Shared Ownership Housing

Lord Jackson of Peterborough Excerpts

Tuesday 14th July 2015 Westminster Hall

[Iain Stewart]

I will touch on that point a little later, because one problem with expanding shared ownership is that tenants can find it difficult to take a big additional equity share. I will touch on a proposal in a little while that helps to address the problem the hon. Gentleman rightly identifies.

[Mr Stewart Jackson (Peterborough) (Con)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I congratulate my hon. Friend on his excellent debate. Does he agree that, with respect to the Landlord and Tenant Act 1985, because housing associations are considered to be private entities, the reasonableness or otherwise of service charges concerns people who wish to staircase in terms of shared equity and shared ownership?

[Iain Stewart]

That is indeed a problem, and I am grateful to my hon. Friend for raising it. A linked issue, which I shall come on to, is that tenants can be liable for 100% of the maintenance costs of the property, but do not own 100% of the equity. That is an unfairness in the system that I hope will be addressed.

The Minister for Housing and Planning can relax; I do not expect an immediate answer to my suggestions today. In fact, some of them go beyond his bailiwick and are rightfully matters for his colleagues in the Treasury, but I hope to make them constructively and he can put them into his thinking box; they are proposals for the long term.

Organisations such as Shelter, the Cambridge Centre for Housing & Planning Research, Orbit, and the Chartered Institute of Housing have, at different times in recent years, conducted reviews of the shared ownership sector and produced some useful recommendations as to how it could be expanded and reformed. I will draw on those recommendations, and indeed the earlier intervention touched on them, too. However, I will also introduce some fresh ideas that are linked to the Government’s reforms of the pension system and also, possibly, to the neighbourhood planning process.

One problem that has been identified with the shared ownership concept is a lack of general information and understanding among the public about what it entails. Schemes such as Help to Buy have very quickly gained popular resonance—Help to Buy is widely understood and widely advertised—but the same cannot always be said of shared ownership. Shared ownership is a complex brand, and it can be hampered by a lack of understanding of what it is, how it works, who might be eligible and what journey a person would take if they started off down the path of shared ownership, which can include knowing what exposure they might have if they wanted to increase their equity share; that was the point made by the hon. Member for Strangford (Jim Shannon).

My first proposal therefore echoes the call that others have made to develop a more effective common marketing branding for shared ownership houses, and perhaps a one-stop shop to advise people who think that shared ownership might be for them. Clear Government backing, simplicity and a standard model would also help.

Another disincentive with the current system is the liability for maintenance costs, which I have already mentioned. In many cases, the tenant bears 100% of the liability for maintenance costs despite not owning 100% of the property. That cannot be right or fair. Surely it would be fairer to have such liabilities in the same proportion as the equity share.

Issues have also been identified with the bureaucracy of the eligibility criteria. One person quoted in one of the studies I have referred to said that the system can seem more like an allocation process than being able to select one’s own home. The system can also be too rigid, and many users find it expensive and complicated to staircase—that is, increase their share of the equity—not least because revaluation costs are incurred at each stage. Hurdles are often encountered if a family wishes to move while keeping a share in a shared ownership property, either because they are moving to another town or city, or simply because they want to change the size of their property because their family circumstances have changed. Such difficulties contribute to a view in the financial world that shared ownership is a complex and risky proposition, which can diminish the appetite to lend and develop new products.

Some solutions to these problems have been suggested, and I am sure that the Government are considering which of them can make the current shared ownership schemes work better. One solution is micro-staircasing, although I hope that it is possible to come up with a slightly better name; it sounds like a flight of steps for very little people, and one of those horrible new words that will encroach into our language. However, it is a good idea. What it means is that, rather than someone having to take large steps up in the share of equity that is owned, smaller and incremental steps of perhaps 1% or 2% at a time can be taken, which would smooth out the path for both sides of the ownership. That would help to address some of the concerns that the hon. Member for Strangford raised.

These suggestions will help and I urge Ministers to look at them, but I am not sure that in themselves they will realise the full potential of shared ownership. So I will outline my principal suggestion about seriously expanding the sector and injecting new capital into it.

The Chancellor has rightly liberalised the pension annuity rules, and many people relish the opportunity of being free not to buy an annuity. Once the temptation to buy Maseratis, yachts or fancy foreign holidays has passed, many people will look for a solid investment home for their capital that will generate a decent income for their retirement. For an increasing number of people, investing in buy-to-let property is the answer, and I do not want to diminish the importance of that option. However, as I touched on earlier, buy-to-let is not without risk, and if too many people choose it, that can lead indirectly to problems.

