Affordable housing in London
The conflicts, options and emerging schemes
With property prices rising faster than wages, the issue of providing affordable homes in the capital is one that remains to be resolved. Lack of clarity on definitions, the range of options and the potential for schemes to be undermined by developers could weaken the good intentions of the London boroughs to meet their challenging targets of providing affordable homes in their areas.
London boroughs such as Waltham Forest, where house prices are fast becoming less affordable as people realise the benefits of living in the borough, have ambitious plans to deliver ‘housing for everyone’. This sets out that Council owned sites will deliver 50% of new affordable homes divided into 60% at social/affordable rents and 40% intermediate/low-cost home ownership units. For non-Council schemes, the requirement is that 50% of homes are affordable, although the Council recognise that in some instances it will be appropriate for developers to pay a commuted sum to the Council, equivalent to the affordable housing provision, which will then be used by the Council to build and own more homes on other schemes.
With their housing plan aimed at delivering 12,000 new homes by 2020, Waltham Forest’s mixed package of strategies to address affordability and supply in the housing market and associated infrastructure needs is representative of the strong desire by the London boroughs to play their part in creating sustained growth and prosperity in the capital.
The London mayor, Sadiq Khan, shared his disapproval over cuts to affordable housing commitments after Battersea Power Station’s developers won approval from Wandsworth’s planning committee to reduce their plans for cut-price homes by 40 percent.
Meanwhile, Islington rejected the planning permissions for a development on Parkhurst Road on the grounds the project did not provide the “maximum reasonable amount” of affordable homes. The bid contained no affordable housing at all and the decision has been upheld by the Planning Inspectorate.
What does this mean for those buying these properties once they come to market? We look at some of the fundamentals of affordable housing, starting with a working definition of the term, consideration of the options available and finally looking at Stretton’s involvement with a range of projects throughout north and north east London.
What is affordable housing?
Social rented, affordable rented and intermediate housing supplied to qualifying households whose needs are not met by the market. Eligibility is determined by local incomes and local house prices. Affordable housing should include provisions to remain at an affordable price for future eligible households or for the subsidy to be reused for alternative affordable housing supply.
What are the affordable housing options?
- Social rented housing is owned by local authorities and private registered providers, for which guideline target rents are determined through the national rent regime. It may also be owned by other persons and provided under equivalent rental arrangements to the above, as agreed with the local authority or with the Homes and Communities Agency.
- Affordable rented housing is let by local authorities or private registered providers of social housing to households who are eligible for social rented housing. Affordable Rent is subject to rent controls that require a rent of at least no more than 80% of the local market rent (including service charges, where applicable).
- Intermediate Housing is homes for sale and rent provided at a cost above social rent, but below market levels subject to the criteria in the Affordable Housing definition. These can include shared equity (shared ownership and equity loans), other low-cost homes for sale and intermediate rent, but not affordable rented housing.
- Shared Ownership, a type of intermediate housing, tends to be sold through registered providers such as housing associations. This property type allows a buyer to buy a share of a home and rent the rest. The principal is that the purchaser takes a stake of between 25% and 75% of the property, using a deposit and a mortgage. Rent is paid on the remaining share, which is owned by the housing association. The rent paid can be up to 3% of the association’s share of the property value. Shared ownership properties are leasehold properties, and you will also generally pay a service charge, usually on a monthly basis.
Pros of shared ownership:
- It can enable you to get onto the property ladder more quickly than you might if you wanted to buy a home outright
- You can buy additional shares as time goes on and you save more
- It may be cheaper than renting
- You can sell a shared ownership property at any time and will benefit from any increase in value it’s seen since it was bought
Cons of shared ownership:
- You’ll have to buy where the shared ownership properties are, which may not be your preferred location
- It can be difficult to staircase (build up the share you own) if the value of the property increases, as the share will become pricier to buy
- You’ll usually have to pay a service charge – although this is true with many leasehold properties, whether they’re shared ownership or not
- It can be tricky to get a shared ownership mortgage
Where are affordable homes often located?
With the scarcity of land with planning permission, where demand is exceeding supply, much of the new build affordable product built in schemes has been a result of the town planning process. For developments to obtain planning consent for schemes over ten units they need to viably provide elements of affordable homes which then tend to be bought by registered providers.
There have been challenges that in some high-value locations, the affordable product is still out of the reach of many unless they are lucky enough to have access to financial resources that can assist in meeting the high deposits needed.
Recently with the implementation of more onerous new government regulation over buy to let properties and the introduction of the ‘Help to Buy’ scheme, this has brought the first time buyer market back. However, many registered providers are seeking caps on price levels, to widen availability.
