On 24 May 2021 the Government released a written ministerial statement (WMS) and new Planning Practice Guidance on their previously much trailed First Homes initiative. First Homes are ultimately a form of discounted market sale housing, which are now considered to meet the definition of affordable housing in planning.
The First Homes scheme was formally launched today (4 June 2021) with the first units entering the market through an early delivery project in Bolsover, West Midlands. From a planning perspective, local authorities must start taking First Homes into account from 28 June 2021.
The key details of the scheme from a developer perspective are:
a) Discount on market value must be a minimum of30%, up to a maximum of 50% depending on local circumstances
b) Sold to person(s) meeting the criteria (keyworkers or local residents)
c) Restriction registered on the title to ensure the discount/limitations in perpetuity, secured by s106 agreement
d) Post-discount price of no more than £250,000 outsideof London or £420,000 in Greater London – although local authorities can setlower caps if evidenced
The new guidance states that First Homes are the Government’s ‘preferred’ discounted market tenure and need to account for at least 25% of all affordable housing units delivered by developers as part of planning obligations.
The written ministerial statement also mentions that local authorities and neighbourhood planning groups will have the discretion to require higher minimum discounts of 40% or 50% if they can demonstrate the need to do so. Lower price caps can also be implemented provided local authorities evidence these.
What does this mean?
There are a number of key points to make that impact developments,the overall viability of sites, and the affordable housing mixes available.
Firstly, it is likely that the First Homes type will mean that the overall amount of properties available for shared ownership will drop as a result. The proportion of social rent outlined in local plan affordable housing policies is protected, although moved into second place by First Homes. The intention therefore appears to be for First Homes to largely subsume shared ownership as a tenure. This will have a natural impact on certain homeowners and registered providers. In many areas, local authority affordable housing targets are around a 70/30 split between Social/Affordable Rent and Shared Ownership; and the latter will now drop to an unlucky third priority.
Next, there is an issue relating to value and the impact it will have on units available for social/affordable rent. In higher value areas of the country, it’s likely that local authorities will need to adopt a higher discount percentage to reach the £250,000 cap (excluding London).
For example, at the time of writing, average house prices in Oxford are around £420k. Applying a straight 30% discount to this puts the price around £294k – which is therefore above the threshold. The same is true for Bath, where an average price of £382k becomes £267k, which is clearly still above this price threshold for First Homes. Higher discount requirements are therefore inevitable in many of these areas.
Combining this with the overall priority being given to First Homes, there’s a significant loss of value in marginal or smaller developments,and therefore viability, which will privilege providing First Homes over social/affordable rent units, impacting the ability to provide this tenure aswell. A potentially accidental side effect will therefore be a further reduction of the affordable/social rent stock.
Thinking more generally about development viability, the overall First Homes policy is a top-down approach which hasn’t really been tested in any local plan viability studies as of yet. This creates a conflict between what the Government now require, and what the local councils detail in their local plans, generating further complexity and an overall increase in uncertainty for developers, contrary to the government’s current drive towards simplification of the planning system.
But there are also benefits from a development viability perspective. These are discounted market housing, rather than a form that will require liaison with registered providers, and the price discount will be aknown quantity at the application stage. This reduces uncertainty compared withother tenures, and simplifies the negotiation process. It will also potentiallyimprove the viability of some developments, as first homes units are in most areas likely to generate better income than shared ownership units.
The First Homes tenure is expected to be adopted by local authorities in their decision making from 28 June. Whether you have a site going through planning currently or are in the formative stages of design, ifyou have any questions about First Homes and the implications for your plan, we can help discuss your options and their impact on viability.