Why should we not explore ways in which such investment capital could be used to fund an expansion of shared ownership? I believe this could be done on both a large scale and, perhaps more importantly, at a very local and individual level. I do not want to remove the important role that the public sector and housing associations play in funding shared ownership developments; what I am suggesting would sit alongside that model rather than replace it. However, at the large scale I would like the Government to explore ways in which developers and financial institutions could work together to develop investment vehicles so that the capital from pension funds could be used to part-fund the development of shared ownership properties on new housing estates. This is not a new concept. In essence, it goes back to the first principles of building societies before they morphed into something else, with all the associated problems.

However, my suggestion could also apply on a much smaller scale. Let me give a hypothetical example. Imagine I was somewhat older and had recently retired, and that I wished to invest some of my retirement funds in property rather than in buying an annuity. I could choose the buy-to-let option and run the risk of an uneven income stream if it was not always possible to find tenants, and I would have to pay letting agencies to find and vet tenants. There is also the risk of having antisocial tenants, and I would still be liable for the general maintenance and upkeep of the property.

Alternatively, I could invest in a shared ownership property with another individual. I would still have a capital investment and would gain an income from a mix of rent and releasing further stakes of equity over time. I would have greater security of tenant, and a tenant who would have a keen interest in maintaining and even enhancing the value of the property. Again, I would like the Government to explore the viability of a legal structure through which such a small-scale shared ownership arrangement could work. Such a structure may require some financial incentives, but in the Budget last week the Chancellor gave one in the rent-a-room scheme, improving the tax incentive for that scheme. Once again, I accept that that goes beyond the powers of my hon. Friend the Minister for Housing and Planning, but the Government may wish to consider it.

Finally, this model could be applied at a community level, whereby a consortium of local residents could invest in new shared ownership developments for their particular area. We often hear complaints that young families are priced out of their home villages because of soaring property prices. This model could be a way round that. It could also link into the neighbourhood planning process, helping communities to plan for the extra housing that they want to see rather than the enormous and out-of-character developments that they often fear.

I freely admit that I am no expert in housing finance or planning. I am sure that there will be many experts and professionals who can shoot holes in what I have just proposed. However, Parliament is a place for debating ideas and presenting new concepts, and I give these ideas freely to the Minister, and indeed to anyone else who cares to listen to them and take them forward in a way that I genuinely hope will help more people to realise the noble aspiration of owning their own home. Let us not try to find a myriad of reasons why we should not do something; let us try to find lots of ways in which we can make it happen.

--- Later in debate ---

[Mr Stewart Jackson (Peterborough) (Con)]

It is a pleasure to serve under your chairmanship, Mr Evans, and to follow my hon. Friend the Member for South Suffolk (James Cartlidge). I congratulate my hon. Friend the Member for Milton Keynes South (Iain Stewart) on his thoughtful contribution to a debate that is in some ways provocative. I have taken a great interest in this subject for many years, having been a local authority councillor for eight years and having had the privilege—many moons ago—of serving, in opposition, on the Department for Communities and Local Government Front Bench.

This debate is important because it leads us to some fundamentals. It cannot get any more fundamental: the debate about housing is the debate about who owns capital. If one is broadly supportive of owner-occupation, and of fairness and social equity, shared ownership is one of the best engines and catalysts to apply.

There is a crisis. Although I would, as a Conservative Back Bencher, say that the Government have done a pretty good job and have a strong track record in many areas—not least Help to Buy, the new policy on housing association right to buy, and other areas—in some respects there is a crisis of affordability, which is a function of a successful economy. I ask the Minister to bear in mind an important caveat: the London property market is not the national property market. London is, in a sense, a city state or economic microclimate and what applies to London would not necessarily apply to Milton Keynes, Stevenage, Peterborough or other parts of the country.

There are still significant issues around the need to drive up owner-occupation, which has fallen to about 64% of housing tenure now; it was hitting 70% 10 years ago. As Conservatives, and as a Conservative Government, we need to show strong support for home ownership and to make a value judgment about whether we can support the social rented model any longer. I understand that there is not really any ring-fence funding for social rent, other than specialist social rent such as extra care facilities for older or disabled people, where social rent will always be needed. There is now a different paradigm in play and a question about whether it has become too easy for housing associations, which are registered providers, effectively to warehouse social welfare dependency using social rent. We should not be nonchalant about that.

We need to ensure that housing associations really step up to the plate and do what they can to provide an all-round service for their tenants. Shared equity is part of that. In my local area in Peterborough, there is a good registered provider, Cross Keys Homes, which, among other things, goes into elderly people’s homes to check their wellbeing. It has an apprenticeship school to help young people and does a good job on antisocial behaviour and crime. Not all registered providers are like that.

