As someone in my mid-20s, with most of my friends being between 25 and 30 years old, the topic of conversation often turns to housing.
Being on similar trajectories in the last few years we began scouring various property sites looking for places to rent or buy. Whether the properties are near where our employment, or near where we grew up and our existing networks, we all agreed, there is nothing worth spending money on.
I can’t quite convince myself that spending over £1000 per month for a bedroom in a dull residential area of London is value for money, although thousands of people my age do this nonetheless.
Recently, when searching the usual housing listing sites, we noticed an increasing trend of properties – almost always new builds – being listed as “Shared Ownership”.
The prices of these properties seemed a lot more affordable, so we began some in-depth Google research on what exactly Shared Ownership entailed.
In basic terms, Shared Ownership allows you to purchase a percentage of a home, which reduces the deposit and monthly mortgage payments, however, you need to pay rent on the percentage you don’t own.
We struggled to wrap our heads around it. Why would anyone buy a portion of a house?
What does Government say?
Here’s a summary from the Gov website:
“You can buy a home through the shared ownership scheme if you cannot afford all of the deposit and mortgage payments for a home that meets your needs.”
“You can buy more shares in your home in the future. This is known as ‘staircasing’. If you buy more shares, you’ll pay less rent. The amount of rent you pay will be based on the landlord’s share.”
Where did the idea come from?
The concept of shared ownership was conceived as a way to increase homeownership rates, especially in cities like London which has seen explosive growth in property prices over the last 30 years, whilst incomes have hardly budged. Leading to eyewatering price-to-income ratios.
In London, the average home is nearly 14 times the average income, as recently as the 90’s it was only a little over 3 times income.
In short, people can no longer afford a whole house, so we have resorted to selling a portion of the house and renting out what’s left.
Who benefits?
Well housing associations, for one, love Shared Ownership; it allows them to recover some of the initial cost of the development quickly, but without losing the long-term regular rental income – which their investors rely on.
The housing association will also make a lot of money from service charges which can vary massively.
But what about people like me and my friends? Should we be lining up to get our hands on one? I’m not convinced.
The Issues
It’s still only a tenancy agreement, just with a very large downpayment. The Housing Association will retain ownership of the property until you purchase 100% of it. This means, if you fall behind on rental payments and get evicted, you will lose all of your “equity” on the share you thought you owned.
Property prices are still rising year on year, so if you can only just afford a 25% share today, it is unlikely you will be able to save enough to buy another 25% in a few years, as the price will have gone up.
It can also be difficult to sell your share should you wish to move out. I originally thought that the Housing Association would be legally bound to buy your share from you at the market price whenever you wanted to move, however that isn’t the case. The housing association will want you to stay put whilst they try to find someone interested in moving in. This might be more achievable today, but what if the popularity of these schemes falls off a cliff in a few years – you’ll be facing serious trouble.
Conclusion
Help-to-buy, First Homes, 95% Mortgages, and Shared Ownership are all cut from the same cloth, and are another flavour of demand-side measures we have become very familiar with in the UK.
They are merely sticking plasters trying to cover the gaping wound of 4 million missing homes that should have been built in the UK over the past 3 decades.
The UK doesn’t have a demand problem, there is no shortage of demand for houses. We have a huge supply problem and there is only one way out of it.
We must build.
And we’re trying. There are plenty of good developments proposed currently; only recently Ballymore submitted plans to spend 1 billion pounds regenerating the stricken Broadwater shopping centre in Edgware – delivering 4000 homes in the process – but local residents, councillors and MPs have mobilised against the plans.
I also attended a planning consultation recently in Milton Keynes, which was recently bestowed city-status, and heard extreme opposition to a very lovely looking development proposed in Campbell Park. This, in theory, would provide some 1500 homes overlooking the grand union canal.
It’s become increasingly clear to me, and a lot of the Development & Regeneration interim specialists that I work with, that the only way out of this crisis is to worry less about the concerns of current residents and focus on the needs of future population.