Shared Ownership ruled misleading: “It doesn’t solve any of the problems it’s supposed to”

 

Lucy came into Shared Ownership with her eyes open. She started her career working with social landlords and the 28-year-old is now a civil servant. Her professional background meant she had a handle on the complexities of Shared Ownership. “My primary motivator was security,” she explains over Zoom. “I wanted to be in a place that was mine, where I’m not going to be made homeless by a landlord deciding to do something else with the property, and where I know I can put down roots for as long as I can continue to afford it.”

 

Whilst Lucy is pragmatic about Shared Ownership as a model, her neighbours, most of whom are in their 30s and 40s, have found the reality disquieting, not least because of rising rents. “We all got a letter in March telling us how much our rent was going up. There’s a WhatsApp group for the building and people were really shocked. None of us anticipated that inflation would rise as much as it has.’”

 

Phillips recently ran an interview with a senior analyst at the Joseph Rowntree Foundation (JRF) who noted that private sector tenants saw an average rent increase of 10% between 2016 and 2022, whilst social rental tenants saw their monthly payments go up by 3% on average. For Shared Ownership tenants the estimated increase was 22% – assuming Housing Associations applied RPI plus 0.5% – describing the imposition of rent increases in line with the maximum allowed as ‘unsustainable’ with JRF saying that this would ‘drive significant hardship’.

 

Social rental tenants saw their monthly payments go up by 3% on average. For Shared Ownership tenants the estimated increase was 22%

 

“It’s also critical to note that [Homes England’s] model lease specifies that annual rent review is on an ‘upwards only’ basis,” she adds. “Shared Ownership rents never come down again, even if RPI does… for shared owners facing unprecedented RPI-linked rent increases at the moment, the ‘upward only’ aspect will be problematic.” There’s a question around why RPI is used on the model lease at all, she points out, given that the measure has been discredited by the Office for National Statistics.

 

But first, some background. In September 2020 then-housing minister Robert Jenrick announced a new Affordable Homes Programme (AHP), in which the government would spend £11.5bn to deliver ‘up to 180,000 homes, should economic conditions allow’. “It is my ambition, Jenrick told parliament, “that approximately 50% of these will be available as affordable home ownership under the new model of Shared Ownership.” At the moment there are only approximately 202,000 households living in shared ownership homes in England, according to the government’s 2021 report Shared Ownership (England): the fourth tenure? – 1% of UK households – but that will soon be increasing.

 

AHP is a subsidy programme, funded by the taxpayer, which Housing Associations or other Registered Providers, can access if they’re building affordable homes. Half of these, as per Robert Jenrick’s Commons statement, will only be available for the development of Shared Ownership. The remaining 50% of affordable homes funded by government and their strategic partners will be rental properties – most of which come with a new right to Shared Ownership attached.

 

There are well-documented concerns from people who have bought, live in or have sold Shared Ownership homes. These include the difficulty of selling properties which have been staircased too high

 

“It’s becoming a big part of the new supply of affordable housing,” says Dr Stanimira Milcheva, a professor in real estate finance at UCL who researches the role of institutional investors in affordable housing. She led the recently-released scoping report for the Department for Levelling Up, Housing and Communities which sets out an evaluation framework for the 2022-2026 Affordable Housing Programme (AHP). “It might be a good product for young single professionals who expect a steep rise in their income over the next few years but cannot afford to buy on their own yet,” she says. “However, Shared Ownership is suitable only for some types of households and might not be suitable for people on low incomes. For them, other affordable products such as social rent should be provided.”

 

This form of partial ownership is now a central plank of affordable housing in England (Wales, Scotland and Northern Ireland have different schemes), with subsidies and grants made available to housing associations and other registered providers to build properties that will be sold in this way. Registered providers include new for-profit entrants to the sector like investors Blackstone, who own and manage $368bn of global real estate and who describe themselves as ‘the fastest-growing provider of affordable housing in England’ through their portfolio company Sage Housing.

