Housing and Planning Bill (Fifth sitting)

Matthew Pennycook Excerpts

Thursday 19th November 2015 Public Bill Committees

[Dr Blackman-Woods]

Yes, but those are the figures that the Government put on the face of the Bill, so those are the amounts that we want to refer to. I expect that in many areas developers will seek to build starter homes up to the level of the cap, but the hon. Gentleman is of course right that in some areas they might not. We will look at the evidence in a couple of years’ time to see how many homes are being built below the level of the cap.

Shelter is throwing out a serious challenge to the Government. Its analysis shows that the starter home programme will not help the majority of people on the new minimum wage, and in many areas in England it will not help people on average earnings either. Shelter considered how the policy will affect different household types in each local authority area in England, and on a range of different salaries, to assess whether they would be able to afford a starter home. It concluded that starter homes for families earning average wages will be unaffordable in more than half—58%—of local authorities across the country in 2020. Perhaps that addresses the point made by the hon. Member for Peterborough. Families on the new minimum wage, which the Government call the national living wage, will be able to afford a starter home in only 2% of authorities. Single people on low or average wages can more or less forget it, as they will be unable to afford a starter home in the majority of local authority areas.

London, the south-east and the east contain the largest number of areas in which affordable starter homes could be built under the scheme because of the high demand, yet they are the least affordable. Shelter concludes that starter homes will primarily help those on higher than average incomes and couples without children. That might be the Government’s intention. However, if they intend to help those earning more than the average income and couples without children, they should make that clear. That begs the question, which we were considering earlier: how are all the other categories of people supposed to get on to the housing ladder?

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

My hon. Friend makes a very good point. Surely the aim of the Bill is to increase the pool of home ownership to enable people who are otherwise unable to buy on the open market to afford a home. I have asked the Minister repeatedly—I hope he can touch on this point—what assessment or analysis has been done to suggest that the Bill will enable people, in the numbers he hopes to see, to afford homes that they would otherwise be unable to buy on the open market. My fear is that the Bill will hand equity to people in other areas who are already able to buy.

[Dr Blackman-Woods]

My hon. Friend makes an excellent point, which we will probably return to a number of times in Committee if the Chair permits us: to what degree do the measures add additionality to the whole system of housing supply? In particular, will they enable people who currently cannot buy their own home to do so? That is far from clear, on the basis of the evidence before us—particularly from Shelter. Of course, if the Minister has alternative evidence, we would all be happy to consider it during our deliberations.

I know that the Minister took exception to the fact that Shelter’s research used the median house price as the likely value of a starter home. Interestingly, Shelter explains in its report why it did that. The first reason is that starter homes are new houses, so they are usually more expensive than existing houses. Also, as we heard from the Minister, starter homes are expected to be of good quality and well proportioned, which might make them a little more expensive.

As Shelter pointed out to the Committee, however, the Land Registry index of house prices that it used in its research actually produces lower values than other similar indexes. The Land Registry’s median house price was £198,000 in England and £375,000 in London. Those figures are lower than the average house prices for first-time buyers that I think the Government used, because the latest stats from the Office for National Statistics indicate that the median house price is £211,000 in England and £385,000 in London. As a result, criticism of the Shelter research does not seem legitimate to us, because its figures were lower in any case.

If the Minister wants to bring forward alternative evidence, we will look at it. If he is determined to use the official prices for first-time buyers as a starting point for assessing the policy, that, too, is fine by us. However, that poses the question of why the starter homes will be even less affordable than the Shelter research has identified. The amendment seeks to restore some reality to the discussions about the affordability of starter homes and the actual consequences of the policy for real people in their local areas. The Secretary of State for Communities and Local Government, the right hon. Member for Tunbridge Wells (Greg Clark), said in August that,

“all too often young people find themselves exiled from the place they grew up as they are forced to move away to find a home of their own.”

One has to presume from that statement that he would like young people to be able to buy a home in their local area, with a starter home set at an amount that can be afforded locally. That is also exactly what the amendment seeks.

Specific issues arise for young people trying to access housing in rural areas. The Campaign to Protect Rural England told us that average house prices in rural areas are 22%, or £43,000—a huge amount of money—higher than in urban areas, excluding London, although median incomes are lower, at £19,900 a year, compared with £24,000 in urban areas. Such specific affordability issues should be left to rural local authorities to address in the setting of the level of threshold prices for starter homes. Even in areas with an acute shortage, local authorities want to do their best to help local people, and local young people in particular, to get on to the housing ladder.

