Savills : Shared future

Shared ownership could represent a new opportunity for developers, housing associations and investors, says Susan Emmett, director of residential research, Savills.

Three weeks have passed since the controversial Housing and Planning Bill received Royal Assent. Despite its eight-month journey through parliament and a nail-biting game of ping-pong between the houses at the end, the government's flagship policies emerged largely unaltered.
Homeownership remains firmly on the agenda, with the extension of Right to Buy to association tenants and the duty on local authorities to actively promote the development of Starter Homes through the planning system, now enshrined in law.

Challenging times

The full mechanics of how Starter Homes will operate have yet to emerge. Even once the final set of rules are known, delivering 200,000 Starter Homes in this parliament according to the Tory election manifesto commitment presents a challenge. But that is not the only target on the firing range. Among the proposals are plans to deliver 135,000 new shared ownership homes over the same time period.

To enable this, the government has allocated an unprecedented £4.1bn to the scheme, broadened the eligibility criteria for buyers and opened the product to a range of providers, beyond associations. At a rate of over £30,000 per home, this is the highest level of funding poured into a type of product and could represent a new opportunity for developers, housing associations and investors. But could a niche product, initially conceived in the 1980s with the aim of helping key workers to access the housing market, become mainstream?

The tenure has grown incrementally over the last three decades. There are currently 175,000 households in shared ownership in England - less than 1% of all housing. The expansion would see this rise by 77% in just over three years. Hitting the 135,000 target would require providers to deliver 34,000 homes for shared ownership a year. This is over four times the current rate.

This supply is falling well short of demand. Higher house prices, bigger deposit requirements and tighter eligibility criteria for a mortgage, has put homeownership out of reach for many. Across England, there were 360,000 fewer transactions a year in 2014 and 2015 compared to the annual average in the five years up to 2007 (excluding Help to Buy).

Shared ownership has delivered additional housing for nearly 3% of the demand not met by the unassisted for-sale market, over the last two years. Help to Buy has filled a further 8% of the gap.

There is huge potential for more. In high-demand markets where affordability is more stretched and there is higher delivery of shared ownership stock through planning obligations on developers, take-up is much higher. In markets as diverse as Tower Hamlets in London (above) and Wychavon in Worcestershire, shared ownership fills 35% of the gap left by the fall in transactions.

By looking at areas where shared ownership has been developed at scale, we extrapolate that there is potential capacity to absorb at least 60,000 additional shared ownership homes a year in current market conditions.

However, there are barriers to overcome. Mortgage availability to prospective buyers is one limiting factor. In order for the planned expansion of the product to include commercial providers, really to take route, we need lenders fully on board. A better understanding of the legal protections available to lenders is needed.

Another big obstacle is the lack of statistics. While the Homes and Communities Agency (HCA) publishes data on 100% 'staircasing', there is no comprehensive data on partial staircasing. Similarly, there is a lack of clarity on rent or mortgage payments. This not only obliges investors to make decisions with an imperfect understanding of the asset but also hampers the extent to which housing associations can gear against shared ownership stock.

These challenges can be overcome. Heylo Housing, a private limited company launched in 2014, has acquired 500 shared ownership properties and has agreed a deal with Bellway to deliver 1,000 new shared ownership homes. It is the first deal of its kind but could be the first of many more, especially if lenders' and investors' concerns are addressed.

The fall in property transactions since the credit crunch has left a big gap in the housing market. Shared ownership can help but to create a mainstream product, government must fill the gaps in the detail.

This opinion piece first appeared in Inside Housing.