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1 Briefing The Mayor s Housing Covenant: Homes for Contact: Team: Rhona Brown London Region Tel: rhona.brown@housing.org.uk Date: November 2012 Registered office address National Housing Federation, Lion Court, 25 Procter Street, London WC1V 6NY Page 1

2 The Mayor s Housing Covenant In September 2012 Mayor of London Boris Johnson launched the first part of his new Housing Covenant, a series of papers setting out the Mayor s plans for housing in the capital. Homes for deals with improving the intermediate housing offer and is aimed at the growing population of on a range of modest incomes who are priced out of owner occupation, and are not a priority for the allocation of affordable rented housing. The paper emphasises that the lack of appropriate housing options for these individuals and households could potentially precipitate a damaging drain of the skilled workforce that drives London s economy. The paper focuses on the issue that the professional, senior manager or associated professional/technical sector is growing rapidly in London, and is projected to account for half of all employment growth in London by Many workers in this sector are earning below 60,000 per household and belong to the under-served lower mainstream part of the housing market. Cluttons estimates show a potential 90,000 home shortfall for this group in London by 2020 and a potential loss of economic output of 35 billion over the decade. Homes for argues that: Only 1.2% of London s existing housing stock is intermediate, and the proportion is growing very slowly As the average grant per unit for an intermediate home is much lower than that of a social or affordable rent home, this type of housing offers better value for money There are 65,000 social renting households with incomes that could enable them to enter intermediate housing. Giving social tenants this opportunity will free up social homes, and encourage social mobility. Mobility within the sector should also be improved for existing intermediate shared owners in particular the secondary market. The Mayor will address the lack of supply of intermediate housing in two ways: A series of policy changes to remove red tape in the intermediate sector to attract investment and increase output Releasing 100 million of funding to drive the policy changes forward and help around 10,000 Londoners. 1.0 Cutting through red tape In order to streamline the intermediate sector and speed up delivery the Mayor proposes to: 1.1 Separate product from property until point of purchase, to increase consumer choice. This means housing associations would not designate a property as shared ownership, for example, at the planning stage, but instead build properties and allow consumers to choose from a range of intermediate tenure options to suit them. This would require: Housing providers to forego the ability to assess the precise income stream of a scheme at the appraisal stage The GLA and boroughs to be more flexible around delivery of intermediate housing at the planning stage not prescribing which products should be delivered Page 2

3 GLA would also have to be flexible about programme delivery and create a mechanism to recover potential surplus investment if the predicted revenue from a scheme was exceeded. This proposal is being tested via a pilot with Affinity Sutton a test site will offer customers a choice of shared ownership or shared equity on the property they choose to purchase. The pilot hopes to ascertain whether this proposal improves choice for the customer, as well as identifying any delivery barriers, both site-specific and in terms of a wider roll-out of this approach. In principle, this is an excellent idea and a valuable way to ensure that affordable home ownership options can respond to purchaser s needs. However, question marks over development viability and planning aren t adequately addressed in the paper. Requiring housing associations to forego the precise income stream at scheme appraisal is likely to increase the level of development risk they take on especially if the proportions of shared ownership and shared equity delivered are different to assumptions. It is unclear how the GLA would work with housing associations to help mitigate this risk. Equally, it is difficult to see how the GLA will roll this approach out across London, where planning conditions already impact on delivery. 1.2 Improve the secondary market. The Mayor wants to prevent the leakage of hundreds of homes from the intermediate sector into the open market every year, and increase mobility for existing shared owners. The GLA plan to do this in the following ways: Existing shared owners will be allowed to access First Steps products and become eligible to buy second-hand shared ownership homes. The GLA wants to explore ways in which existing First Steps purchasers who need to move because of a change in circumstances could be assisted to do so. The GLA s First Steps website will be refreshed in April 2013 to give better information to those wishing to enter the intermediate market or navigate within it. The GLA are running a pilot to test ways to improve selling practices to try and make sure more shared ownership homes are sold to eligible First Steps customers, not on the open market. The pilot will involve A2 Dominion, Affinity Sutton, ASRA, Metropolitan, Notting Hill and Viridian and will test the performance of enhanced marketing against associations not participating in the pilot. It is running from August 2012-January These are eminently sensible proposals and reflect discussions the Federation has previously had with the GLA. The GLA is right to extend eligibility for First Steps, as an important way of improving mobility within shared ownership and recognising the value of shared ownership as a tenure in its own right. The provision of improved and consistent information should help remedy some long-standing misconceptions about intermediate housing options. 1.3 Remove restrictions on customers across London accessing available intermediate homes scrapping occupancy and perpetuity controls. The Mayor wants to remove the locality restrictions applied to many intermediate homes through the planning system, which dictate whom the property may be sold to in an attempt to ensure that affordable homes remain available to local key workers. The Housing Covenant proposes that all customers who meet the First Steps headline eligibility criteria should be able to purchase any intermediate home that becomes available in London after a specified period if there is no local interest. The GLA will: Page 3

