Towards a nation of hybrid home owners

Shared ownership has risen apace, driven by the pressures of the housing crisis, to offer frustrated homeowners a more affordable means of realising at least a part of the dream

By Northern Housing Staff

IT’S worth asking where shared ownership would be without the housing crisis.

After all, why would anyone buy a portion of a house and rent the rest if they could realistically stretch to buying the whole lot?

In a very real sense, then, the rising demand for this hybrid tenure is surely a measure of the crisis, and the desperation of wannabe homeowners, as much as it is the enthusiasm pushing the product to new generations otherwise priced-out of the dream.

Shared ownership has come a long way from its origins, decades ago, as a niche and specialised housing offer. While it hasn’t quite attained the mainstream yet, it has very much become an established fixture of the housing landscape over the last decade or so.

Housing associations have been critical pioneers, developing the model and steering it towards wider public accessibility, and it’s fair to say a good many have taken to delivering these homes with gusto.

Cynics might suggest the spur is the scent of commercial opportunity, but there’s no denying the real housing need the product serves to meet (even if some providers have dropped the ball when it comes to tenures aimed at meeting other aspects of housing need, such as social housing, but that’s another story).

Like many schemes intended to prop up crumbling levels of first-time homebuyers, shared ownership’s rise to prominence has been helped immensely with state support. The Government’s Shared Ownership & Affordable Housing Programme (SOAHP) 2016-2021, administered by Homes England, offered providers capital grant to help deliver more such homes.

Among its competitor schemes, offering routes into home ownership; Help to Buy is one of the more significant ones, suggests Savills in a June report into the model. But the equity loan scheme is set to end in 2023 and as a result this is expected to give shared ownership space to expand faster. The report suggests it could stimulate demand for an additional 15,000 shared ownership homes per year.

“This has implications for housebuilders, who will look to shared ownership when Help to Buy comes to an end,” said Savills. “By providing alternative routes to market, either through bulk deals or individual sales, shared ownership helps increase sales rates and helps housebuilders recycle their capital faster…

“It also has implications for institutional investors, whose demand for long-term, inflation-linked income makes shared ownership a natural fit. We believe that rent deals by Heylo, Sage, and ReSI are the first of many such private investments into this sector. This could drive opportunities for housing associations to unlock capital for more housing development.”

Uptake is growing, regardless; providers are keen to increase the numbers of shared ownership homes they bring to market to meet existing and future demand. Meanwhile, plenty more frustrated homeowners are looking for their first foot on the property ladder; in theory, it’s a win-win.

Nowadays, according to Savills, some 200,000 households live in a shared ownership home. There were over 13,400 such homes completed in 2018, while there is a growing market for second hand shared ownership properties. Right Move listed around 2,500 such properties in the fourth quarter of 2018, up 69% on the same period in 2010.

For housing associations, there’s big money in this market, according to Savills’ report. Shared ownership sales added £5.9 billion to the sector’s turnover since 2016. Meanwhile, first tranche shared ownership sales delivered over £1.2 billion to housing association turnover in 2018 alone.

On the rental side, while rents on the unsold portion of the house are naturally lower that for a full property, housing associations are nevertheless receiving an ongoing income from the property, and they bear none of the costs associated with repairs and maintenance, since this becomes the responsibility of the householder.

The advantages for part-buyers, of course, is that shared ownership offers a lower-cost route into homeownership, with cheaper mortgages and smaller deposits needed to make the purchase. A further ‘sell’ for the model is the capacity to ‘staircase’ – buying further portions of the property – all the way to full ownership, as circumstances allow.

Apparently, the majority of household do; according to figures cited in Savills’ report, 61% staircased to full ownership in 2018, while 39% did so partially, meaning they continued to pay some rent on the property. Such income sources carry relatively little risk for housing associations, the report claimed.

It’s easy to see why it is an attractive market, but Savills also has a warning: “The sector is not without its problems,” the report noted. “For housing associations, taking on sales risk leaves them more exposed to fluctuations in the housing market, while for residents, contracted rent increases could mean their housing costs rise faster than the open market.”

The market may be growing, but it is somewhat geographically uneven. In part, this reflects regional affordability pressures. Typically, London and the South East are prime ‘hotspots’ for shared ownership development, however the tenure can be found throughout the country, including here in the North.

Quite how the market for shared ownership operates in one part of the country doesn’t necessarily reflect how it operates in others, however. This is a point explored by Dr Alison Wallace of the Centre for Housing Policy (CHP) at the University of York, in a report published earlier this year.

The report, appropriately titled Exploring Shared Ownership Markets Outside London and the South East, points out that much of the research on shared ownership to date is focused on the product’s ‘core hinterland’ in London and the South East.

As such, this tends to feed assumptions about the model that may not necessarily apply across the regions of England. What’s more, there is a far greater knowledge and understanding of shared ownership across the South East; hardly surprising, perhaps, given this is where much of the development is concentrated. The report sets out to fill in the gaps, as it were, by examining three contrasting case study areas: the Bristol, Leeds and Birmingham city regions.

“Implementing calls for an increase in the supply of shared ownership, and for embedding the product into mainstream house-buying options, requires a greater understanding of the choices and trade-offs homebuyers make in different housing market contexts,” Wallace said.

“The research examines the variation in sales and the circumstances of shared owners across England, and provides insight into the housing preferences and choices first-time buyers and shared owners made… The study also examined the views of housing providers in these areas in respect of the opportunities and challenges they face when considering the shared ownership market.”

People were driven to buy a shared ownership home for a variety of reasons, her research found. Unsurprisingly, the decisions reflected a positive desire to own their own home. Equally of no surprise, decisions were also driven by problems within the private rented sector, such as “limited” security of tenure, property conditions, and the value for money when paying high rents. A further driver, albeit a more limited one, was found to be ability to access social housing, or else the stigma attached to this tenure.

Other key points in Wallace’s report, which was funded by the CAST Foundation, included:

  • Shared ownership is serving different market segments in different housing markets. This has implications for marketing, the potential for staircasing and receipts, long-term support and affordability/sustainability.
  • In the report’s case study areas, shared ownership was meeting housing demand for homeownership from households who had no – or limited – family support, were single, had families or precarious employment, were older following relationship breakdown, or had held unsustainable housing debt.
  • Buyers varied in their attitudes to risk, prompting a range of approaches to appraising market information and forms of support. Available information about buying a home and shared ownership was often viewed as “fragmented and incomplete”.
  • The research indicated that the volume and nature of any new shared ownership supply, including equity stakes purchased, were shaped by differing institutional responses to local markets.
  • Providers reported several barriers to the expansion of shared ownership, including land, competition between existing and new providers – be they local authority, housing association or private outfits – and market awareness.

Wallace added: “While the size of shared ownership markets may vary with affordability pressures, the presence of high value areas within each region, the use of the sector for purposes other than first time homeownership, and the avoidance of otherwise affordable housing and places that might require significant renewal, extends the scope for the sector in places outside the core London and South East markets.”

For as long as the housing crisis blights the nation, this hybrid tenure clearly has a strong future; and, who knows, maybe even beyond that.

NH

This article first appeared in the print edition of Northern Housing magazine, #5 July 2019

 

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