Shelter’s latest report, written by Robbie de Santos, makes a strong case for putting shared ownership at the centre of housing policy.
It argues that schemes like Help to Buy will fail to make homes affordable for the majority of people on low to middle incomes, but that a more flexible and integrated approach to shared ownership could bring an element of home ownership within the reach of a majority of people who are excluded from the market now. This ‘squeezed middle’ is defined for the purposes of the report as people falling within deciles 2-5 in the income distribution.
Shelter identifies a number of reasons why shared ownership has never really caught on – despite the hullabaloo there are still only 174,000 shared owners in England. New schemes with different eligibility criteria have been invented, been marketed, and been replaced with great regularity, the only common factor being complexity and failure to connect with people. The mortgage market has never fully responded to the existence of shared ownership, and neither has the second hand estate agency market: buying and selling remains risky and difficult. Shelter say that the tenure has never had sufficient scale to move from being ‘niche’ housing to becoming ‘a functional middle market’ and that a single scheme with common eligibility rules is essential. They also argue for making smaller ownership shares available – down to as little as 12% of the equity.
In housing market terms, the report makes a lot of sense. Conventional home ownership has been declining for a decade now – a trend started long before the financial collapse, although intensified by it – and social housing is increasingly unavailable. That means many more people – most young people – are being pushed into private renting despite the fact that this does not accord with their preferences. Home ownership rates have been held up by ‘Bank of Mum and Dad’, estimated to involve gifts from parents of £1.2 billion and loans of £800 billion a year since 2005.
The report contains a lot of interesting and detailed analysis of affordability, looking at the Government’s Help to Buy scheme as well as different variants of shared ownership, on the basis of which it concludes:
Looking across the full span of low to middle income households (deciles two to five), almost three quarters (73 per cent) would be able to afford a three bedroom home with a 50 percent share – but 95 per cent would be able to afford a three bedroom home with a 12 per cent share.
So far, so good. But the report moves onto dodgier ground when it argues for a long-term commitment to making the sector a mainstream option: it calls for £12 billion to be committed to shared ownership over 4 years by the next Government, enough to provide 600,000 new homes. Normally I support calls for more money to be spent on building more homes, but this is more money than the current housing programme in its entirety. An average grant of around £20,000 per home would be needed to allow providers the flexibility to offer the option of very low equity shares: this puts it in the same subsidy territory as the appalling ‘affordable rent’ product.
Shelter say that their call for a £12 billion programme would stand alongside their other demands to build rented homes and to reform the market. But they don’t comment on the relative merits of the programmes and where the priority should lie. How much is it justified to spend on policies which by definition will not help the poorest 10-20% of households rather than programmes that will directly benefit them? Does it matter who gets the homes if more shared ownership homes could be built than social rented homes for the same budget? Isn’t it just building that matters? (Interestingly, the same argument that is applied to justify ‘affordable rent’)?
Herein lies the dilemma around all forms of intermediate housing that require subsidy. It is right that public housing policy should support a range of housing options targeted at different people who are suffering the consequences of market failure. But it is also right that the highest priority for public support should be the provision of social housing to assist those with the most extreme housing needs. This was a knotty problem for Ken Livingstone when he became Mayor of London in 2000, and he eventually compromised with a formula that, within the 50% of London’s new housing that he required to be affordable, there should be a split of 70:30 between social rent and intermediate housing (mostly shared ownership).
Public policy should start by aiming to meet the needs of the poorest or most deprived. The only programme that does that is the direct provision of social rented homes to people in the greatest need. In the final analysis, the case for more shared ownership is not made if it comes at the expense of those waiting for social rented homes.