Making Housing more Affordable

The Role of Intermediate Tenures

Sarah Monk, Christine Whitehead, Sarah Monk, Christine Whitehead

• Publisher: Wiley-Blackwell
• Year: 2011
• Print ISBN: 9781405147149
• eBook ISBN: 9781444340884
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

The movement away from traditional rented approaches to meeting the housing needs of those on modest incomes has taken on new momentum in the latest economic cycle.

This book answers some of the questions around affordable housing and low cost home ownership, and whether these intermediate tenures have the potential to play a longer term role in achieving sustainable housing markets.

The editors clarify the principles on which the development of affordable housing and intermediate tenures has been based; analyse the policy instruments used to implement these ideas; and make a preliminary assessment of their longer tem value to households and governments alike.

Making Housing More Affordable: the role of intermediate tenures brings together an evidence base for researchers and policy makers as they assess past experience and work to understand future options.

The book draws mainly on experience of the intermediate housing market in England but also on examples of policies that have been implemented across the world. It clarifies both the challenges and the achievements of governments in providing a well operating intermediate market that can help meet the fundamental goal of 'a decent home for every household at a price within their means'.

The first section outlines the principles and practice of intermediate housing and examines the instruments and mechanisms by which it has been provided internationally. The next section estimates who might benefit from being in intermediate housing and projects the take-up of different products in the future. Section III examines the supply side and Section IV introduces some case studies of who gets what. The final section looks at how effectively the intermediate market operates over the economic cycle.

Chapter 1

Introduction

Sarah Monk and Christine Whitehead

Shared ownership, low-cost home ownership, equity loans for first-time buyers, key worker housing; cost renting – these buzzwords have been around in the UK for several years now, along with deed restricted homes, limited or zero equity cooperatives, community land trusts in the USA and equivalent terms across the world. Equally the term affordable housing – as distinct from local authority, municipal and even social housing – has taken on new meaning in both policy and analysis over the past decade. All these terms relate to the movement away from traditional rented approaches to meeting the housing needs of those on modest incomes – a movement that began in the inflation-ridden 1970s but has taken on new momentum in the latest economic cycle.

What are these terms? What do they mean? Why have they become so important over the past decade? And who are they for? Are these intermediate tenures simply a response to the specific problems arising from rapid house price rises across much of the industrialised world? Or do they have the potential to play a longer-term role in achieving sustainable housing markets?

This book aims to answer some of these questions by clarifying the principles on which the development of affordable housing and intermediate tenures has been based, analysing the policy instruments used to implement these ideas, and making a preliminary assessment of their longer-term value to households and governments alike. It also brings together an evidence base for researchers and policy makers as they assess past experience and work to understand future options. It draws mainly on experience of the intermediate housing market in England and also on examples of policies that have been implemented across the world. It aims to clarify both the challenges and the achievements of governments in providing a well-operating intermediate market that can help meet the fundamental goal of ‘a decent home for every household at a price within their means’.

Explaining the title

Intermediate housing tenure is a term which has entered into the mainstream discussion in the new century, although the ideas have been around for over 30 years. The main reason for this has been that, from the mid-1990s until late 2007, the UK, like many other western economies, experienced an unprecedented period of increasing housing and land prices. This in turn created growing problems of affordability across the housing system, particularly for those trying to become homeowners. At the same time, increasing costs put pressure on traditional government funding sources both to provide additional affordable housing and to support households with their housing costs. This in turn stimulated the use of a range of old and new mechanisms that were mainly about levering in private sector funds to help provide additional affordable homes by ‘stretching’ public resources to increase the value for the public purse.

Affordable housing and intermediate housing tenures are both rather unspecific terms. In the policy literature, they are often used almost interchangeably to cover any approach which is not part of the traditional tenure forms of social rented housing, market renting and owner-occupation. In the UK, the intermediate market encompasses shared ownership, shared equity, low-cost ownership and discounted market rental housing as well as cost renting. It is usually, although not exclusively, provided through a housing association (a non-profit housing provider whose main objective is subsidised rental housing for those in need) and it is aimed at those who could afford to pay more than the typical social rent but still cannot afford to access full-price open market housing. In the UK, the vast majority of instruments – and funding – have concentrated on ownership products rather than extending rental provision (see Appendix 1 for the details), while in other countries there has been more emphasis on rental products.

The term affordable housing is often interpreted as covering the same range of policy instruments, but it is also used more broadly to include social rented housing, private renting with income-related subsidies and even the lower end of the owner-occupied market. In this text, we are taking the narrower definition and looking specifically at policy-driven provision that lies between social renting and owner-occupation.

Taking this definition as a starting point, intermediate housing tenures may be broadly defined as mechanisms or products designed to enable households who cannot otherwise afford home ownership or high-quality rented housing to access it with the aid of some kind of limited subsidy. These mechanisms can take many forms, but a key aspect is that they are targeted at particular types of households, generally younger working households on below-average incomes who are currently living in the private rented sector, sharing with friends or still living with family, although there is also a growing interest in targeting older households with specific needs.

