The Ministry for Communities, Local Government and Housing has published its Planning Practice Guidance (PPG), a form of policy which local councils must abide by, concerning ‘First Homes’, an initiative proposed last year which sets out obligations for developers to ring-fence 25% of their affordable housing requirement (generally set at 30-40% of the total homes proposed on a new development) for eligible first-time buyers.

From 28 June 2021, Local Plans not yet at publication stage will need to incorporate this policy into their decision-making. Local Plans at publication stage, or submitted to Examination in Public, and traditional planning applications with outline or full planning consent, will only be required to meet the First Homes policy after 28 December 2021.

Joshua Carson, head of policy at real estate advisory firm Blackstock Consulting, said: “The government’s First Home scheme will eat into the provision of affordable rental housing, negatively impacting lowest income households to the benefit of people who would likely be able to afford to buy without a discount.

“Generations of poor decision-making following the introduction of Right to Buy have decimated social housing stock and the First Homes scheme will only compound this problem further.

“There needs to be a wholescale commitment to increase funding for social housing – not cannibalising what small amount of discounted rental and shared ownership housing we are currently delivering by taxing developers.”

What does the First Homes PPG say?

25% of all affordable housing provision on-site will be required to be ‘First Homes’, at a discounted rate of 30% of Open Market Value (OMV). To put that into context, ‘affordable housing’ is defined as housing that is 20% OMV, meaning that First Homes will benefit from an additional 10% discount.

First Homes are required to be sold at first sale at a price no higher than £250,000, or £420,000 within Greater London. When the title is transferred at first sale, a restriction on title will ensure that any subsequent sale of the property must be with the benefit of a 30% OMV discount, although any subsequent sale does not have to be capped at £250,000/£420,000.

Where a local authority can demonstrate that there is a need for a further discount to be applied, they can request as much as 50% OMV. Likewise, local authorities that demonstrate that the cap (£250,000/£420,000) should be lower, may also be able to require this provided there is sufficient evidence, usually in the form of a Strategic Housing Needs Assessment (SHMA).

To prevent developers from potentially compromising the stock of First Homes on-site, First Homes are required to be physically indistinguishable from any of the market stock on-site.

Persons eligible to buy First Homes include first-time buyers with a combined annual household of less than £80,000 (£90,000 in Greater London). The PPG also enables local authorities to restrict the sale of First Homes to certain key worker occupations, and to those who pass a ‘local connection’ test. This standard definition of a ‘first-time buyer’ applies to the sale of the First Home on the first sale as well as any subsequent sale. 

What are the issues?

Joshua Carson, head of policy at Blackstock Consulting, said: “From the developers’ perspective, not much changes as a result of the First Homes PPG. Their total section 106 financial contributions remain the same, because the proportion of First Homes is derived from the total affordable housing contribution they are required to pay when resolution to grant planning consent is achieved.

“Housing Associations (HAs), on the other hand, are set to lose out on 25% of the total affordable provision on-site. This is because, in practical terms, developers usually sell off the portfolio of affordable housing on-site to HAs (who are not restricted in who takes up shared ownership and social rented homes), while First Homes are considerably more limited in who can purchase them.

“The limited class of eligible people able to purchase First Homes is the central issue of this policy. For the few that can meet the eligibility criteria and have the deposit at hand – although 95% loan-to-value mortgages backed by the Government help overcome this – this is good news. For the remainder, this fundamentally equates to 25% fewer shared ownership and social housing for those who cannot make up the funds to purchase a First Home.

“It follows that ‘trading off’ social housing for First Homes by making this a compulsory part of the overall on-site affordable provision will not make homes more ‘affordable’ generally. The essential problem is still systemic: not enough homes are being built annually after decades of under-supply; local intervention still allows NIMBYism to curtail the growth of balanced communities, and the planning process is too complicated. Piecemeal policies such as this only serve to further reinforce the prevailing view that the Government does not want the political backlash associated with de-politicising planning.

“’First Homes’ have been described as a ‘comfort blanket’ by Shelter’s chief executive before, and there is little to suggest that anything has changed.”