A whole generation has been failed by the UK’s ongoing housing crisis. Dwindling supply and rising prices has meant the average age of a first-time buyer is now 33. HSBC recently warned that this could rise to 40 once the government’s Help to Buy scheme ends in 2023.
Earlier this month, the housing secretary Robert Jenrick announced plans to help buyers onto the first rung of the property ladder. Dubbed the First Homes scheme, it aims to grant first-time buyers a 30 percent discount on the price of a new home. According to Jenrick, this will translate to an average saving of £94,000 per home.
The discount, which will be funded from landowners’ profits, will be locked into the property’s price to ensure it is sold on at well below the usual asking price, to help future first-time buyers.
In many ways, First Homes are quite similar to what Pocket Living are already offering, although the London-focused developer – which has been a keen enthusiast of modern methods of construction, working with the likes of Vision Modular Systems – only offers homes for first-time buyers in the capital and Pocket homes are smaller than your typical new-build.
While the idea of a discounted home to own may appeal to a generation unable to get onto the property ladder, the reality is the policy is only likely to help only a small handful of first-time buyers and make have a knock-on effect on wider affordable housing provision.
The First Home scheme will be funded using money raised from a policy in which developers strike agreements with councils under which they agree to fund certain infrastructure around housing developments, while also paying for a certain amount towards affordable housing.
However, there are two issues with this.
Firstly, if developers are over-burdened with building affordable housing, they are less likely to want to build at all, reducing development. The opposite can be said for an initiative such as Help to Buy which has arguably gone from being a post-recession safety net to a jetpack for profits at some of Britain’s biggest housebuilders. Between 2013 and 2018, dividends at the UK’s top ten housebuilders ballooned from £57m to £2.3bn.
If developer contributions are expected to go up dramatically to help fund the First Home initiative, it could slam the breaks on private house-building as sites become unviable.
Secondly, industry bodies and housing associations have warned of the risk that the new initiative would come at the expense of the provision of alternative types of new-build which is aimed at people on lower incomes, such as social housing and shared ownership. In 2018/19 there were 28,618 affordable homes delivered through contributions – 17,800 were for social and affordable rent tenures, while 10,300 were for shared ownership.
If the proposal goes ahead, the industry would need to see a significant increase in grant funding from the government to ensure genuinely affordable housing would still be built to the levels needed.
The First Home scheme also bears a striking resemblance to George Osborne’s Starter Homes Initiative which was launched in 2014. The scheme proposed building 200,000 homes on brownfield land and selling them to first-time buyers under 40 at a discount.
However, no homes off the back of this scheme were ever built, the National Audit Office last year revealed.
It’s of little surprise then that the government hasn’t yet given an exact figure of how many homes will be built under the First Homes scheme.
Lastly, consider what will happen if the homes are eventually built. Trying to apply the 30 percent discount in perpetuity could be a disaster. While it might help the original buyers, it risks further distorting the housing market.
The average person in the UK moves home four times in a lifetime. When the original purchasers of a First Home decide to make the move, they’re likely to run into some difficulties. Locking in the discount reduces the value of the home, making it more difficult to sell. And even if it is sold, the reduced sales price will make it harder for the sellers to afford their next property, meaning your First Home could end up your last home.