The policy instruments employed in the UK in recent years are generally not new. Most of the instruments that have been introduced in the new century had precursors in the 1970s and 1980s (Booth and Crook, 1986; Appendix 1). Policies that had been developed over the decades have been refocused and extended to enable them to play a larger role, both because of the extent of the affordability crisis and of limited resources. As a result of these pressures, the intermediate market has become a core element in UK government policy, particularly since the turn of the century. In this context, Homes for a World City (GLA, 2000) provided the first guesstimate of the requirement for intermediate housing in London. Thereafter, both central government and independent commentators looked to identify and measure the extent of the need, based on the number of households who could not obtain social rented housing but could not reasonably afford owner-occupation in their area (see Chapter 4).

The ideas associated with affordable and particularly intermediate market housing in the UK are thus heavily grounded in specific policy instruments. The process has thus been incremental rather than the outcome of a structured analysis of objectives, gaps in provision and the exact nature of what should be provided (Munro et al., 2005). The instruments have often been developed in response to particular circumstances and political priorities – by no means all of which have been housing specific. However, one very particular housing objective has been to concentrate these instruments on owner-occupation because of the government’s broader commitment to a property owning democracy (Bramley et al., 2002). The current economic and housing market crisis has brought to the fore many more fundamental questions about what the role and position of an intermediate market ought to be – notably whether these products have particular risks associated with them, which make them less desirable in less inflationary housing market conditions than those that have prevailed since the late 1990s to 2007.

The intermediate market – as a tenure between social rented and owner-occupation – is often seen as problematic in the UK, although it is unremarkable in many other countries. In Europe, the market generally provides affordable housing for poorer working households without direct public subsidy (Freeman et al., 1996). Such housing is usually for rent, and is often small and of poor quality. In the UK, the private rented sector has been smaller and less flexible, while, overwhelmingly, people aspire to owner-occupation which is also actively promoted as a policy goal. The market has provided low-cost market housing particularly at times of rapid increases in house prices, usually in the form of small ‘starter homes’ and one-bedroom flats for first-time buyers. Even these may be unaffordable to working households in high-priced areas, and clearly they cannot meet the needs of families.

Access problems arise during each economic upswing when house prices increase faster than earnings, making home ownership unaffordable to increasing number of working households. But in the past the social rented sector in the UK was larger than that of today and aimed to house a broader range of working households, including both public- and private-sector employees. As home ownership has become more important, the social sector has only housed those in priority housing need which usually means those on the lowest incomes, such as pensioners, single parents and unemployed families with children. The choice for many lower-income non-vulnerable households is therefore private renting, which often cannot meet longer-term aspirations.

The context: where does intermediate housing fit in?

Starting from the immediate post-war period, tenure has been particularly strongly delineated in England and more generally in the UK – with different access, different attributes, different financing and taxation regimes, and often quite different types of dwellings available. In the 1950s and 1960s, those who had secure incomes and were able to obtain finance from the highly regulated special circuit of housing finance became owner-occupiers. Achieving owner-occupation meant that households benefited from a generous tax regime as well as from below-market interest rates (Munro, 2007). In part, because of these benefits, the proportion owning rose from under 30 per cent in 1951 to 53 per cent in 1971, but many others who were able to afford to buy were excluded from doing so by limited access to mortgage funds. Over the next decade, these constraints were reduced and owner-occupation continued to grow quite rapidly to 60 per cent of a much larger stock.

However, some 20 per cent of households in 1951, rising to nearly 30 per cent by 1980, lived in social rented housing mainly provided by local authorities. Tenants included large number of lower and indeed middle-income employed households, and there was considerable overlap in terms of household characteristics between social renting and owner-occupation (Holmans, 1970). Social sector rents were based on historic costs and inflation had been rising quite rapidly; so these households also received large benefits through low rents.

Within the private rented sector, the majority of households lived in rent controlled accommodation so were also ‘subsidised’, but by their landlords. Those trying to get into private renting had very limited options and the quality of what was available was often both poor and expensive. Moreover, the size of the private rented sector declined rapidly, from 52 per cent in 1951 to 11 per cent in 1981. There was thus a major crisis in terms of access to adequate housing: If you were excluded from social renting and home ownership where did you go?

Options for government to improve the situation were highly constrained: the costs of increasing the size of the social sector were too high, and changes in the regulatory regime aimed at expanding the private rented sector did not stem its decline, but there was beginning to be some positive movement in the mortgage market. It was in this context that the first attempts at intermediate housing were introduced during the 1970s – including cost rent and shared ownership products, as well as mortgage instruments that offset the effect of front loading associated with rapid inflation on access to home ownership (Booth and Crook, 1986).

At this point the government was looking to (i) produce additional housing, (ii) enable the available subsidy to go further, (iii) help meet the aspirations of those facing high access costs – particularly associated with continuing inflation – and therefore direct assistance at those who could ultimately afford to own to get a foot on the ladder, and (iv) more generally support the government’s objective of a property-owning democracy. The first national policy instrument introduced in the 1980 Housing Act, shared ownership, met all of these criteria in that it applied only to new construction, involved lower subsidy through the rent charged on only part of the property, allowed households to get on the property ladder, and expanded home ownership by bringing in new groups of households.

