My Lords, in moving my amendment, I am grateful for the support of the noble Lord, Lord Beecham, and the noble Baroness, Lady Bakewell of Hardington Mandeville. I draw attention to my housing and planning interests in the register.
This may look like a dull, technical amendment, too dull to be the first for consideration on Report, but it gets to the heart of the fundamental problem with the Bill—namely, the introduction of measures to generously subsidise home ownership schemes, in this case the new starter homes initiative and, later, the extension of the right to buy, with the subsidies being found by a transfer of public resources away from low-cost rented homes for less affluent households. Most of us in this House are very supportive of the Government’s ambitions to ease acute housing shortages by getting more homes built and to assist more of the next generation to become owner-occupiers. Very few of us, however, want to see more homes for better-off potential buyers at the expense of significantly fewer homes for those on lower incomes who struggle to find rented housing that they can afford.
The starter homes initiative, in the format set out in the Bill, was a manifesto commitment at the last election, and this amendment does not seek to undermine
the concept or to diminish the number of first-time buyers whom starter homes can help. But the amendment tries to ensure that this new initiative is not so generous that it displaces, by the end of this Parliament, a very high proportion of all new homes for those who, with the best will in the world, are not going to buy a property in the near future. As with so much of the Bill, we may or may not be unnecessarily anxious about the Government’s intentions, because so much of the detail remains for later regulations. We have all been entirely sympathetic to the Minister, who has had to tell us so many times that our questions cannot yet be answered. The only way to resolve key concerns is with changes to the Bill, as with Amendment 1.
The starter homes scheme of 20% discounts for 200,000 first-time buyers is the flagship policy in the Bill. Those buying in London could get help to the tune of £112,000, while those outside London could get more than £60,000. Without Amendment 1, those discounts would take the form of grants that the purchaser can keep when they sell after a period initially set at five years, but with the Government now suggesting eight years. A 20% discount on the average value of property acquired by first-time buyers last year would be £43,000, so 200,000 starter homes will cost the country some £8.6 billion, assuming no further increases in house prices over the life of this Parliament. The resources to pay for this generous subsidy are to be found partially by switching government grants away from affordable rented housing and, most prominently, by switching the present requirement on housebuilders to include affordable rented homes in their new developments to, instead, including a proportion of starter homes. In relation to grants for social housing by 2021, virtually no grant aid will be available to housing associations or councils for affordable rented homes, which will mean the lowest level of support for those who cannot be home buyers since 1919—that is, for a full 100 years. Switching the gains from granting planning consent, or Section 106 agreements, as they are called, away from helping poorer families and single people to instead supplying starter homes, will hugely diminish this highly successful method of achieving affordable housing for rent.
Amendment 1 would still offer the same level of support for the first-time buyer on day one, greatly reducing the level of the deposit as well as mortgage repayments. But it would mean the funds being returned proportionately if and when the purchasers sold up, as they almost certainly will, within the next 20 years. Since most first-time buyers move on after five to eight years, the amendment would recycle up to three-quarters of the initial support. The billions saved by this measure would make it possible for the starter homes initiative to be in good measure an addition to, not instead of, desperately needed new homes for less affluent households.
As well as the social arguments for moderating the generosity of the starter home subsidies, there are powerful economic and financial arguments. First, a subsidy available to an entire group in a particular category—in this case, to hundreds of thousands of first-time buyers—runs the risk of simply being absorbed into a higher price for the purchasers. Everyone is entitled to the same subsidy, so everyone can pay that much more for the same product. This means the
starter home subvention could prove inflationary, pushing up prices without increasing supply. The position becomes even more problematic if the 20% starter home discount is combined with 20% interest-free Help to Buy loans enabling people to purchase at 40% less than the market price. The position gets quite out of hand in London, where Help to Buy can cut the initial price by 40%, meaning the combination with the starter-home subsidy could enable purchasers to get a 60% reduction in the initial price, which would have obvious inflationary consequences. I can hardly believe it is a serious proposition that a buyer of a property costing £500,000 in London would actually pay only £200,000, getting the other £300,000 from government schemes.
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Secondly, there will be a lot of dead weight in the starter-homes proposition if those who are already willing and able to buy without a subsidy are given the same 20% discount, which is worth £43,000 on average. This will be an unnecessary extravagance, ultimately at taxpayers’ expense.
Thirdly, a subsidy for just one product in the market will squeeze out demand for other valuable products. As well as replacing low-cost housing for rent in terms of government funding and use of planning requirements, subsidised starter homes are likely to crowd out the new, unsubsidised, build-to-rent sector, as the British Property Federation has suggested. Melanie Leech, the BPF chief executive says:
“Government must not marginalise this important sector in its race to deliver Starter Homes”.
Fourthly, in the case against the Government putting so many eggs in the one basket of starter homes, there is obvious unfairness, not just in respect of those not earning enough to benefit or not able to find a deposit of 5%, which could be more than £20,000 in London, but in respect of all those who would like a starter home but who will not find one available. There are likely to be around 400,000 first-time buyers every year, but no more than 50,000 starter homes, so seven out of eight new buyers each year will not benefit from the average £43,000 grant. Those buying second-hand properties or buying in an area where starter homes are not built will get nothing, and they are the great majority of first-time buyers. Those who are aged under 23 or who do not manage to purchase before they are 40 will get nothing. Those on the edge of London will get only half as much as those within the GLA area, and there will be no help for the many young couples who bought a tiny flat and now need more space for a family but cannot move because they cannot afford a bigger mortgage. The potential resentment of the majority of new buyers who will get no benefit from the billions involved in this initiative would be much reduced if the starter home subsidy—those grants averaging £43,000 nationally but up to £120,000 in London—were repayable, albeit on a gently reducing basis over 20 years, if the purchaser left.
Finally, in Committee we heard the concerns of mortgage lenders and housebuilders who are worried about distortions in the marketplace if the subsidy is too generous. Housebuilders see the problem that big subsidies may initially push up prices for properties sold as starter homes but with a depressing effect on
adjacent new homes not available with big discounts and on the second-hand market where no bonus is available. Housebuilders worry about the depressing effect on homes they build later when starter homes come back on the market with no discount. If builders feel they must move away from building anything other than starter homes for the first-time market, since no one will want to pay 100% when by waiting they could get a new home for 80% of its value, that might mean a decline in the overall output of new housing.
Amendment 1 would take the pressure off the wider market by moderating the generosity of the starter homes package. A powerful argument against reliance on starter homes with lavish subsidies to solve the UK’s housing problems is that the switch away from the current flow of affordable rented homes through housing associations and councils will mean lower total housing production. To reach the admirable goal of 1 million homes over the life of this Parliament, most observers agree that a combination of homes to rent, not dependent on the speed of the sales market, and new building for sale is vital. The robbing of Peter to pay Paul—the shift from affordable housing to starter homes—places disproportionate emphasis on the tenure that is restrained by the speed of the market, almost inevitably undermining the Government’s chances of addressing overall shortages while disadvantaging those households in the toughest circumstances.
This amendment would allow those starter homes to proceed but in the knowledge that a high proportion of the initial subsidy—the £8.6 billion in today’s money—would flow back again as people moved on, and could finance a continuation of the affordable rented programme, thereby increasing overall housing numbers, which I think we all agree should be the goal of the Bill. I beg to move.