 

It is a complicated product. Essentially, it’s a way for people to buy a share in a property, which is usually a new build. Households incur three sets of payments each month: the mortgage – whether they have 10% of the property or, say, 40% – theoretically purchasing additional shares so that they can ‘own’ larger increments of the property, a process known as ‘staircasing’. They also pay rent to a Housing Association on the remaining percentage, plus service charges. Whilst rent is subsidised at the point of purchase (usually at around 80% of market price), the ‘upwards only’, inflation-linked annual rent review policy means it becomes increasingly expensive over time.

Housing associations, developers and investors like Shared Ownership, according to Metropolitan Thames Valley housing association and Cambridge University’s 2020 market review.  “The combination of a long-term rental income plus an initial capital receipt was seen as a strength and a factor that made Shared Ownership both flexible from a business model perspective and low risk,” wrote the authors. Demand for shared ownership properties, they explained in the summary, exceeds supply in some instances by as much as ten to one.

 

Whilst Shared Ownership is usually described as a ‘part rent, part buy’ model, it remains a rental product until tenants have ‘staircased’ to 100% ownership. Legally anyone buying Shared Ownership has an assured tenancy or an assured shorthold tenancy

 

Despite the demand, there are well-documented concerns from people who have bought, live in or have sold Shared Ownership homes. These include the difficulty of selling properties which have been staircased too high (by the time you get to 75% potential buyers might see outright purchase as a preferable alternative); the fact that there’s a smaller pool of mortgages lenders who may offer less favourable terms as they see Shared Ownership as more risky than standard home ownership; issues around not being able to sublet unless you live in the property; and of course, rent increases.

 

There are strategic problems too, as seen in the excess of two bed homes – one respondent to the Metropolitan Thames Valley and Cambridge University report stating that the lack of Shared Ownership opportunities for families could be explained by grant levels that encourage housing associations to build smaller properties. There are other, recurring, problems with Shared Ownership across the country outside of the affordability issue: practicalities around repairs, for example. Shared Ownership tenants are generally responsible for 100% of all costs, regardless of the size of their equity share. Changes announced last year mean that Housing Associations will now cover the cost of external and structural repairs in the first ten years of a new-build home, although of course, such costs may already be covered by building warranties.

 

The ruling from the ASA will change the way Shared Ownership is usually described and advertised typically as a ‘part rent, part buy’ model. Fundamentally, it’s a rental product until tenants have ‘staircased’ to 100% ownership. Legally, explains Phillips, anyone buying Shared Ownership has an assured tenancy or an assured shorthold tenancy, which means that they have no statutory right to reimbursement of equity if they fall behind with rental payments and their home is repossessed.

 

“Shared Ownership is delivered under an Affordable Homes Programme,” Phillips says, “yet shared owners are excluded from rent cap proposals. Of course, many people are affected by the current cost of living crisis. But shared owners face additional challenges arising directly from the nature of the Shared Ownership scheme.” A fundamental issue, she says, is that ‘affordability’ is defined by policy makers on a short-term basis, ‘largely focused on access to a mortgage deposit plus year-one housing costs. “There is,” she says, “much less interest in ongoing financial sustainability and long-term outcomes for shared owners.”

 

The word ‘affordable’ has, of course, been stretched into the realms of unreality

 

Another issue with Shared Ownership is to do with affordability more generally. In London, these properties are mostly bought by people with above-average incomes –  in 2019, Evening Standard reported average income of Shared Ownership buyers at between £43,000 and £50,000. There’s a question of equity and diversity too: in 2020 the GLA reported that households headed by a person of colour comprised a lower proportion of those moving into Shared Ownership than of the general population.

