The sound-bites from chapter 1 of the Housing and Planning Act 2016 make it sound so simple. Starter homes will have be sold at a discount of at least 20% to market value, with a price cap of £450,000 in London and £250,000 elsewhere.
That much is baked into the Act (subject to change via a subsequent statutory instrument). But most of the necessary detail is to follow in the Regulations that we expect to see this Autumn following the Government’s technical consultation in March. A busy summer ahead within DCLG.
I was speaking on a Westminster Briefing conference panel this morning alongside Jennifer Bourne from the Council of Mortgage Lenders and Chris Buckle from Savills. The mix of private sector and public sector delegates had a series of interesting and thought-provoking questions for us but more particularly (if they had been in the room) for those busy ministers and civil servants. I came away with a series of thoughts swirling around as to the particular difficulties in arriving at a valuation process that will work without introducing unnecessary extra complexity, delay or uncertainty into development (an already hazardous adventure):
– What will be the precise mechanism for having starter home valuations signed off? We expect some standardised section 106 agreement clauses – presumably they will require the developer (and home owner on any prospective re-sale within the restricted period) to submit a valuation for the LPA’s sign off but how can we ensure that processes won’t be elongated if there is disagreement? Who will pay for the LPA’s valuation sign-off or will this be centrally managed via the HCA or any other body? Who is to oversee the process to avoid any lack of rigour as between developer and LPA?
– How to deal with the uncertainties inherent in valuing any new home, with the premium that newness initially attracts, such uncertainties being particularly accentuated in the case of larger developments where local comparables may be less relevant?
– Is the valuation to exclude the “starter home” nature of the property, given that purchasers may well be prepared to pay more than 80% of that valuation (or, where relevant, more than the price cap) thereby increasing the valuation of the property? This premium will increase on potential re-sales during the restricted period (even allowing for any tapering).
– How to ensure that there are no side deals between developer and purchaser, particularly where there are more potential purchasers than potential starter homes or where the starter home seems a particularly good deal, for example where the price cap works so as to lead to a reduction of much more than 20% (as it will in parts of central London and the home counties)? Indeed how is the developer in practice to choose between different buyers, faced with that price cap?
– How to take into account any reduction in value of the balance of the private market housing within a scheme if it turns out that starter homes are cannibalising private market sales?
– where off-site contributions are negotiated in lieu of on site provision, how is the level of those contributions to be set?
This is the Council for Mortgage Lenders’ detailed and measured response to the Government’s technical consultation on the proposed Regulations.
Lastly, Savills have an interesting slide showing the likely viable mix of starter homes and other affordable housing – figure 1 in their April 2016 briefing note . However starter homes are valued, they come at a price.
Simon Ricketts 21.6.16
Personal views, et cetera