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Is the government’s new Starter Homes Initiative a non-starter?

Luke Whitmore - Law on the Web

  1. 22 April 2015
  2. Housing
  3. 0 comments
House keys

The government is planning to help first-time buyers to purchase a new-build home by offering a 20% discount – but will it help?

Since the beginning of March, would-be homeowners under the age of 40 have been able to register their interest in buying a discount property available under the Starter Homes Initiative, which the government claims will ensure the construction of 100,000 new houses on brownfield land. The Conservative side of the coalition has also promised that this will increase to 200,000 if they emerge victorious in the next election.

This hefty saving will come by exempting the companies building the houses from a number of regulations and levies, with the money saved in this way being passed on to the buyer in the form of a 20% discount. Construction has not begun on any houses under this scheme yet, but it is expected to start in the next few months.

The government, of course, claims that this will help those who might not otherwise be able to afford a home to get onto the property ladder. There are safeguards in place to ensure that the scheme is not misused by those seeking to make some quick cash – for example, if a home purchased under the initiative is sold within five years of its purchase, the owner must keep the 20% discount in place for the new buyer. There are also restrictions on letting the properties, to ensure that people do not simply buy them to make a profit off of renters.

However, concerns have been raised about other aspects of the scheme, perhaps the most worrying one being that a large part of the saving comes by exempting those participating in the scheme from affordable housing requirements. Usually, developers must ensure that a certain number of the houses they build are classed as “affordable” or, alternatively, make a payment in lieu to the local council. This is to prevent new houses being constructed exclusively for those who can pay higher prices.

The Starter Homes Initiative, however, allows developers to save a significant chunk of change by lifting the affordable homes requirement. This has led to worries that focus could be drawn away from the construction of homes that the majority of first-time buyers could realistically afford, and instead serve simply to provide a discount to those who would have no problem purchasing a property either way.

To counter this, there is a maximum price that can be charged for one of the new properties – but, as they cap out at £250,000, or £450,000 within London, it’s likely that those who struggled to get on the housing ladder before will find these costs just as far out of reach.

What’s more, while the idea seems good on paper, there seems to be no way to actually demonstrate that a saving is being passed on. It’s not clear what will stop a developer from charging £250,000 a pop for a new property and saying it would have been 20% more expensive if not for the discount, since much of the cost of a house has more to do with demand than anything necessarily quantifiable.

And even assuming that the scheme will end up saving money for first time buyers, there may be deeper problems. The issues with housing in the UK, of course, go beyond people who are looking to buy their first home – those who can only hope to rent are facing similar problems in finding affordable properties. The Starter Homes Initiative seems to shift the focus on to first time buyers while potentially leaving others in the lurch.

So, while the government’s Starter Homes Initiative certainly sounds good on paper, solving the housing crisis may well require something more concrete.

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