Posted on February 24, 2015

The Housing & Planning Bill is proceeding through Parliament and in early 2016 the Government has undertaken a consultation on the potential changes to the National Planning Policy Framework.  As an organisation active in informing the viability of developments and the levels of planning gain contributions we have been following developments with interest.

One of the key proposals is the government’s flagship proposal to amend the definition of affordable housing to include a wider range of low cost home ownership options – including starter homes.

We welcome the government’s agenda to increase the supply of units for low cost home-ownership.  However, implementation of such changes needs to be carefully considered in the context of local market circumstances.

We set out below some of the possible (unintended) consequences of amending the definition of affordable housing to accommodate starter homes.

Amending the definition of affordable housing to accommodate starter homes needs to be carefully considered in the context of the following –

• Scheme mix, tenure and price – in many lower value markets many developments may include smaller housing types which are affordable for first time buyers who have average incomes. By changing the tenure of these units from market housing to ‘affordable housing’, this will displace other affordable tenure types e.g. social rented, affordable rent and shared equity products.  The new starter homes are effectively competing with the house-builders smaller market product types.

• Impact on second hand sales values – the starter homes policy could devalue the price of smaller 2 and 3 bed homes in the wider market. These smaller units would have traditionally been purchased by first time buyers, but these people may now ‘hold-off’ buying a second hand unit when they can have a brand new unit at a 20% discount.

• Starter home windfall – by allowing starter homes to be resold in the open market after [5] years, this enables the first time buyer to make a ‘windfall’ profit. However the ‘affordability’ aspect will be lost.  With housing price inflation the initial purchaser may secure a significant windfall, but this will be at the long term expense of future generations requiring affordable housing.  The policy may be seen as being driven by short-term political objectives rather than long term planning for housing needs.

• Increase in land values – Changing the tenure mix to include starter homes instead of affordable housing will increase the Gross Development Value of a scheme, which will manifest in a higher Residual Land Value. Landowners are likely to delay land sales and S106 agreements until such time that they can fully explore starter homes and whether this will give them a higher return.

It remains to be seen what local discretion, if any, will be given to Local Planning Authorities to set the mix of affordable housing, when the definition is extended to include starter homes.  Discretion would allow local market circumstances to be reflected, including need.

Whilst the Government is rightfully seeking to increase the levels of housing development, these proposed changes are likely to generate delays and complexity as landowners wait for policy to crystallise.  Equally LPAs may seek to review their Affordable Housing policies to reflect the potential uplifts in land value.

It remains to be seen how the Government implements this policy. The Housing & Planning Bill is scant with detail and whilst the DCLG consultation document gives some hints to the thinking in Government there are significant gaps in how this policy will be implemented.  For those actively involved in the setting and negotiation of S106 agreements, careful consideration will need to be given to the implications on land value, profit and planning obligations.