Shared Ownership Housing
Lets Delight is a company that rents property. We rent to families, individuals and short-term guests. Being a rental company, why are we interested in affordable housing?
The simple answer is that one part of housing affects all parts of housing. When house prices are high, more people need to rent. This is a very simplistic view but it shows the interdependency. Of course, the reality is more complex and involved.
Another reason for looking at house prices is we want to see a functional housing market. One which provides for all areas of society. One with the right mix of rental and ownership. One with a fair distribution of prices.
The amount of affordable UK housing is rising. But not fast enough. Last year, the number of new properties registered was 42,084. This is in the affordable and build-to-rent sector and is up 20% since 2008. These figures come from the National House Building Council.
Housing associations account for 94% of social housing in the UK. They have all but stopped investing in new housing stock. Instead their focus is on fire safety and energy efficiency of existing properties. The government is keen to breath new life into the sector.
Political cross-party agreement is rare. But British politicians of all colours see the need for 100,000 Shared Ownership homes. This started as a one-off goal but looks set to become an annual target. Shared Ownership, as the name implies, means the home-owner owns a share of the house they live in. A housing association landlord owns the rest. The occupier pays a reduced mortgage and a reduced rent. Both are lower as they cover only a part of the property.
On the face of it, the maths doesn't make sense. Two reduced payments still add up to make a big payment! But, because the mortgage is smaller, so is the deposit. Interest rates have reduced significantly over the last quarter century. Yet, the increase in house prices, and the required deposit, make them less affordable than ever.
Even given the lower deposit required, the maths still needs fiddling. This fiddle is from government subsidy. These subsidies average at £29,000 per home. They get paid to the housing association. Thus allowing them to offer homes at an average 19% discount to the open market. Often the occupier owns just a 30% share with 70% rented. Tenants can increase their ownership share over time. The reality is that instead most use the capital to move to full ownership.
Isn't Shared Ownership bad?
Like many things, the value depends how you view it. Shared Ownership allows many families to put down roots. They have more certainty than if they were renting. So it is not bad for some. Anything that increases the amount of affordable housing has to be a move in the right direction.
Yet, if we take a longer-term view, the picture changes. Shared Ownership distorts the housing market. This is not of itself a bad thing. But it makes comparisons with the past tricky. It is also very unclear how much resale market there is now for these properties. Let alone trying to predict the future. There is becoming a stigma partly provided by the mainstream media.
Is it sustainable?
A bigger concern is around the financial sustainability. We already know that Shared Ownership relies on government subsidies. It is also built on low interest rates. The rock-bottom rates we are experiencing now cannot last forever. Although 5% rates are unlikely in the next few decades, they will definitely move upwards. Large companies with plenty of housing stock as collateral are in a good position. They can sometimes negotiate long-term, fixed rate loans. In one case, 45 years at 0.5% per annum plus inflation. This leaves the smaller, more caring players shouldering greater risk.
It is clear the government wants to address the housing market. There is support from all corners of parliament. Instead of continuing to incentivise big companies, create policies to bring in small companies. More companies means more competition. This leads to better standards and practices. More efficiency which drives down prices reducing subsidy dependence. With a better range of options, finding a suitable property within a suitable scheme becomes easier. So people get housing more suited to them.
There are no quick and easy solutions to housing. Yet, simple steps now can make the landscape a better place in future. At the same time increasing the number of affordable homes. This has to be good for everyone. As always, Lets Delight strives to be Part of the Housing Solution.