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Is there a future for low-cost home-ownership?
One of many key questions the new government will have to answer is what it should – or perhaps more realistically what it can afford to – do to promote low-cost home-ownership.
By far, the most successful low-cost home-ownership initiative we have seen so far was the right-to-buy scheme. Although it had its critics, this initiative was – during its heyday in the 1980s – making subsidised owner-occupation a reality for considerably more than 100,000 households a year. Over a 25-year period, right-to-buy provided a low-cost route into owner-occupation for more than 2.2 million home-owners.
Since the late 1980s, however, annual right-to-buy sales have declined, although they still totalled more than 41,000 as recently as 2005. But as the numbers have diminished, other low-cost home-ownership initiatives have been developed, driven by a desire to continue to provide wider access to the benefits of property ownership, against a backdrop of increasing owner-occupation, rising house prices and readily available funding.
Since the onset of the credit crunch, however, this backdrop has become much less favourable. Despite this, each of the main political parties has continued to support low-cost home-ownership. At the last election, for example, the Conservative manifesto aspired to a property-owning democracy with everyone having the right to own their own home. Labour wanted social tenants to be able to build up an equity stake in property, and the Liberal Democrats favoured “equity mortgages” as a way of providing more affordable homes in rural areas.
At the end of last week, the coalition government published a draft structural reform plan, setting out its intention to develop and put in place by next spring options to help social tenants own all or part of their home.
The reality is, however, that in the post-election environment there has been a greater focus on addressing the fiscal deficit. This has created a much more challenging funding environment for delivering any of the parties’ aspirations on low-cost home-ownership. Superficially, there is an opportunity for lenders to fill this gap. But they, too, have been constrained by their own acute shortage of funding since the onset of the credit crunch – and that looks likely to persist in the coming years. The provision of low-cost home-ownership is at a crossroads. Pressures on providing affordable housing in all tenures have intensified in recent years, and are unlikely to subside in the foreseeable future.
By far the most successful low-cost home-ownership initiative has been the right-to-buy scheme. It has been superseded by a variety of shared equity and shared ownership measures, which – although smaller in scale – have helped significant numbers of households take a stake in owner-occupation at a reduced cost.
But given the scale of the fiscal challenges ahead, the government is currently re-appraising its approach to low-cost home-ownership. The extent of its commitment will be clearer following the comprehensive spending review in the autumn. Meanwhile, housing associations, lenders and others are also considering their own options – and from a similar position of acute funding constraints. All will need to address fundamental questions about their commitment to low-cost home-ownership and how they can contribute to its future funding.
If lenders and others want to sustain their commitment to low-cost home-ownership, we need to have a frank debate about measures needed to facilitate its funding in the future. Can we do anything more to sustain those lenders already engaged in the market? Will larger lenders have the desire and capacity to provide increased funding? And are there particular opportunities for smaller, local lenders?
The new government appears to favour support for shared ownership. But it will need to clarify its intentions – and the extent of its financial commitment – in the coming months. The CML, meanwhile, is keen to host a debate among lenders and others about the extent to which firms wish to engage with the government on the continuing provision of low-cost home-ownership, and how this can be funded in the future.
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