Like everyone else in receipt of public money, registered providers make rational choices. If the rational choices are to carry on with a limited model of social rent, rather than developing their own products with market sale and particularly shared ownership, then they will continue to do that, because they have a vested interest in so doing. Other factors make that probable, too. It is a fact that since the downturn in the economy, there has been a consolidation with large developers. These behemoths—I will not name these massive companies, but they are aware of who they are—are limited in their strategic plans. They want a certain number of houses to be built; they do not like innovation, particularly; they want a very simple contractual relationship with a registered provider; and—let us be honest—they do not really buy into shared ownership as much as they should.

One of our institutional problems, which arises from the financial crisis, is a paucity of understanding, across the whole sector—not least from homebuyers—about intermediate mortgage products. People often do not like them because they do not understand them. The very helpful Library briefing that accompanies the debate makes the point strongly that it can be extremely difficult for people to sell on properties. My hon. Friends the Members for Milton Keynes South and for South Suffolk made that point, too, and we need to look at it. We need to find a way to give a fiscal incentive through the tax system for people to develop better intermediate mortgage products to support shared equity and shared ownership. That is extremely important.

A lot of these marginal housing developments that might support more shared ownership are on brownfield sites. We all support development on brownfield sites. The Government in the Budget and the previous Government have done a lot to flag that up as an important area. It is important to encourage people to build on previously developed land. We always have problems with joint ventures, such as with European Union procurement rules, so we have to look at the matter holistically.

Another area related to shared ownership that the Government still have not got a grip on is real estate investment trusts—in fact, no Government have tackled the area properly in the past 20 or 30 years. Although shared equity and shared ownership are important, so is good quality housing. We have not yet been able to tackle the long-standing legal and financial difficulties that have been overcome in other places—in Europe, Canada and the United States. As my hon. Friend the Member for Milton Keynes South mentioned, REITs mean serious money going into the housing market to provide for pension funds and other institutional investments. We still have not got them right in this country, and I do not quite know why that is.

We can make things a lot simpler. It seems strange to me that the basic model lease contract that the Homes and Communities Agency has published for shared ownership properties precludes sub-letting. In a housing crisis, the simple question is: why? Is it an issue around ownership and the difficulties with dispute where the mortgage or rent is not paid? The Minister would be wise to look at that in the context of the Landlord and Tenant Act 1985, which I mentioned earlier. There is no evidence that expanding the shared ownership market would have any cumulative macroeconomic impact on the housing market. There is no empirical or academic evidence that it would drive up inflation. I stand to be corrected by any Members here or by any erudite and intelligent academics who are spending their afternoon watching this Westminster Hall debate, but I do not think I have seen the evidence. The Public Accounts Committee looked at the issue not that long ago.

We cannot necessarily rely on owner-occupation to drive up home ownership; I do not think it is possible, not least because of the issues I raised about London. I bought my house in London many moons ago, and it strikes me as astonishing—I will not give too much away, because Mrs Jackson will not be pleased if I do—that I could not buy that house now on my and my wife’s salaries, and I am a Member of Parliament.

What is it like to try to buy a property in any of the 32 boroughs of Greater London for a probation officer, a police officer, a student nurse or a teacher? It is nigh on impossible. While we are at it, call me a little Englander but I do not think it is edifying to read of offsite flats overlooking Canary Wharf flying off the shelf in a matter of hours, with half of them bought by foreign investors. It is a skewed housing market where that happens while there are large numbers of homeless people in Greater London and many people on housing waiting lists.

We need to look at service charges and the HCA guidance. The HCA needs to give stronger guidance, as well as use money from the allocations of the affordable homes programme to encourage registered providers and housing associations to push forward with shared ownership. That is extremely important.

My final point is slightly tangential to the substantive debate; it is about housing allocations. We have to do something to boost shared ownership. We rely on home ownership at one extreme and social rent at the other. The parents of the young people who live on the Dogsthorpe estate in my constituency come to me and say, “My daughter or son is working. They are good, decent, law-abiding people, but they only earn £18,000 a year. They are band 3 or band 4, and they will never have a home of their own.” I have to look them in the eye and say, “There is nothing I can do about that”, but I do not want to be in that position. The Government and housing associations can contribute practically, and there is political will from the Treasury.

My hon. Friend has started an extremely important debate. The Minister has been experienced and thoughtful as both a local council leader and a Minister, and I am sure he will take the points on board and pass them on to the Secretary of State and the Treasury.