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24 Aug
First Homes

Baby, the First Home is the cheapest...

Now we have had some time to come to terms with the Government’s introduction of First Homes, it has been a busy old summer determining the practical implications for all our various clients’ needs in the NW and beyond – which it is fair to say are diverse; some see the changes as onerous additional burdens with others seeing potential opportunities!

One thing is for sure, the introduction of First Homes shows a firm commitment to the housing reform agenda.  A reference to the product as ‘preferred affordable housing tenure’ is a clear demonstration of that fact.  We are now squarely in the transition period until this starts to take force and Council’s determine the direction, they wish to take things.

What does the introduction of First Homes Entail?

For those that have missed it, the Government has brought in a new type of affordable housing which must be planned for and incorporated into residential schemes.  ‘First Homes’ will make up 25% of all affordable housing provision and will be available (in perpetuity) to owners who meet specific criteria. The principle being that the scheme will enable qualifying first time buyers to benefit from discounts of up to 50% of open market value.

Across the spectrum of land promotion and planning applications facilitating development proposals, First Homes will require plots to be provided for this particular tenure type and developers will have to fund provision off site.  In Development Plans, both emerging and adopted, policies now need to take account of the new requirements, with various transitional arrangements in place for both plan-making and the determination of applications.

What it means for schemes is that a minimum of 25 per cent of affordable homes secured via section 106 agreements will be required as First Homes.  Within the remaining 75 per cent of affordable housing, the full requirement for Social Rented properties must be provided unless the need would cause a reduction in the First Homes provision.  Any other tenure type is to be secured in the relative proportions set out in the development plan, again, where it would not impede delivery of either First Homes or Social Rented proportions.

The price expectation for First Homes is for them to be discounted by a minimum of 30 per cent of market value, with higher minimum discounts at 40 or 50 per cent required if local need can be evidenced. The discount will be locked into the property in perpetuity and passed on to future purchasers.

The initial sale price, after discount, must not exceed £250,000 outside London and purchasers of First Homes must be first-time buyers with a household income not exceeding £80,000.  Additional criteria can be set locally, such as a lower income cap or priority for key workers. 

What does this mean for Developers?

Unfortunately, it is clear that this will lead to tensions as the potential additional burdens are placed on emerging development proposals in this time of fluidity.  In the short term, for example, we might find that viability appraisals accompanying planning applications put pressure on less valuable housing types, such as rented tenure, in order to deliver the minimum requirement within the overall affordable housing mix.

The tension arising from First Homes is also geographical. Research undertaken by Savills highlights the disparities between qualifying incomes across the country. In 44 local authorities across the Midlands and the North, the income needed to buy a 2 bedroom First Home is under £20,000, however, across 40 other boroughs in and around London, the income requirement is £50,000. In summary, the ability of development schemes to deliver affordable family housing under the First Homes scheme could be limited and disproportionate across large parts of the country. In practice this may lead to a higher provision of smaller units.

The challenge of resourcing remains a critical issue across many LPAs. The First Homes guidance notes allow for a transition period for decision making. To qualify, applicants must have been involved in ‘significant pre-application engagement’ ahead of a submission on the 28th of March 2022. Leaving aside the subjectivity of ‘significant’ discussions, the most pressing matter comes down to resourcing and actually being able to get in front of planning officers. In recent months NJL have experienced a number of Planning Authorities halting pre-application advice requests due to workloads and resourcing. This friction between the need to demonstrate proactive pre-application discussions with the immense pressure LPAs are currently under could present some hurdles as applicants navigate the transition period until March 2022. It is likely that applicants will need to look to other applications and rely on precedents to guide the way for the coming months if pre-application discussions are not forthcoming.

What's next?

As we remain in the transition period, there will undoubtedly be some teething problems as Local Authorities, developers and consultants work through the requirements and balance the emerging policy requirements with the need to deliver a range of homes across types and tenures whilst retaining viable developments. At NJL we see the potential benefit of First Homes and support anything that will make it easier for a greater x-section of the working age population to own their own homes and have options in the marketplace.  As with any new agenda and policy requirements, we will work with our clients to deliver viable and workable development schemes.  

So far, we have had some really good conversations with various clients and authorities about the art of the possible. This highlights the general agreement on the need for First Homes as well as the willingness across both sides of the development process to work together to deliver this product. However, as with any tenure requirement, the understanding and implementation needs interrogating, and it is likely to be a rocky road for it to be absorbed fully.  In the short term, there will be uncertainty over LPA position and flex on how it sits next to pre-existing affordable housing requirements. Furthermore, this is likely to lead to the ongoing debate about how to then make schemes more viable and the longer term issue of evidence bases providing the basis to target more significant product discount requirements.

In summary, NJL foresees the following scenarios arising through the transition period and beyond: 

  • Timing is everything – moving towards settled positions and understanding LPA evidence and position on FH incorporation
  • Viability will continue to be the challenge and the flexibility / pragmatism of LPAs to work with developers
  • Exception sites may be made less attractive for promotion with less return
  • Short term – getting sense out of LPAs at pre-app stage before deadline for ‘significant pre-app discussions’
  • Setting the right type of property for a First Home – how it is dictated
  • Evidence bases - In the longer term, there might be changes and challenges to the overall affordable housing mix and tenure requirements in emerging policies.

If you wish to discuss the implications of First Homes in further detail, please contact mark@njlconsulting.co.uk

 For an optimum reading experience, we recommend this soundtrack... https://www.youtube.com/watch?v=dK9eLe8EQps 

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