Wembley Matters has criticised Brent Council's definition of Shared Ownership as a form of affordable housing as put forward by officers at Planning Committee and in the Council's publicity. Contributors have quoted the Brent Poverty Commission's statement that the only form of housing affordable for Brent residents is social housing.
Credit must co to Cllr Anton Georgiou for raising the issue of the viability of shared owneship in the Council Chamber LINK. Rather than listening to the case made, Brent Council Leader made one of his characteristic spluttering attacks on Nimbies.
A report going to Cabinet on Monday LINK contains an account of the difficulties in the shared ownership model and has repercussions for their approach, notably in Watling Gardens, of changing tenure so that shared ownership cross-subsidises actual affordable housing.
The context is Brent Council's 2020 purchase of 92 homes in Block A and B of the Grand Union development in 2020 along with 23 shared ownership homes in Block D. The Council purchased the 23 homes to get access to the 92.
They now intend to transfer the shared ownership homes to a provider who is not named.
The report states regarding the Council managing such shared ownsership:
..the knowledge, experience and the capacity of the Council to effectively sell and manage processes such as staircasing is minimal.
But:
The Council did however consider selling homes and retaining them within the Housing Revenue Account (HRA). However, the market and demand for Shared Ownership, particularly in the latter quarter of 2022 was and has remained turbulent. This is both in terms of too many shared ownership homes available in the market and appetite and demand for these homes reducing.
Registered Providers who work closely with Brent have shared concerns about a saturation of shared ownership in the market. Many Registered Provider include shared ownership as a form of cross subsidy for social housing for rent, this has been under further pressure following last year’s economic and supply challenges to make schemes viable. The Council also put forward a paper to Cabinet in November 2022 proposing cross-subsidy as a means for reducing the financial viability gap within the New Council Homes programme, though
politically shared ownership was not considered a favourable tenure and was only considered as a potential means of protecting the much needed social housing.
They suggest that there is a role for shared ownership:
The impact of the mini-budget back in September 2022, rising inflation and growing cost of living crisis has led to uncertainty in the market. From a practical perspective, shared ownership offers residents who still want to buy and benefit of stability that homeownership provides and a route to do so whilst mortgage rates are high as residents can purchase a smaller percentage to keep costs down.
But then admit the drawbacks:
The affordability of shared ownership has however also come into question within the housing sector. Research into the ongoing cost of living crisis and housing shows shared owners are more likely to be vulnerable to financial hardship that other home owners. This is a result of both mortgage offers and the rent payments on properties being linked to inflation. Shared owners pay a mortgage on the proportion owned, which now can be as little as 10% of a property depending on when the property was build, and then pay rent which is starts at 3% of the value of the property still owned by the Landlord. Generally
25-35% is the standard amount of equity first purchased. Contractually shared ownership rents rise by the Retail Price Index (RPI) plus 0.5% each year which would have seen rises of 15.7% as of December 2022 (it should however be noted Not for Profit Registered Providers capped the rent increase at 7%).
Generally mortgage offers for Shared Ownership homes have higher interest rates that regular mortgages too, meaning inflation has an even greater impactwhen mortgage payments and rent is combined.
They go on to give figures on the actual costs of a shared ownershio home with a value of £400,000. Note the cost of the mortgage would be much more now as interest rates have risen sharply:
A worked example of a £400K home from Nottinghill Genesis shows a breakdown of costs where a 25% share has been purchased:
- 25% share = £100,000
- Estimated mortgage = £532 (NB this is not based on current mortgage rates)
- Rent = £688
- Service charge = £200
- Total = £1,420
- Guidance household income required = £51,160
It should be noted, the average salary for a working household in Brent for 2021 was £36K
Quite a gap, so what to do with those 23 shared ownership homes purchased back in 2020?:
In December 2022, the Council commissioned marketing company Site Sales to sell the homes as a package on the market to Registered Providers. Registered Providers invited to bid include: Clarion, Guinness, Heylo, HSPG,Keep Homes, Legal and General, MTVH, Network, Newlon, Notting Hill Genesis, OHGO, Octavia, Origin, Peabody, PA Housing, Sage, St Arthur Homes.
Most of the providers who responded stated the package of homes was too small to meet their organisations acquisition criteria. Expressions of interest were received from a range of Registered Providers. Offers in full received by the Council are set out in Appendix 1 (classified as exempt).
Each offer was assessed against the two key criteria for the Council when considering affordable housing opportunities, the financial requirements of the Council and meeting housing demand. This includes comparing the offer against the cost incurred to the Council for the initial purchase. Using this criteria it was deemed out of the three offers received only one was considered viable, details are contained in Appendix 1.
From a housing demand perspective, Offer 3 is most reflective of the current demand, specifically affordability within Brent and offers a unique opportunity to pilot the model in Brent. It also presents the opportunity to influence the shared ownership market at a local level and use this model and an exemplar of best practice. The recommendation of this report is to approve Offer 3, this is due to concerns about the existing shared ownership model and its ability to meet Brent Residents Housing Need.
We cannot see the actual costs involved as Appendix 1 is exempted from public view.
At Full Council meeting on Monday 10th July Cllr Promise Knight answering a question from Cllr Georgiou said, 'We know the the political appetite for shared ownership is waning. We've listend - you brought this up six months ago - and this is a demonstration of us listening.'
