What the government's latest First Homes proposals mean for councils and developers

The government has revealed that it wants to see a quarter of affordable housing delivered via developer contributions dedicated to a new form of discounted market homes for first-time buyers. But the move has prompted concerns that other forms of affordable housing and development viability could be adversely affected.

Social housing being built - image: Penny Mayes / geograph.org.uk (CC BY-SA 2.0)
Social housing being built - image: Penny Mayes / geograph.org.uk (CC BY-SA 2.0)

In February this year, the government revealed its initial thinking on its First Homes policy, which had first been mooted in the Conservatives' election manifesto in the autumn. The programme seeks to introduce a new form of discounted market housing for first-time buyers through the planning system.

After consulting on the February proposals, the government has now put a little more flesh on the bones. Last month, further details emerged in another Ministry of Housing, Communties and Local Government (MHCLG) consultation document, Changes to the current planning system, as well as a second document published in response to the February consultation.

They both confirmed that First Homes will be delivered via two different routes in the planning system – through section 106 developer contributions and an amended policy on so-called "exception sites". The latter refers to small sites brought forward outside the local plan to deliver affordable housing. As suggested in February, the MHCLG has now confirmed that it wants to "specify that the affordable homes delivered [on such sites] should be First Homes for local, first-time buyers".

In terms of the developer contributions route, the new consultation confirmed that a proportion of affordable housing delivered this way is to be demarcated for First Homes. While the February document suggested potential thresholds of 40, 60 and 80 per cent, the August consultation states that it will be set at 25 per cent. The MHCLG states that this level "supports a smooth introduction of the First Homes scheme and appropriately balances delivery of First Homes with the continued delivery of other tenures of affordable housing in the current market climate".

Elsewhere, the February consultation said the minimum discount for First Homes would be 30 per cent, but local planning authorities would have the discretion to demand higher discounts. The new document adds further detail. Authorities will "be able to require a higher minimum discount of either 40 per cent or 50 per cent on First Homes built in their local area, provided they are able to evidence the need for and viability of homes at this higher discount rate through the local plan-making process", it says.

The document adds that it wants to introduce the First Homes measures via planning policy changes, but may "strengthen the policy through primary legislation at a future date".

Back in February, the potential for the proportion of First Homes to be set at 80 per cent of affordable housing provision rang alarm bells, particularly among council planners who feared that local authorities would effectively lose control over the type of affordable housing delivered in their areas and therefore be unable to meet local need.

Despite the lower proposed threshold of 25 per cent, some local authority commentators are still concerned. Rob Foers, planning lead at umbrella body the District Councils Network, said he still has "concerns over the delivery overall of affordable housing, and within that, different types of affordable housing that may be more appropriate to meet needs, such as affordable rent".

Matthew Spilsbury, head of development viability at planning consultancy Turley, added: "It does appear to represent another proposition from government to take control out of the hands of local authorities. It will be of major concern to authorities that the prioritisation of First Homes will restrict provision of new affordable housing supply for those in greatest need of affordable rented homes."

Chris Brown, executive chairman of developer Igloo Regeneration, said he fears social housing will be particularly affected given the curbs on local authority discretion contained in the Planning for the Future white paper. "Given the mandated 25 per cent proportion, it will inevitably displace other affordable tenures," he said. "Some planning authorities would normally be expected to respond to this by increasing the relative proportion of social rented housing but it's unclear whether this will be possible in a reformed planning system."

Brown is also concerned about the proposal that developers will only have to market First Homes for three months before being able to sell them at a market rate. "It's familiar territory that developers will pretend to market property," he said. "Planning policy tends to require evidence of a two-year unsuccessful marketing period in this situation and still developers game the system."

There are also concerns about the impact that First Homes will have on another affordable tenure, shared ownership housing. The consultation document says the government's preferred option is for First Homes to "replace as a priority other affordable home-ownership products" and at a minimum of 25 per cent of all affordable products. So this would mean the impact on rental tenures, such as social rent, are minimised.

"It is likely in our view that shared ownership will be replaced almost entirely by First Homes," said Grant Leggett, director in planning consultancy Boyer's London office. "This does beg the question what happens to those people who currently rely on shared ownership as a tenure, but for whom it is not their first home." Similarly, Lawrence Bowles, research analyst at consultancy Savills said this "could have a serious negative impact on the supply of new shared ownership homes".

In addition, some consultants are concerned about the potential impacts on development viability."There may be risks to viability – it will depend on demand," said Spilsbury. If First Homes replace social housing units that a developer would normally sell upfront to a housing association or council, and demand for First Homes is weak, this would hit profits, he said.

"Conversely, if the market responds positively," Spilsbury added, "First Homes may cannibalise sales from purchasers who otherwise would have bought an equivalent market sale unit at the smaller, more affordable scale."

Have you advised on, or secured, a recent major permission? We want to know about big housing, retail and leisure, and commercial and industrial schemes approved between 1 June - 31 August 2020 for our next Biggest Permissions report. To qualify, schemes should be above the following thresholds: 500 homes; 5,000 square metres of retail or leisure space; or 20,000 square metres of commercial or industrial space. To get involved, or for more details, please email eleanor.kahn@haymarket.com by 10 September.

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