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Are Starter Homes Now Classed as Affordable Housing?

On 10th July the Treasury published its much heralded proposals to increase productivity in the UK  'Fixing the foundations; Creating a more prosperous nation'.

The planning system falls squarely within its sights in Chapter 9 with a title that pulls no punches: 'Planning freedoms and more houses to buy'. The message is clear; insufficient houses have been built to keep up with demand, harming productivity and labour market flexibility and frustrating the ambitions of thousands of people who would like to own their own home.

Following their election victory on 7th May the majority Conservative Government have returned to familiar territory with ambitions to increase the level of home ownership central to their agenda.

Alongside measures to speed up the plan making process, and the granting of 'automatic' planning permission for brownfield sites, are proposals to bring the provision of discounted Starter Homes - for first time buyers aged under 40 - centre stage in an attempt to deliver 200,000 such dwellings by 2020.

Hidden away in the text (the 5th bullet point to paragraph 9.23 to be precise) is a reference to future planning policy re-affirming that Section 106 contributions should not be sought for 'other' affordable housing in connection with proposals for Starter Homes exception sites. This is in connection with the proposals that the government intend to bring forward in order to deliver their commitment.

For the first time therefore it is clearly implied that Starter Homes now fall within the ambit of 'affordable housing' and it is assumed that the NPPF will be amended in due course to reflect this.

Local Planning Authorities will be required to plan proactively for the delivery of Starter Homes. The current exception site policy to be extended through planning guidance to provide a presumption in favour of Starter Home developments on unviable or underused brownfield land in retail, leisure and institutional use.  This being in addition to industrial and commercial land as currently.

Most far reaching however is the suggestion that proposals will be brought forward 'to ensure every reasonably sized housing site includes a proportion of Starter Homes'. The question uppermost in developers minds is likely to be whether this is additional to, or in lieu of planning policy requirements for traditional forms of affordable housing provision?

Doubtless LPA's will consider it the latter. However, the renewed emphasis on boosting home ownership and the role that can be played by Starter Homes needs to be considered in the context of the changing financial environment in which Registered Providers operate.

Uncertainty surrounding the financial impact of the planned extension of Right to Buy to Registered Providers through the Housing Bill was further compounded by changes announced in the emergency budget that require rents to be cut by 1% year on year until 2020. This effectively tore up the existing 'rent settlement' of 2013 that permitted rents to rise each year by CPI plus 1%.

Social Housing consultancy Campbell Tickell has estimated this equates to a 14% reduction in projected turnover for Registered Providers, some £3.9bn in total. The consensus view is that this rent cut will constrain the ability of Providers to deliver additional affordable housing.

The Office for Budget Responsibility estimated this would lead to 14,000 fewer affordable homes being built, whereas the National Housing Federation almost doubled this estimate to a minimum of 27,000 whilst indicating that the actual figure could be much higher.

Whatever the true number, the bigger question for developers is what proportion of the affordable dwellings that will no longer be delivered were expected to come from S106 sites?

It has been clear for some time that the pipeline of consented S106 units has grown much more rapidly than the financial capacity of the Registered Provider sector to absorb them. In order to tick the box relating to the Social Dimension of Sustainable Development, applicants have often conceded to overly prescriptive requests for affordable housing provision in order to secure planning consent.

Research by Resolve106 indicates that in the North West alone planning approval has been granted for in excess of 14,000 S106 affordable dwellings in the period following publication of the NPPF, a further 3,000 awaiting approval subject to completion of a legal agreement, with countless others stuck in the appeal system.

It now seems highly unlikely that the majority of these units will be taken up by Registered Providers, especially on sites that have yet to commence development.

In the short term developers face uncertainty in attempting to place affordable units with Registered Providers in a drastically changed marketplace. Until such time as the NPPF has been formally amended and the final operational details of the Starter Homes Initiative agreed there may be some interesting discussions with LPA's ahead!

However, the direction of travel for affordable housing policy seems clear and developers should prepare now for a future where the emphasis will be on maximising delivery of low cost home ownership dwellings for first time buyers.