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25th September 2020

What is affordable housing?

The term ‘affordable housing’ is used an awful lot.  Different local authorities have different policies in terms of how affordable housing should be provided within their geographical boundary.  Percentage rates can vary, in the northwest from 30% through to 40% but then there are also the local authorities that make a financial contribution, based upon the gross development value of the site, the way that affordable housing is funded. For example this occurs in the Oldham local authority area at present.

In reality, affordable housing is a coverall term for any properties that are sold or rented below current market rent or current market value.

For example, properties can be offered for sale at a discounted rate. Typically this will be 80% of market value. This can in effect help purchasers who are struggling to get a deposit. Quite often these discounts will remain in place in perpetuity meaning that the value of the property is maintained, pegged against the movement within the national market and thus remaining affordable stock; however sometimes a phenomenon known as ‘stair-casing’ allows purchasers to build up to 100% of market value. This is more often a phenomenon that is used for the shared ownership model where a property is 50% owned and 50% rented. My own thoughts are that these discount to market value properties should be used as a stepping stone towards full market value properties but that the stock needs to be maintained otherwise the amount of affordable homes for purchase will in effect dwindle.

Just turning back to the shared ownership model – the part-buy, part-rent model, buyers can put down a small deposit, say 5%, on the share they are buying which can be accompanied with a mortgage and the rest of the property is rented.

Although not often thought as, as an affordable housing scheme, the Help-to-Buy scheme is targeted at those on middle incomes who are struggling to save up the necessary deposit to buy outright. The scheme which is now going to be restricted to first time buyers from the 1st April 2021 through to March 31st 2023 means that developers can offer new build purchasers a 5% deposit rate with the Government lending 20% of the equity (more in London) and the buyer can get a mortgage to cover the rest.

On the rental side of things there is affordable rent and social rent. A local authority’s requirement will depend upon their housing needs study and this will therefore determine the mix of affordable housing that they require.

Overall affordable housing is an important part of any housing market. If you make a product unreachable then it is going to be difficult for a market to move on. There needs to be demand and demand will always be driven by price. Because of the performance of the UK property market, the imposition of affordable housing by planning policy has become necessary. One thing is certain and that is the policies determining affordable housing will constantly change. Successive governments, local authorities and developers will all suggest new ways of delivering this important element of our national property infrastructure.

As ever if you have any questions or queries please do not hesitate to give me a call.

Yours sincerely

David Cowburn BSc (Hons) FRICS FAAV
Director – Cowburn Land

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