Knight Frank Affordable Housing Review 2009

14 September 2009

Knight Frank’s latest affordable housing review investigates the outlook for this critical market sector. At a time when affordability issues are as prominent as ever – with first time buyers finding severe difficulties accessing mortgage finance; the review asks how on earth we have arrived at a situation where 90% of UK households are potentially eligible to access state aid to cover their housing costs.

Liam Bailey, head of residential research, Knight Frank, commented: “The affordable housing world will be changed for good by the current recession. There is simply not enough money – from the public purse or the private sector, to subsidise new development for a long time. The sector needs to do more with less and affordable housing providers are going to have to work their assets harder to support more affordable development.
One of the most notable changes in affordable housing in its broadest sense, has been the growth of groups eligible to apply for subsidised housing. There has already been a shift away from key worker eligibility status towards income-based assessments. In the UK, £60,000 of household income is now the accepted limit for eligibility for access to most shared ownership schemes and there is talk of this limit being raised to £74,000 in the capital. In London Boris Johnson, the Mayor, has equated eligibility to cover everyone paying basic rate income tax.
ldquo;This is a remarkable situation to find ourselves in – and something which points to the real need for an expansion of delivery of housing across the board to improve access to housing.
“Despite lower houses prices, affordability is still a serious issue. When we consider mortgage financing, the market is arguably more unaffordable and inaccessible for the average first time buyer than at the peak in 2007. Lower property prices have not meant improved affordability.
“Despite house prices falling by 15% or 20% on average, the proportion of a buyer’s income required to secure a mortgage, has only come down 1% - 24% of a buyer’s income was required to secure a mortgage at the peak in 2007 and now it has only come down to 23% by mid 2009, despite the fact they need to secure larger deposits than in the past. So the situation for first time buyers is pretty tough.
Sue Cocking, head of affordable housing, Knight Frank, added: “One of the most significant changes to affordable housing policy will come if there is a change of government between now and June 2010. There is growing interest in understanding what future Conservative Party policy will be. The most useful guides are the party’s green paper Strong Foundations, which was launched in April 2009, and the emerging London housing policy under Boris Johnson – which is the test-bed for Conservative thinking in this area.
“There are several areas of emerging Conservative thinking that seem to make good sense. Their principle objectives are to increase flexibility in the sector, the idea being that more people ought not to consider social housing a tenure for life, and that entry and exit from the sector should become more common than at present. The weakness of the party’s proposals seems to centre on the fact there are lots of areas where they are sure about what they will do – scrapping house-building targets, regional development agencies, HIPs and eco-towns, but they are short on detail on how they will secure funding for more development. There is also limited information on how power will be devolved to local communities.
“Without clear thinking on this issue there is a risk that local communities could simply oppose new developments, and that the quantity of new supply simply falls across the board.
“The general drift of policy towards a blurring of the boundaries between private, intermediate and affordable housing is the right decision to make. The different experience of the housing rich (older, affluent groups with high equity stakes in property) versus the housing poor (younger groups with limited savings) means there is no option but to consider intermediate housing as the future growth sector.
“There is a real opportunity for developers, housing associations and investors to make money in this space and if we could ask for one policy change to aid this process, it would be that the HCA is given far more flexibility regarding subsidy allocation – to blur the boundaries between different housing sectors even more. This would be a key way to help build more housing, and to tackle the critical issue of under-supply”.