The government has made plenty of noise about starter homes in recent times. In fact, since the election it has become its flagship property-related policy, just as Help to Buy was for the coalition back in 2010.
The success of Help to Buy has been disputed by some – with critics saying it is a gimmick that only helps a small number of people onto the ladder and doesn’t actually do anything to solve the supply-side crisis.
Similar accusations are now being levelled against starter homes, with Liberal Democrat leader Tim Farron recently claiming that they could fall into the hands of investors rather than first-time buyers.
There was also research released recently by the Local Government Association (LGA) warning that discounted starter homes “could be out of reach for the majority of families in need of an affordable home in many parts of the country”.
The government’s policy on starter homes, which was a major part of its election manifesto and confirmed in the Chancellor’s Autumn Statement, means that first-time buyers will be able to purchase 200,000 new starter homes over the next five years, with a 20% price discount against current market rates.
The discounted prices are capped at £450,000 in London and £250,000 elsewhere.
While the LGA agreed that a national starter home scheme could help some people to get a first foot on the property ladder, it also questioned the finer details of the initiative and whether it will actually improve affordability in those areas that most need it.
The LGA is worried that the scheme won’t actually help those who are most at need of affordable housing and will be out of reach for many people in the large majority of local areas.
As a result, council leaders are calling for flexibility on the “number, type and quality” of starter homes to ensure they meet the requirement of local communities.
They also believe councils should have the powers to provide genuinely affordable rented properties in order to allow people to have enough extra money to save for a deposit.
LGA’s analysis, conducted by Savills, found that discounted starter home prices will be out of reach for all people in need of affordable housing in 220 council areas (67%).
The definition of “people in need of affordable housing” is those who would have to spend 30% their household income to rent or buy a home.
The research also revealed that an average earner with a minimum deposit (5%), seeking to purchase an average priced home, would be able to buy a property in only 45% of all council areas in England, even with a 20% discount. This includes all average priced homes in the North East of England, 95% of the North West and 90% of the East Midlands.
In London, the South East and the South West the 20% discount would have very little impact, the data showed. In the majority of areas buyers would need a higher deposit than 20% to be in a position to purchase an average sized home, even allowing for the 20% discount.
The LGA also says that, should 100,000 starter homes be built through the planning system, social and affordable rented housing could be badly affected, with plans to build between 56,000 and 71,000 of these types of homes abandoned.
To counter this, the LGA is advising the House of Lords to back “amendments allowing councils to continue to ensure a mix of affordable homes based on local needs and to ensure that councils have the means to invest in the vital infrastructure home buyers and communities will rely on”.
While the starter homes policy is a step in the right direction, it was never going to solve the housing shortage on its own nor was it going to be the only solution to help young first-time buyers onto the market – it was just one way of making that slightly easier.
However, even the 200,000 starter homes is a drop in the ocean, and many first-time buyers are still finding it very difficult to buy. Also, what the government deems affordable and what the populace at large deems affordable seems to differ a great deal.
Are the starter homes genuinely affordable? Are they really going to reduce the gaping gap between supply and demand? On those questions, the jury is very much still out.
We will have to wait and see whether it is a success, or another case of a government scheme that is far less than the sum of its parts.