There is such a drive to provide new affordable homes that local authorities are also more committed to building out the land holdings they have, or to work in partnership with other institutional bodies such as the police, army, and health organisations. Many of these organisations are trying to rationalise property portfolios and look to reuse the land resources to provide new environments including affordable homes. You can find such schemes on local authority websites.
Grant support given to registered providers has meant that they have been able to compete in the private market even though they are not providing more expensive private housing product. With uncertainties in the market and potential constraints to land banking, there may be land price falls which may further assist in affordable housing delivery. This would be welcome news in an economy with rising inflation and stagnating salary levels, however, this is yet to be realised.
Recent releases over population growths, particularly in London, merely increase the pressures to provide enough housing and particularly for those who are so essential for a healthy growing economy where people are sustained within environments to live and have access to the supporting services they need.
Schemes to support first-time buyers into the property market
An example of this is known as ‘Help to Buy’. This scheme is designed to help people get on the property ladder or buy a new home without a large deposit available up to 2020. It’s mainly open to first-time buyers and people looking to move and is restricted to new-build properties only. To be able to benefit from this scheme buyers need to be eligible which includes;
- Have a deposit of at least 5%
- The government lends you up to 20% of the property’s value as an equity loan
- The purchaser takes out a mortgage on the rest of the property’s value (so, if the deposit was 5% and the equity loan was 20%, a mortgage would be taken out at 75%.)
Generally, the first five years of the loan is interest-free. After this, there is a charge at 1.75% which will go up at a rate of 1% of that figure every year afterwards (plus inflation). Borrowers can repay their equity loan at any time. If the borrower doesn’t repay while still living at the property, the government will reclaim their 20% when the property is sold.
Equity loans are available to first-time buyers if the property is a new build and costs up to £600,000. Sub-letting is not permitted, and there are no part-exchange opportunities on an old home. It should be noted that this scheme varies slightly in England/Scotland and Wales.
With London Help to Buy, a London purchaser can borrow 40% of the property price from the government rather than 20%.
There are other products of this scheme, such as the Help to Buy ISA, and Forces Help to Buy, details of which are available online.
The Help to Buy ISA is a type of tax-free savings account aimed specifically at people saving to buy their first home. For every £200 contributed, the government will contribute £50 with the maximum amount being £3,000.
Some Schemes in North & Northeast London
Recently, Strettons have valued and advised on the following North-Northeast Boroughs and schemes with affordable housing units available. They are in various planning stages from viability consultancy to being released on the market.
The Electric Quarter, Ponders End, Enfield EN3
Client: Circle Housing Group, Clarion Homes Group
Strettons provided RICS Red Book valuation advice ahead of a proposed acquisition under a ‘package price’ agreement for the delivery of Section 106 affordable tenure housing, in the form 52 flats (27 shared ownership & 25 affordable rent tenures) within the completed development.
Northway House, Whetstone, N20
Client: Circle Housing Group, Clarion Homes Group
Strettons provided valuation advice for this residential development by Redrow Homes. Permissions were for the extension, refurbishment, alteration and change of use of Northway House to a residential-led mixed use development of 149 flats. The scheme will have 11 shared ownership units and 3 commercial. Two, 3-bed flats were available at a minimum share of 25% equating to £124,375 - £175,000.
Hornsey Depot, High Street, London N8
Client: Sanctuary Housing Group
We assessed the ‘package price’ agreement for the delivery of the s.106 affordable tenure housing, which is in the form 168 flats (94 shared ownership tenure & 74 affordable rent tenure) within the development of 438 residential units in a mix of private and affordable tenure housing along with retail space. The ‘package price’ agreement was in excess of £30m.
Billet Works, Billet Road, London E17 – Now Banbury Park
Client: Circle Group
We provided valuation advice ahead of the proposed acquisition of an undeveloped 7.41-acre site being acquired with full planning permissions for a residential-led scheme. The scheme will provide 351 residential units in the form of flats and houses in a mix of private and affordable tenures. We provided both private and affordable tenure values for the residential units and also the values/rents of the commercial space.
Unity Works, Sutherland Road, E17
Strettons have provided values for the 30 shared ownership units in this new development being marketed as Unity Works by Peabody. The flats are a mix of 1, 2 and 3 bedroom flat types with a minimum share at 25% equating to £102,500 - £112,500.
Claybury View, IG5
Strettons provides ongoing valuation advice for this scheme of 149 new units. 69 are available as Shared Ownership while 29 are on for Social Rent. Units are being marketed by NU Living/Swan Housing Association for 1 to 3 beds at a minimum share at 30% equating to £82,500 - £127,500.