In last year’s Autumn Statement, George Osborne announced proposals for 400,000 affordable new homes focused on low-cost homeownership over the term of this parliament.

The drive to reverse the falls in homeownership, which has been in decline since the start of the century, particularly among younger households, is set against wider Government ambition to build one million new homes by 2020.

We are still building well below the numbers required with only 155,000 new homes completions recorded in England in 2014/15, compared with the need for 312,000 per year over the next five years, according to the latest assessment from the TCPA.

Measures to instigate the construction of new homes aimed at homeowners include 200,000 Starter Homes, access to bigger equity loans through Help to Buy in London and a broader eligibility criteria for 135k new shared ownership homes. For buyers, the main effect of each scheme is to reduce the deposit required and therefore lower the barrier to homeownership.

However, the combination of these polices and their interaction with other forms of tenure, including Affordable Housing, raises a number of issues and challenges for those engaged in delivery of new homes.

Housing provision

As it currently stands, the biggest concern is that the Starter Homes policy, under which homes are sold at a 20% discount to first time buyers under 40, could distort the new homes sales market without significantly increasing the number of new homes delivered overall.

As we explain in greater detail below, there is a risk that Starter Homes could cannibalise Help to Buy sales as well as existing open market sales aimed at first time buyers (see Figure 1).

^{Chart represents houses being built in higher value markets
Source: Savills Research}

Furthermore, the classification of Starter Homes as a form of Affordable Housing under planning rules and the duty on local authorities to promote the supply of Starter Homes, is likely to result in fewer homes delivered for what is currently classified as an affordable tenure. We can therefore expect to see fewer homes delivered for Affordable Rent. However, given the lack of detail released, it is not clear what the interaction will be between shared ownership and Starter Homes.

Our previous analysis (see ‘The Future of Sub-Market Housing’, Autumn 2015) shows that there is a clear overlap between parts of the market likely to be served by Help to Buy, Starter Homes and shared ownership, particularly in London.

In a typical inner London borough, this is likely to be households with annual incomes of between £45,000 and £90,000. Under current delivery models, Affordable Rent tends to help the poorest households, those that reach the top of local authority waiting lists and often reliant on housing benefit. The shift in policy drive from Affordable Rent to one of the other tenures is therefore likely to leave a gap in housing provision for those on lower incomes.

Moreover, simply replacing homes which would have been delivered anyway through existing routes, namely in the open market via Help to Buy or as Affordable Housing through section 106 agreements, will not provide additional homes. In fact, by narrowing the focus of housebuilding to first time buyers, we risk creating the reverse effect and reducing the number of new homes built.

^{*Excluding PDR and other conversions
Source: Savills using DCLG data}

Development and land

The challenge to developers is to find a way of differentiating various products from one another and to prevent them from overlapping. As we have argued in the past (see ‘Who will build the homes we need?’, 2015), the best way to increase building numbers is to encourage building for a diversity of tenure delivered by a range of developers. Current policy takes us in the opposite direction.

These changes will also impact on the land values. It is possible that Starter Homes may generate no more land value than that of traditional affordable tenures (see The Effect on Land Value).

Crucial details of how the Starter Homes scheme will work in practice have yet to emerge. However, as the Housing and Planning Bill winds its way through parliament, this paper outlines what we know so far and examines the likely effect of these measures on the market and the consequences for housing delivery.