It might seem strange that someone who has acted as a middleman in the housing market for most of his working life would propose disintermediation as a solution to our housing woes, but the opportunities to increase the delivery of truly affordable homes are just too great to miss.
First, the current method of delivering affordable homes by means of Section 106 agreements (a requirement to comply with local authority affordable homes policies) is unnecessarily costly and convoluted. A typical developer is required to build about 30 per cent of the homes on a site and sell them to a housing association at about 50 per cent of the market value. The housing association then rents the homes at 80 per cent of market value and sticks them on their balance sheet at 100 per cent of market value. Nice work if you can get it.
Instead, why don’t we simply sell it to a first-time buyer on a low income for 50 per cent of the market value and cut out the middleman? Everybody wins (apart from the housing association) – the taxpayer who doesn’t have to pay a penny, the first-time buyer, the next purchaser of the home when it’s resold (as it stays at 50 per cent of market value in perpetuity), the developer who now deals directly with their customer and the community where the home is built as they get neighbours who have just as big a stake in the community as every other owner-occupier.
It doesn’t even need a change in the law as this type of home, called “discount market sale” (DMS) is already defined in the affordable home category in the National Planning Policy Framework. There are about 25,000 homes provided per year via Section 106 agreements, the vast majority of which are provided as “affordable” rent, so if even half of them were delivered as DMS, we could deliver 12,500 super-affordable homes to purchase and give young people the chance their parents and grandparents had to get onto the housing ladder.
I will give you an example of how this plays out at a local level. In one of my local towns, of the 656 homes currently in development or consented, 279 are for affordable rent, with no DMS and only nine two-bedroom homes for market sale, severely restricting the opportunities for young people to get onto the housing ladder. DMS changes everything.
Secondly, there is currently a prohibition on the inclusion of residential property in a personal pension, such as a self-invested pension plan. This means that potential accommodation over shops is often left empty or unconverted. We could change this rule to include flats (and houses) provided they were offered to tenants on low incomes at a social rent (no more than 60 per cent of market value). The owner gets a tax break, the tenant gets a truly affordable secure home and the taxpayer funds less housing benefit. Everybody wins, apart from the middlemen.
This article originally appeared in The Times Red Box: https://www.thetimes.co.uk/article/cut-out-the-middle-man-and-build-truly-affordable-homes-to-rent-and-buy-psr5msq0z