I will be interested to hear from the Minister why the amendment is not acceptable. It is a sensible amendment that seeks to ensure that affordability is set at a level that will mean people can purchase a house in the locality in which they already live and in which they want to continue living. We also think that, given the disparities in income throughout the country and the possible disparities in house prices to be faced by local people trying to get on to the housing ladder, some measure of local accountability should be built in.

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[Dr Blackman-Woods]

I think that I have already addressed those points. It is clear that the amendment would allow local authorities to set the threshold at a level affordable to people on average incomes. If starter homes are not to be available to people with incomes that are the average for the locality, what is the point of them? I would have thought that they were intended to help exactly the people with such incomes.

The point of the amendment is that the threshold will need a degree of local input. We are trying to improve the Bill and make starter homes accessible to as many people as possible, taking on board the difficulties of people across the country, given that house prices vary from area to area. Giving local authorities input into what is affordable is a sensible measure.

Amendment 67 relates to

“restrictions on resales and letting at open market value relating to first time buyer starter homes”.

Why has the Minister rejected the outcome of his own consultation exercise? Why should the discounts not be applied in perpetuity? As we know, the Government plan for a starter home is that it could be resold or let at open market value five years after the initial sale. The purpose of the amendment is to probe the Government as to why they rejected the view that restrictions should continue.

Several of those who gave evidence highlighted problems with the issue of perpetuity as a key element that will affect the potential success or failure of the policy. The question of the length of time for which the discount will be applied needs to be asked. As I mentioned, the Government’s own consultation reflected the view that there should be an ongoing basis for starter homes and their discount. The majority of respondents elected for an in-perpetuity discount: 75% of local authorities; 100% of lenders; and 50% of developers. The Government’s consultation states:

“Respondents on this issue highlighted a number of areas where the implementation of the policy needs careful consideration.”

[Matthew Pennycook]

This is an important point, because it is bound up with how the product is financed, about which I am still concerned. The reversion of starter homes to full market rate after five years will interact with how the product is financed potentially in a way that is detrimental to the Government’s aims. There are problems with determining the underlying market price and how the reversion after five years might distort the market. Does my hon. Friend agree that there is a risk that lenders will not support the scheme in its current form? The Government could allow a degree of leeway and set the five-year reversion as a minimum, rather than a hard and fast rule.

[Dr Blackman-Woods]

Again, my hon. Friend makes an interesting point, which I will come to in a few moments. Developers and lenders have submitted a substantial amount of written evidence suggesting that the five-year rule may be a problem. I do not know to what extent the Minister has met mortgage providers to see whether their concerns can be overcome, but perhaps he will tell us in his response. I also do not know whether the Department has done any modelling. It would be quite interesting to find out what will happen to such homes in five years’ time, or whether there is an intention to find out what happened, such as whether people stayed in them for a long time or sold them, and if so who bought them. We can discuss that in a moment.

As the Government acknowledged in their response to the consultation, many respondents were in favour of the restrictions attached to starter homes lasting in perpetuity. We did not hear in the evidence session, and have not heard since, any reason from the Government as to why they chose to ignore the outcome of their own consultation. A huge amount of people want the discount to last beyond the five-year period. The amendment seeks to ensure that the discount is retained, so that it is not just the lucky few who already have their deposits saved who are able to benefit from the scheme.

After five years, the house will be sellable at the full market rate. The full value of—I will not call it a subsidy —the planning gain forgone then goes to the initial buyer. That is a direct transfer of assets from the state in terms of money forgone to those individuals. It is possible to make an argument in favour of such transfers, but it begs a question about whether such transfers should relate only to those individuals or whether they should be there on an ongoing basis for anyone who buys that property.

Returning to the Government’s expressed aim for the policy, namely the equality of opportunity for people to get on the property ladder, why should the discount on such homes be limited? On Tuesday, the Minister spoke of the tens of thousands of people who have registered an interest in the scheme. What about those for whom saving a sufficient deposit might take more than a few years? Will enough homes with the 20% discount exist?

The Minister expressed concern that keeping the restrictions in perpetuity would lead to a slowdown in building. Will he say more about that, because I was not exactly clear about what he meant? He said:

“First, this is not about building any number of starter homes—they stay in perpetuity and therefore you can slow down building, which is what happened with social housing…We will need to build starter homes and to keep building them. We want to build 200,000 in this Parliament, but not stop there.”––[Official Report, Housing and Planning Public Bill Committee, 17 November 2015; c. 125, Q277.]

We understand that, but he would be helped in his objective to get that large number of houses delivered if those sold stayed as starter homes, because we would then have new ones as well as those already in existence. Surely that would be better, because that would widen the net of home ownership even further. By keeping a discount attached to such a home into the future, other first-time buyers could benefit from access to that property in addition to other new homes coming on to the market. That would create a larger pool of starter homes available at discount rather than what could be a small flow, despite the Minister’s aspirations, under the current policy.

