through section 106 agreements will be strictly enforced.
The bill defines a starter home as a newly built property that must be sold to someone who is a first-time buyer below the age of 40, with a discount of at least 20 per cent off the market value. Apparently recognising that some housing markets are more affordable than others, ministers propose capping starter home sale prices at £250,000 outside Greater London and £450,000 within the capital.
The definition is not new – it was introduced through a written ministerial statement in March, allowing the provision of starter homes on unused brownfield sites not currently identified for housing. This statement also said these homes could be sold at full market rates after five years – a detail curiously missing from the bill.
However, the draft legislation aims to extend the number of sites on which starter homes can be built. The secretary of state would be given the power to issue regulations ordering councils to approve them at defined levels, through planning obligations, on any housing scheme meeting a centrally prescribed description. Developers would also be able to offer a cash payment as an alternative to on-site provision.
Duncan Field, head of planning at law firm Norton Rose Fulbright, said this central compulsion seems to contradict the National Planning Policy Framework (NPPF). "It is very hard to see how a centrally defined target for starter homes fits with the NPPF, which says authorities should use evidence to ensure that their local plan meets the full, objectively assessed needs for market and affordable housing," he pointed out.
According to David Jackson, head of planning at consultancy Savills, a way round this apparent contradiction may lie in another clause in the bill. This would allow the secretary of state to issue a "compliance direction" ordering a council to pay "no regard" to policies contained in local development plan documents if they are incompatible with the starter homes policy.
This, Jackson said, could prevent delays in implementing the starter homes drive. "Rather than every council having to adjust their local plan, they could just ignore the relevant section. It could mean that the starter homes element effectively becomes a top slice. The council’s priorities for affordable housing would only determine the tenure of the rest of the homes provided through the section 106 agreement."
Whatever proportion the secretary of state decrees that councils must let developers provide as starter homes, it is clear that homes built under the traditional definition of affordability will be squeezed. Ryan Johnson, head of residential at consultancy Turley, said: "Until now, affordable housing need has focused on shared ownership, intermediate and social rented. The introduction of starter homes starts to change that balance. Councils will need to look at different avenues for providing affordable housing, taking more seriously the option of building it themselves."
Builders themselves gave a cautious thumbs-up to the proposals in the bill. "Anything that increases flexibility in terms of affordable homes is a positive thing and it could lead to more sites coming forward," said Steve Turner, spokesman for trade body the Home Builders Federation. He said if the starter homes scheme means that builders are responsible for marketing and selling all the homes on a site, many would see that as a positive.
However, Turner warned that a number of questions remain. "It is not clear where the money to compensate developers for the 20 per cent discount will come from. Doing it by removing other section 106 obligations will stack up better in some areas of the country than others," he said. He added: "If there is a big concentration of starter homes in a particular area, it could distort the market by reducing demand for full-price homes."
Mike Kiely, chairman of the board of the Planning Officers Society, said: "If starter homes were discounted in perpetuity, then you can see how the policy would work. But allowing them to be sold at market rates after a few years threatens to undermine the whole economic rationale. If you know that you’re going to get a 20 per cent cash bonus after five years, mortgage lenders will have to take that into account in valuing the house."
Kevin Gibbs, planning and infrastructure partner at law firm Bond Dickinson, voiced fears that the mere announcement of the proposed change could have a short-term dampening effect on the housing market. "When you make these announcements by written ministerial statement, it can cause delays in the system while planning policy and individual sites are held up. There may already be schemes which could be withdrawn because their business case is likely to change so radically," said Gibbs.
