By Ian Bracey | March 24, 2018
Types of “Affordable” Housing
A CLT exists to provide affordable homes and community facilities for local people. But how can a CLT make homes affordable?
Housing is expensive, especially in the Cambridge area, and saving for a deposit is hard. Even renting can be a challenge. Average house prices have reached 10x average incomes. And that’s before you have looked at areas which are higher than average.
There are options to make housing more affordable, some of which are more effective than others. Below are the most commonly used.
This provides the greatest level of support and reduces rents to below market rates and supports them with eligible benefits. This level of support has strict eligibility criteria.
These are homes for rent at 80% of the market rate. There are eligibility criteria but they are not social rent.
These are homes for rent for between 80-100% of the market rate.
This is where you buy a share in a home from 25% up to 80% and pay rent on the remaining part. In order to permanently aid affordability, it isn’t possible to buy the complete home so if you want to own outright you may have to move again. The benefit is it reduces the cost or amount of borrowing, the down side is that you still have to pay rent on the rest which can make it difficult to save more. The value of the house may also continue to rise so it may get more difficult to buy the rest of it. By seeming to make houses affordable it could also make houses prices rise further, undermining genuine affordability.
This is the basis of the Government Help to Buy Scheme. You buy a home with 5% deposit and take an equity loan for up to 20% and a mortgage for 75%. It might seem like it helps, but it is again supporting rising house prices and exposing you to risk. Only a small drop in house prices would entirely wipe out your deposit. The equity loan is interest free for 5 years, but then you have to pay interest, and the rate gradually increases. You could also find that if you want to pay the loan off you have to find more money than you thought, because it’s worth 20% of the value of the house at the time. So if prices rise, you have to pay more. Overall this does nothing to help genuine affordability.
Resale Price Covenant
This is a lesser used method but has potential to keep a home truly affordable. The price of the house is set and then fixed in perpetuity. It can be based on a percentage of the market price, or a relationship to average income. It could also be indexed to rise with inflation, earnings or by other formula. There are different ways to set it up, but the principle are always the same, that the resale price is limited.
The CLT retains nomination rights over the house, so can support the local community.
The downside is that the owner doesn’t participate in any rise in value of the house. But the upside is that the home is affordable and the future value should not be subject to the risk of future large falls.
Other Ownership Options?
There could be other ownership options that we could explore, but all with the aim of making houses genuinely affordable. There may be to possibility to us self build or custom build which would help with affordability by owners doing some of the work themselves. See my previous post about self build possibilities.
What I want to achieve
What we need is something that genuinely improves affordability. That means helping people to pay a realistic amount for housing and not putting their living standards under pressure. I want to develop genuinely affordable houses for all local people. It also gives us the opportunity to do something really positive for the local area and undertake development that is community led and produces high quality houses that suit people’s needs and where they want to live.