There have been so many government initiatives to help young people buy their first home that it is hard to keep up. Moreover, given the failure of David Cameron’s Starter Homes Initiative — launched in 2015 with the promise to provide 100,000 homes by 2020 but which failed to lay a single brick – it is hard to know how seriously to take them.
But for connoisseurs of this sort of thing there is something new to get excited about. The Queen’s speech revealed a new initiative called First Home (not to be confused with a Scottish government scheme of the same name) which aims to provide a 30 percent discount for ‘local’ first time buyers. That is a whole 10 percent bigger discount than was promised by the Starter Homes Initiative. So the discounts are getting bigger, but will any first time buyers actually get to benefit?
All we know so far is that the government will shortly launch a consultation on the scheme, that it will be funded through ‘developers’ contributions’ – essentially a tax placed on developers when they win planning permission for new homes – and that the homes involved with be subject to a covenant which will mean that they will have to be sold and resold at a discount “in perpetuity”.
This latter provision may prove a bit of a killer as it will limit the profits that first time buyers tend to need to make on their first home in order to move up to the second rung of the property ladder. Say a first-time buyer lives in an area where a new one bedroom flat costs around £150,000 and a two bedroom house £250,000. They struggle to buy the flat and then, five years later, they want to upgrade to the two bedroom house. By then, prices have increased by 20 per cent, so they sell their flat for £180,000 and buy the house for £300,000 – in other words they have to find an extra £120,000, plus moving costs.
But what if they had bought under the First Home scheme? Initially, they find it easier because the flat comes with a 30 per cent discount, meaning they can buy it for £105,000. Five years later they value of most flats like theirs’ has increased to £180,000. However, thanks to the covenant, they are forced to sell it to another first time buyer at a 30 per cent discount. So they have to let it go for £126,000. No longer being first time buyers, however, they have to stump up the full market value for the two bedroom house: £300,000. In other words they will have to find an extra £174,000, plus moving costs, to move onto the second rung of the housing ladder.
This idea has been tried once or twice before – there are some homes in Cornwall with similar covenants – and this has been the stumbling block. Buyers are happy to accept the discount on their first purchase but they get pretty aggrieved when they are forced to sell at a discount, too.
What we don’t know from what has been published so far is how the scheme will define a ‘local buyer’. Will they have to have been born in the parish, like their parents and grandparents before them? Will they have to have lived in the district for so many years before they qualify? Or will they just have to have landed a job in the county? There are some obvious issues here. People often need to move around the country to further their careers – and this is surely something that should be encouraged. It is hard to see why discounts on homes in, say, Sevenoaks, should be available to someone who was born in the town and who now commutes to a high-paid job in the City but not to a teacher or nurse who has moved down from Gateshead to take up a job in Sevenoaks.
It is essential that the government does something to make housing more affordable for the growing constituency of frustrated would-be homebuyers who in an earlier age would have been natural Conservative supporters but who are now losing faith in capitalism as a result of being unable to buy a home. But I am not sure that this policy is going to do the job.