A number of housing organisations have identified possible problems with the specific delivery of the policy, with restrictions that apply for only five years. They argue that developers might want to create differentiation between their market product and starter homes. Without a longer restriction, there is little motivation for buyers to purchase the market homes, which could lead to starter homes being sharply downgraded in design and specification to create greater differentiation. Similarly, lenders do not know how to value a product that changes in value so quickly, so they could struggle to provide mortgages to potential buyers.

Those problems have been brought to the Committee by both developers and lenders, and there does not appear to be anything in the Bill to ensure that starter homes are of a similar quality to other homes in the same development. It would be helpful and give developers reassurance if the Bill made clear to developers that starter homes must be of the same quality and similar design to other homes in such developments and that they would not be subject to downgrade in terms of quality of supply or building. Has any negotiation taken place with lenders so that they know how to value the mortgage product?

Some have also suggested that if the Minister thinks perpetuity is too long—he might think that—is he willing to consider putting in place a discount for some time beyond five years but less than perpetuity, such as 10 or 25 years? That would give more flexibility in the system. Again, perhaps local authorities or the local community could have a role in saying what timeframe they think is necessary for restrictions on starter homes to remain, bearing in mind the local market conditions. If there is a ready supply of starter homes, they might think that five years is enough, but if there is no such supply or if the homes are not coming though quickly enough, perhaps they would decide that restrictions need to be kept for, let us say, a 25-year period. To allow room for negotiation would encourage competition and greater innovation and the section 106 process could be used to ensure that building standards in developments remain high.

As I said, we must remember that the 20% discount offered represents a loss to areas in alternative expenditure, and not an insignificant one. A 20% discount on the average price of a first-time buyer home in England in 2014 would be worth about £42,000. As Shelter has told us, if the planned 200,000 starter homes are sold over time at the average price of a first-time buyer home, the discount would be £8.4 billion. That is a lot of money lost to infrastructure or other types of affordable housing.

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[Dr Blackman-Woods]

I think that we understand that this is a manifesto commitment to increase the number of people who can access home ownership. We totally agree with that. We all want those who can to buy their own property, and we want to help people access home ownership. However, in doing so, we must ensure that those who cannot buy their own home, for whatever reason, are not crowded out of the market, and that those who would provide homes for people in such circumstances can still provide those homes. The evidence before us suggests that we are failing to deliver affordable —genuinely affordable—social rented homes for the people who need them, as well as failing to deliver homes in other tenures. It is as well as, not instead of.

[Matthew Pennycook]

My hon. Friend has got to the nub of the issue. Because of how starter homes will operate —the Bill leaves the negotiations to the local planning authority and the developer—what will happen in many cases, particularly in London and in my constituency, is that where the target level of starter homes, for example 20%, is the total amount of affordable housing on the site, the infrastructure might still be built but it will just drive down the level of other affordable housing in the negotiation. That is the real concern. It should not be an either/or.

[Dr Blackman-Woods]

My hon. Friend has put our case precisely and succinctly in an excellent intervention. That is exactly the point we are making; it is about not crowding out other types of development. Again, I come back to the responsibility we should be giving the local authority to provide for all people in housing need. There is a really big question that the Minister has to answer: do the provisions in these clauses override the national planning policy framework, under which local authorities clearly have to carry out a detailed assessment of housing need in their area and plan to meet that need? With this proposal they will presumably have to meet a target for starter homes, even where they might not be needed. Perhaps the Minister will address that when he comments on the amendments.

Amendment 64 is clear that other types of property that are considered appropriate by the local authority to provide on a first-time basis should also fall within the remit of starter homes. That seems reasonable, and the London Mayor has argued for that. Perhaps other rent-to-buy options could come under the definition of starter homes. What is critical is trying to meet the needs of young people and others who are trying to get on to the housing ladder for the first time, to ensure that they have the widest opportunities to do that.

I will move swiftly on to amendment 68. Our argument is that it is vital that the building of starter homes does not prevent other kinds of affordable housing being built. This is a probing amendment to ask the Minister what would happen if a local authority considered providing starter homes that would prevent other types of affordable housing being built. Some areas might have homes at a level that is already readily available for first-time buyers, but do not have enough affordable housing to rent or buy-to-rent products. What role is there for the local authority to say, “Actually, we do not need starter homes up to a value of £250,000 on this development. What we need are more equity share schemes, or hostels, or something like that”?

Is there any room for flexibility, or is this a diktat from central Government that says, “Thou shalt have starter homes on every single development, whether or not they are needed in that locality or on that site”?