4 Discourage boroughs from using restrictive planning and lease clauses, and encourage them to implement a cascade mechanism whereby a property is initially marketed locally and then the net is gradually cast wider. Consider making the requirement to widen access a condition of funding. The GLA is right in its aim to improve consistency across London boroughs to improve mobility owever we would welcome clarity on how GLA proposes to effect changes to planning policy across the capital, which has long hindered the delivery of affordable home ownership. We do not believe that making the widening of planning access a condition of funding will be effective given that housing associations, who are the principle providers of affordable home ownership are not responsible for establishing restrictive planning conditions. 1.4 Re-configure First Steps agents service. The Mayor wants First Steps to mirror the open market more closely. There will be a single web portal for First Steps, which will adopt some features of open market portals in order to make it easier to access information. Buyers will not have to complete the central eligibility check before they can search for properties they will only undergo the check once they have found somewhere they would like to buy. The GLA will seek private sponsorship for the new website It is proposed that the eligibility checks will be undertaken by the FirstBuy provider (the developer or seller of the homes), with regular compliance audits by the GLA. The document management function will be transferred to a selected legal partner, either the GLA s inhouse legal team or an external provider following a competitive selection process. The GLA is right to look at ways to streamline the First Steps agents service and improve the customer journey, but the proposals appear to ignore previous recommendations of housing associations and London boroughs. The Federation has significant concerns about the proposals for considerable changes to the First Steps service. We are responding to the GLA on this issue separately in consultation with members, and welcome any further feedback as to how these proposed changes will impact upon members and delivery One of the most important functions of the existing service is the extensive data collection, which helps inform marketing and policy decisions. The changes, as outlined, risk losing this. It is also hard to understand the rationale behind having a different approach for shared ownership and FirstBuy, particularly in light of moves to separate product from property. It risks adding unnecessary confusion to the customer journey. 2.0 Capital investment The Mayor will open up a 100m intermediate housing investment pot to bids. The Mayor will not be setting a target for the number of homes to be delivered, but expects around 10,000 Londoners could be housed through this investment. Proposals which demonstrate greater economic impact in terms of jobs and growth will be prioritised. Bids will be invited to deliver one, or a combination of, the following options: Page 4

5 A flexible option: providers bid to create an expected mix of the following products: rent to save (for those without sufficient deposits for shared ownership, whereby the tenant pays an intermediate rent and saves the difference towards a deposit on their home), Shared ownership and equity loan. An extension of FirstBuy through to March 2016: the purchaser funds 80% of the property price, and the Mayor and the housing provider fund the remaining 20% in the form of a low-interest loan to the purchaser. This does not involve an extension to the existing FirstBuy deadlines. Other affordable home ownership options: The Mayor is willing to fund other affordable home ownership options, but will only accept bids with a proven track record of success with customers and retail mortgage lenders. Future recyclable investment as a result of this funding pot will be put into delivering further intermediate housing, with the details depending on which option providers have chosen to deliver. Questions for members: We are asking members for their thoughts on the following questions to inform our response to the GLA on the Housing Covenant s proposals. What could the GLA offer to help mitigate the increased development risk associations will face if they wish to offer products separated from properties? How could the Mayor encourage boroughs to alter planning conditions that currently impact on intermediate housing delivery? What are the key factors in improving the secondary market for shared ownership? What do you perceive the impact of the Housing Covenant proposals will be on delivery, marketing and sales of intermediate homes? What is your appetite for the new funding proposed by the Mayor? Please send in your responses to Rhona Brown, Policy Officer, Rhona.brown@housing.org.uk by Monday 3 rd December. Page 5