Peers change draft legislation on starter homes and sale of high value council houses

Out-Law News | 19 Apr 2016 | 3:19 pm | 4 min. read

Changes made to the UK government's Housing and Planning Bill will confine the sale of starter homes to those aged 23 or over and require a proportion of the discount on their purchase price be repaid if the homes are sold on within 20 years.

The changes made in the House of Lords last week will also enable councils to take local needs into account when deciding how many starter homes must be delivered.  

Under the government's initial plans, first-time buyers under the age of 40 would have been able to buy starter homes at a 20% discount from market value and sell them at full market value after five years. The House of Lords voted last week to require those benefiting from the policy to repay this discount when the homes are sold, reduced by one 20th for each year for which they have occupied the home. The change means that, in order to retain the full benefit of the starter home discount, a buyer would need to occupy a home for 20 years.

Peers said the amendment would prevent starter homes being used as short term investments to be sold on at a large gain after relatively few years. Lord Best said the new requirement would allow the majority of the initial discount to be recycled and used to provide more homes because "most first-time buyers move on after five to eight years". Peers also said requiring repayment on a sliding scale would prevent distortion of the housing market and a potential decline in the overall output of new homes.

The definition of starter homes was altered to introduce a minimum age of 23 years for qualifying first-time buyers. Parliamentary undersecretary for the Department for Communities and Local Government, Baroness Williams of Trafford, said the new age restriction was designed to prevent the parents of higher education students from buying starter homes in the name of their children and using them as "an investment opportunity".

Peers also voted by 280 to 194 in favour of changing a provision that would have allowed the communities secretary to intervene to prevent councils from granting planning permission if starter homes requirements were not met. The provision was altered to require local authorities to have "regard to the provision of starter homes based on [their] own assessment of local housing need and viability" when considering planning applications.

Provisions encouraging councils to sell their most valuable council homes were altered to prevent the communities secretary from requesting the value of such homes to be paid to central government without parliamentary scrutiny.

As initially drafted, the bill would have allowed the communities secretary to direct councils to make payments representing the market value of "high value" council housing in their area each year. The provision was designed to encourage local authorities to sell off high value vacant homes and the proceeds were to be used to fund the right for housing association tenants to buy their homes.

Peers voted in favour of requiring any such request for payment to be made by regulations subject to parliamentary scrutiny rather than by direct determination by the communities secretary. Baroness Williams also introduced changes to the bill to redefine "high value" homes as "higher value" homes. The baroness said the amendments were intended to address concerns that "some authorities could have all their housing stock defined as "high value"".

Planning expert Lucy Close of Pinsent Masons, the law firm behind Out-Law.com, said: "The amendment to remove the stipulation that planning permission for residential sites can only be granted if the government’s 20% starter homes requirement is met is clearly seeking to address concerns which have been raised over the past few months as to whether starter homes will push out other tenures of affordable housing. The government’s proposals do not grapple with situations where, for example, local policy imposes a 20% affordable housing requirement and yet the national 20% starter homes obligation will essentially already mitigate the affordable housing local policy in full."

"Peers have made clear that they agree with this concern and that although they agree that a 20% requirement may be appropriate in some areas, it will not work in other parts of the country where there are not sufficient buyers who have the financial resources available to benefit from starter homes," said Close. "We expect the submission of viability appraisals with most applications will become the new norm in an effort to counter any pressure from councils to increase the amount of affordable housing above simply starter homes. "

"Although this amendment appears sensible and seeks to address previous criticisms of the bill, it also raises new concerns," said Close. "One of the purposes of the bill is to deliver houses to first-time buyers to assist in reconciling the current housing crisis. However, allowing local authorities the discretion to consider their local need when determining their own starter homes requirement will inevitably lead to some delay in starter homes being delivered."

"Therefore, whilst this amendment may allow for greater flexibility in terms of tenures which may assist more people in the long term, we are likely to see a period during which councils have to adjust to the new arrangements and assess what the local need for starter homes is, balanced against their traditional affordable housing requirements," she said. ""One questions how the councils will establish the need for starter homes and if some will perhaps implement a starter homes register, much like the self build registers"

"Another concern is that buyers of starter homes would need to live in their first home for 20 years before they could realise the full discount applied to that home," Close said. "It is clearly unrealistic for many first-time buyers to stay in their first home for 20 years, particularly as starter homes will be available to only those under 40 whose housing requirements can be expected to change over a 20 year period. So again, although the amendment to the bill to reduce the discount on a sliding scale should help to deter buyers from using starter homes as a short term investment, it does seem to lessen the potential impact of the bill on the housing crisis."

"So perhaps as expected given the passage through the House of Lords was never expected to be plain sailing, we are left in a position where there are potentially more questions than answers in relation to starter homes and we will need to wait to see how the government responds to the House of Lords’ objections.," said Close. "We can expect some negotiation to be going on behind closed doors in order that Ministers can get the Lords back on side without too many concessions to the content of the Bill.  As such it is likely that the Lord's proposed amendments will not be retained in completely the same form as current proposed."