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.'