 

The word ‘affordable’ has, of course, been stretched into the realms of unreality. Professor Emeritus at the Institute for Research on Poverty, Stephen Malpezzi told a Bartlett School conference on affordable housing in 2019 that the word ‘contains multitudes’. He listed out the common definitions: what people are willing to pay; what people ought to pay; a moderate amount (e.g rents less than 30% of income), or housing aimed at those on very low incomes. He noted that cities need a wide mix of homes at the top, bottom and middle of the market, and that the most effective approach to improving affordability was reducing poverty, especially in the long run.

 

Charlotte Morphet also knew a lot about housing when she bought a Shared Ownership flat in Vauxhall, near central London – she’s a senior lecturer in planning at Leeds Beckett University and co-chair of Women In Planning. She went into Shared Ownership because it offered stability not available on the rental market (‘you were in a more secure tenancy, that’s one of the main things’) – although one might argue that security of tenure could also be addressed more directly by improving renters rights or tightening up on rogue landlords.

 

It allowed her to buy into a dual aspect two-bed flat with a view of the River Thames from which she could walk into central London, but she sold up and is now a homeowner with a more traditional mortgage arrangement. Selling was fairly easy – ‘because I only owned 25%’ – although it involved paying a percentage-based selling fee to the Housing Association, not on the quarter she owned but on the value of the whole property.

 

There is hardly any academic evidence on who Shared Ownership is suitable for and when it works in the context of affordable housing

 

She experienced various problems including opaque and expensive service charges, and an issue with the heating unit leaking onto electrics that was so legally complicated to address that she ended up having to call the non-emergency Fire Brigade number, adding another task to the workload of an already-stretched public service. “You’re left on your own,” she says. “Shared Ownership doesn’t solve any of the issues it’s supposed to,” she says. “People [in London properties] are professionals with help from the Bank of Mum and Dad, not savings.”

 

There is hardly any academic evidence on who Shared Ownership is suitable for and when it works in the context of affordable housing. “Most studies are based on qualitative evidence as it is very hard to access granular data” says Prof Milcheva. “For example, there hasn’t been centralised reporting of staircasing, for example, which is essential to understand who is able to staircase to 100% and where those people are based.”

 

Unsurprisingly, then, England’s Shared Ownership model is anomalous from an international perspective. Prof Milcheva is not aware of any other country operating anything similar, although she does point out that other countries have equity schemes to subsidise housing. Despite the lack of evidence, it’s a strategy that does have one big political benefit: Shared Ownership is considered an ownership product in terms of government definitions, allowing leaders to state that they’ve increased home ownership.

 

So, what to do? Prof Milcheva takes the long view. “I think we just need to increase the stock of affordable rent products in the locations where homes are most needed,” she says. “In general, relying on the mortgage market for people on low income is very risky. Shared Ownership is not for people on low incomes who will not have substantial growth in their income in the future.” It’s complex and not yet well understood, she adds, describing it as a hybrid of various legislations, of rent and ownership, and borrowing. “There are many moving parts.”

 

Lucy is still in her Shared Ownership flat in Greenwich and knows exactly what her first move would be, if she was in charge of housing in England: capping the level of RPI that landlords can increase rent by. “I’d remove the inflation measure and specify the maximum that rents can be increased by. It’s not a perfect fix but it balances the interests of landlords and residents.”

 

Overall, she’s grateful for Shared Ownership because it’s allowed her much-needed stability, but she is aware of the social cost. “It’s the wrong answer to the housing crisis. It’s helping the wrong group of people. However grateful I am for it, I’d give it up in an instant if there was a better answer to help people in greater need than I am.” The problem, she says, is that we have home ownership products on one side and short term rental arrangements on the other – and we treat the two as totally inseparable: “If we were more creative we could give people security without equity, and still give people a sense of home.”

 

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Emma Warren is an author editor, journalist and broadcaster with experience in lecturing, workshops and youth work. Her book on the history of a London music venue.,Make Some Space: Tuning into Total Refreshment Centre, published in 2019, was named one of MOJO magazine’s top 10 books of the year.