Trapped in a perverse view of the intermediate housing market 

An opinion piece from Brian Johnson

Brian Johnson, Moat's chief executive

Why is the intermediate housing sector judged by different standards to the rest of the market?

The last 18 months or so have been punctuated by stories arguing that shared ownership and shared equity schemes ‘trap’ people in a situation from which they will struggle to escape. But this no more true than for people living in any other tenure.

The latest attacks have come against HomeBuy Direct, the publicly funded shared equity scheme, in comment pieces in the Investor’s Chronicle and the Estates Gazette. But shared ownership has faced numerous, unevidenced attacks too on the ability of people to move on or move up once they have bought into the sector.

A highly pejorative article in the Estates Gazette in early April indicated that HomeBuy Direct buyers have relatively poor income growth prospects compared to ‘professionals’, are likely to have children quicker and probably more of them, and implied many would be unemployed – ‘youngsters kicking their heels’. These people, it suggested, would be creating the blighted, sink estates of the future.

I’ll pause a moment while you re-hinge your jaws…

The Investor’s Chronicle wondered what happens when someone who has only bought 70% of the equity of a home wants to move, have a family or splits up with their partner. It quotes a real estate analyst saying natural renters or social housing tenants are being brought into a ‘pseudo-home ownership situation’.

These are extraordinary attacks, utterly blind to the reality of the housing markets we are faced with.

Let’s think for a moment about the situation of a first time buyer who purchased in the open market anytime between 2005 and 2007 on one of the 95%, 100% or even 125% mortgages that were floating around like confetti at the time.

Many will currently be sitting in negative equity. What happens if they want to move, have a family, split up with their partner? What happens if they lose their job? Why are they somehow in a better situation than a person who has bought through HomeBuy Direct?

Are HomeBuy Direct buyers somehow an entirely separate species, subject to entirely different economic forces to the rest of the population?

Of course not. With an upper household income threshold of £60,000 to be eligible for the scheme, many are professional young people in the relatively early stages of their careers or key workers, building careers in safe and vital public services with excellent long-term prospects.

Our analysis of over 330 households who have bought HomeBuy Direct properties through Moat in the past year shows around two thirds of them have incomes of over £30,000 and over a quarter of buyers have incomes over £40,000. These are people in decent jobs, yet unable to afford our still ridiculously expensive open market in housing.

Let’s look at their ‘choices’ of private renting or becoming social housing tenants.

Privately renting a home of the same quality as they can buy under HomeBuy Direct would, in most cases, be more expensive in monthly costs than their 70% mortgage and interest on the 30% equity loan (which only kicks in after five interest-free years).

Get a social rented home? Are you kidding? The people who buy through HomeBuy Direct or shared ownership generally have little or no priority for our highly rationed social rented housing by virtue of their income.

The main reason the intermediate housing market has developed so quickly over recent years is the dysfunctionality of our housing markets. House prices have galloped away from income growth to become grossly unaffordable to people even on well above average salaries. In 2008 it required an income of nearly £57,000 in England to buy the average home. In London you needed an income of £93,000, in the South East it was £69,000. But in 2009 house prices went up regardless.

Meanwhile, our social rented housing sector is way too small for the volume of people who need subsidised housing. In the last five years the overall social housing stock has fallen 5% and social housing lettings have fallen 30%. There are over four million people on social housing waiting lists around the country.

The linking factor through all of this is the horrendous mismatch between housing supply and demand. We are not building enough homes for either the open market or the social rented sector. Last year we built just 118,000 when we need to build double that to meet housing requirements. With our population continuing to rise, every year we fail to build enough homes puts more upward pressure on house prices and more pressure on our very limited social housing stock.

Nowhere in the knocking copy on intermediate market housing are alternative solutions proposed. The reality is shared ownership and shared equity are excellent housing products for the situation we find ourselves in.

We are all trapped in some shape or form by our individual financial circumstances. There are plenty of open market home owners in London, for example, who would dearly love an extra bedroom for their expanding family, but who have found that the market has moved beyond their ability to afford it. There are many in social rented housing who would love to have the money to buy a home. But they don’t have it. Where are the stories about these people being trapped?

What’s new? This is how the housing market has always operated. Why suddenly decree that this is a problem for one sector only? Plenty of shared owners and shared equity buyers find their incomes improve as they go up the career ladder and they can make the move they want. Others find it more difficult. Just like everyone else. 

The people who attack these important schemes need to develop a more rounded view of our housing markets and understand the dire housing straits many people find themselves in as a result of nimbyism and a planning system that fails to deliver the volume of housing we need as a country.