Housing and Planning Bill

Written evidence submitted by Pocket Living Ltd (HPB 22)

1. Pocket Living Ltd is the only private developer delivering intermediate affordable housing in London. Pocket homes are sold at a discount of at least 20% to the open market and are protected in perpetuity. Pocket homes are restricted to those who earn less than the GLA’s income cap for affordable housing, live or work in the borough in which we are building, do not own a home and are not outright cash buyers. Pocket has over 10 years of experience in delivering affordable housing across 16 London local authorities, working within the existing legislative and planning framework. With the help of a £26.4m loan from the GLA we are on course to deliver 4,000 homes by 2023.

Starter Homes can make a huge contribution to first time buyers

2. The UK’s two main channels of housing supply (i.e. volume housebuilders and registered providers) cannot provide the right amount of the right housing type, in the right quantities to help ease the housing crisis. The private sector has seldom built more than 150,000 units a year, while housing associations have rarely delivered more than 30,000. Yet estimates suggest we require at least 250,000 new homes every year. This has profound effects on young Londoners. Just 12.5% of the highest earning 22-39 year olds can currently afford to buy an averagely priced first time home in the Capital on their own. As a result we are starting to see an exodus of thirtysomethings from London. Intermediate affordable housing can provide a lifeline for first time buyers but it currently makes up less than 2% of London’s housing stock. The reasons for this are:

2.1 the NPPF only mentions intermediate affordable housing (to own or otherwise) in its glossary and intermediate housing as such does not form part of the core policy document. This makes the planning framework unclear and therefore unpredictable.

2.2 shared ownership doesn’t work everywhere. Those that can afford to qualify find it difficult to staircase out and can become trapped.

2.3 there are a limited number of mortgage lenders operating in the sector and therefore there are too few competitive products.

2.4 Help to Buy isn’t currently available in much of the sector and therefore high deposits are often required.

2.5 small and medium sized developers (SME) are excluded from the sector because of the uncertainty of gaining planning permission speedily; obtaining a workable S106 quickly enough; competing for public land and obtaining bank credit.

3. Starter Homes can clarify the entire sector and bring a whole new tranche of developers, lenders and ultimately new volume to the market. This will help young and ambitious workers who don’t expect handouts to really get on in their life.

4. Given the unique and extreme challenges facing the London housing market, we are supportive of calls for the Greater London Authority to have its own, more flexible Starter Homes framework which could allow for a mix of the Government’s new Starter Homes, traditional shared ownership and existing affordable products such as Pocket homes. 

The Starter Homes policy

5. Pocket believes that Starter Homes need to be:

5.1 New dwellings to deliver the additional volume to the market that we need.

5.2 For qualifying first time buyers to ensure that they are protected for those that need them. We are concerned that the current, very limited restrictions will present difficulties for developers and local authorities. Developers could be swamped with demand and without some guidance in the policy framework they could be put under enormous strain sorting potential customers. Local authorities will also be very resistant to local people on moderate incomes being squeezed out of housing by those with no local connection who could potentially afford to buy on the open market. So a set of priority considerations in the Starter Homes regulations will help everyone avoid these issues. They should be sufficiently simple and clear so that they will not be a burden to the efficient administration of the sales process.

5.3 Sold at a discount of at least 20% of the open market value to allow for a range of discounts to suit different communities. Pocket provides housing from £165,000 (e.g. the unit price at our current development in Ealing) and its discounts range from 20% to nearly 50% in higher value parts of London. This ensures that they are genuinely affordable to those on moderate incomes. This ability to deliver homes at greater discounts is a critical tool to making the policy a success.

5.3.1 Starter homes need a price cap to ensure that the policy is not misused. The London price cap is high, but we believe this will allow for starter homes to be built in both expensive and more affordable parts of the Capital. For example, Pocket is currently delivering identical homes in Ealing at £165,000 and Camden at £285,000 because we have the necessary flexibility.

5.4 Subject to restrictions on sale and letting. These restrictions are not currently included in the Bill and represent a very important part of the policy’s potential success or failure.

5.4.1 The current suggested restrictions are that Starter Homes will be discounted for 5 years. In the Starter Homes consultation [1] response, the majority of industry responses elected for an in perpetuity discount (75% of local authorities, 100% of lenders and 50% of developers). There were in total double the amount of submissions in support of perpetuity over a discount of 0-5 years. We understand the Government’s desire to make the policy easy to administer, but if the discount is fixed at 5 years this could make delivery harder in the following ways:

5.4.1.1 Local authorities will be foregoing CIL and they will have to make huge efforts to change their approaches to affordable housing provision, only to lose the homes to the open market after just 5 years. In our experience this will meet with LPA resistance and would be an impediment to the supply of Starter Homes.

5.4.1.2 Developers want to be able 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. This could lead to Starter Homes being sharply downgraded in design and specification to create greater differentiation.

5.4.1.3 Lenders do not know how to value a product that changes in value so quickly and will struggle to provide mortgages to potential buyers.

6. If the restrictions were put in place for a minimum of 5 years (possibly with a maximum if the Government wanted to avoid perpetuity, although we wouldn’t recommend this) then the developer and the local authority could flexibly negotiate what works best for the local community. Allowing room for negotiation encourages competition and greater innovation. With clearer planning rules and S106 processes, alongside CIL exemption and a wider availability of competitive mortgages, developers large and small will be tempted into the market. If there was a dispute between developer and local authority, then the Bill already gives the Secretary of State the power to intervene and settle a dispute at five years.

7. Pocket strongly recommends setting the restrictions on Starter Homes to a minimum of 5 years as this will offer LPAs and developers the flexibility to respond to local conditions. It will also engender the growth of SMEs devising innovative responses to the Government’s Starter Homes policies.

8. The current restrictions protect Starter Homes from being resold or let at market rate during the restricted period. Currently local authorities and lenders need this to be policed to ensure the product doesn’t become abused. Without an administration agency (Help to Buy network, Metropolitan or a new agency using Pocket’s systems), Starter Homes could be rented out for 5 years and then gain a windfall pay day which could destroy the reputation of the product.

Summary

9. Starter Homes could become the first significant supply side initiative to bolster the growth of the intermediate housing market. This initiative could bring fresh thinking, investment and new developers to the market. To achieve the ultimate goal of significantly increasing housing supply, the Bill must, however, give LPAs and developers a little room for manoeuver to deliver the right product for their communities. If the policy is too rigid Pocket fears it will not increase supply and will instead become merely substitutional.

November 2015


[1] Stepping on the ladder: High Quality Starter Homes for first time buyers. DCLG March 2015

Prepared 10th November 2015