Starter homes – the solution to the housing crisis?

3 June, 2016

After several rounds of ‘ping pong’ between the House of Commons and the House of Lords, the Housing and Planning Bill has gained Royal Assent and is now placed on the statute books. The Act introduces changes to the planning system which are aimed at speeding up the delivery of new homes by relaxing planning restrictions and creating more incentives for developers.

One of the most radical reforms made in the Housing and Planning Act 2016 (“the Act”) is the inclusion of the new concept of ‘Starter Homes’. These will be new homes sold to first-time buyers under the age of 40 at a discount of at least 20% and capped at £250,000 outside London and £450,000 in London, although these details are still to be confirmed. The Government has stated that 200,000 of these starter homes will be built within the lifetime of this Parliament. Regulations will provide the detail of how starter homes will be introduced and what restrictions will be placed on them. A consultation on the regulations has been issued and the deadline for comments ended at the end of April.

The regulations will include restrictions on the sale and letting of starter homes. The Government recognises that the aim of the introduction of starter homes is to provide low cost homes to young first time buyers in need of them, not to provide potential investment opportunities. Therefore, there will be a taper on the discount on re-sales. So the discount at which the starter home must be sold will still apply to a re-sale but will gradually be tapered away, until the starter home can be sold at full market value. The Government’s initial plan was to set the length of this taper at 5 years. Therefore, the discount will be decreased by 4% each year. However, it is open to suggestions regarding other lengths, but have expressed that it does not support extending the taper beyond 8 years. During debate over the Act, Peers in the House of Lords supported an amendment to include this taper in the primary legislation and to set it at 20 years, to reduce the “generosity” of the starter homes discount and to reduce resentment among new buyers who cannot benefit from the discount. The amendment was ultimately rejected by the House of Commons. A shorter taper will be more attractive to first time buyers as they will be able to sell the property free of any restrictions and afford a new home on the open market quicker. What the consultation document does not address is whether subsequent purchasers of starter homes will be bound by what remains of the taper or whether they will be free of the restriction to sell at a discount. Also, will resales be limited to similar qualified people? If the taper does not apply to subsequent purchasers then the use of starter homes as investment opportunities will become more of a relevant issue.

The regulations will also introduce what is known as “the starter homes requirement”. This will be a requirement to provide a certain number of starter homes on new housing developments of certain sizes and planning permission will only be granted if this requirement is met. The requirements will be key to ensuring that starter homes are constructed on new sites. The consultation document proposes for a requirement of 20% of dwellings on all sites of 10 or more units or 0.5 hectares or more to be provided as starter homes. The Government is also consulting on changes to the National Planning Policy Framework, a major change being the widening of the affordable housing definition in Annex 2, to encompass more low cost homes for sale, such as starter homes. This will allow starter homes to be a part of the affordable housing mix on new sites. The starter homes requirement was also challenged by peers in the House of Lords. An amendment was tabled by Lord Kerslake, former head of the Civil Service, to remove the Secretary of State’s ability to impose a starter homes requirement through regulations, thus leaving the requirement up to local planning authorities. His argument was that a requirement of 20% is not necessary in some areas across the country. This amendment was rejected by the House of Commons. The Government has provided for exemptions from the requirement to be allowed on viability grounds, although it is thought that the provision of starter homes would make a site more viable than other affordable housing tenures. It is thought by many that it seems far more sensible to give discretion to local authorities over the requirement of starter homes, due to regional variations. However, it would be likely to delay the introduction of starter homes on sites while local authorities consult and also provides no obligation on a local authority to accept a certain number of starter homes. The Government has considered this approach but concluded that this would restrict the number of starter homes coming forward and make it considerably more difficult to hit their target.

Concern remains that starter homes will not genuinely be affordable and the 20% statutory requirement will result in a reduction in the numbers of genuinely affordable homes being delivered.

The responses to the consultation are still due to be published and there will undoubtedly be plenty opposition to the starter homes requirement in particular. At the moment, local authorities are still reluctant to allow flexibility in current section 106 agreements for the future provision of starter homes, believing that the way these homes will be brought forward is too uncertain. The responses should be published soon as the Government will want to publish the regulations as soon as possible in order to allow for section 106 agreements to provide for an affordable housing mix including starter homes.