Although shared ownership has remained part of the package of policy measures ever since 1980, it was not the most important policy instrument introduced in the 1980 Act. This was aimed at expanding home ownership and realising public assets through the Right to Buy. This enabled some 1.6 million households to become full owner-occupiers at a subsidised price and reduced government outgoings. However, the receipts were mainly used for other purposes than adding to the affordable housing stock. Thus, at this stage the government’s objective was simply to increase owner-occupation – and to limit the direct financial cost to government – rather than to build an intermediate market per se.

The big shift towards encouraging an identified intermediate tenure started in the late 1990s as house prices rose more than incomes and outgoings increased rapidly. Thus in 1997, at the bottom of the affordability cycle, average mortgage payments as a proportion of first-time buyer income were 17.9 per cent with the deposit requiring only 11 per cent of annual income. In 2004, these ratios rose to 22 and 21 per cent, respectively – and equally importantly the incomes of those who actually managed to enter owner-occupation had risen faster than average, while the number of first-time buyers fell and more and more households were unable to afford to buy. Access and affordability became increasingly important political issues as households found themselves unable to achieve their expected housing goal of owner-occupation – and saw established owner-occupiers benefiting from capital gains. This scenario led to the introduction of HomeBuy in 1998 – a shared equity product where purchasers received a 25 per cent, zero interest, equity mortgage to reduce their access costs. This took the emphasis off new build and enabled slightly better off households to purchase a home from the existing housing market. Again the political arguments were about achieving aspirations, overcoming financial constraints, providing shallow subsidies (indeed ex post maybe no subsidy at all if prices rose rapidly) and freeing up scarce highly subsidised social housing.

Throughout the 1990s, another opportunity was developing as a result of two things: the introduction of S106 in the 1990 Town and Country Planning Act and the increasing awareness of the problems associated with single tenure social housing estates. S106 made it possible for local authorities that could demonstrate housing need to require a proportion of each larger residential development to include affordable housing. As the number of local authorities using the S106 powers increased and the proportions of affordable homes that they required rose – and as more emphasis was put on the mixed communities agenda – shared ownership became an increasingly important part of affordable provision, accounting for nearly 40 per cent of new affordable output in 2007.

Since 2000, there have been many variations on shared ownership and shared equity instruments as well as varying interest in cost rent products, but the government’s objectives have remained fairly stable: to expand the stock of affordable housing, to support aspirations to home ownership, to make better use of limited social housing stock by enabling better off tenants to leave the sector, to encourage mixed tenure communities and to reduce reliance on government funding.

As can be seen from this short history, like most government policies, the process by which new policy instruments for intermediate tenure provision have been developed has been incremental and responsive to external pressures rather than the outcome of strategic thinking (Stephens et al., 2005). In many ways, the intermediate market ‘just grew’ over a 30-year period. In particular, there is little evidence that the government has ever consciously aimed at a stable long-term intermediate market by which future generations of households can benefit from this investment in affordable housing. Some schemes of this sort do exist – e.g. Community Land Trusts, especially in National Parks – but these are tangential to the core policy instruments. There has also been no attempt to build up a second-hand market in partial ownership – the only option is to sell back to the housing association.

This raises issues as to whether intermediate market policies have simply been ‘documents of their time’ that may become irrelevant in the current recessionary environment and indeed in future scenarios. That depends on whether there are more fundamental benefits that support this type of approach – an issue we discuss in Chapter 2.

Understanding the issues

The scale of the problem

Every UK government since 1945 has embraced the liberal policy goal of a decent home for everyone at a price within their means. For government, however they may choose to intervene, there is a cost attached. The problem then is how to provide a decent home for all at a price they can afford in the most cost-effective way for the taxpayer. This involves identifying the relevant household segment that requires assistance and the extent of the subsidy required if they are to obtain good-quality housing and the government is to achieve value for public money.

In this context, the intermediate market can be defined in terms of the people who can afford more than social rented housing but who cannot access full home ownership or good-quality private renting. This identifies a gap between those who can afford to access market housing and those who are eligible for housing subsidies. Ideally, this gap would be small or non-existent, as successive governments have adopted the policy goal of ‘a decent home for all at a price within their means’ (Hills, 2007), which implies that those who cannot afford such a home will be subsidised. But in practice there are many lower-income employed households who are able to pay more than the subsidised public housing rent yet are unable to access market housing without assistance. These households may be seen as comprising or filling the ‘gap’ between social and market housing. This gap can be conceptualised in terms of housing costs as Figure 1.1 illustrates.

Figure 1.1 Compar...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Contributors
• Foreword
• Acknowledgements
• Glossary
• Chapter 1: Introduction
• Section A: What is intermediate housing?
• Section B: Measuring the problem
• Section C: Securing intermediate housing
• Section D: Who benefits from intermediate housing?
• Section E: Intermediate housing and the economy
• Appendix 1 The products
• Appendix 2 Definitions of intermediate housing for use in negotiating planning obligations
• References
• Index