Some housing associations are stretching the meaning of ‘affordable home’ to the limit
Patrick Collinson,, Friday 22 June 2012

Probably the most expensive ever new-build by a housing association: Central Square in London EC1, where anyone buying a 25% share of the biggest flat will have to pay £2,322 a month for rent and mortgage. Photograph: David Levene for the Guardian

In a busy road sandwiched between the office blocks of the City of London and the bijou streets of Islington lies what housing association One Housing Group calls a “calm home base where you can recharge the batteries”. The association, which last year received a £20m government grant and says it is dedicated to “building affordable homes”, has developed a block of 60 shared ownership apartments on the site. But if you are a hard-up house-hunter hoping to put your first foot on the property ladder, take a deep breath.

The biggest of the apartments, with a floor space less than the standard three-bed semi but without a garden, are on sale for between £695,000 and £705,000. It is, probably, the most expensive ever new-build offered by a housing association, yet it still meets the official criteria used to describe “affordable” – and qualify for taxpayer support.

Part-buyers of a 25% share in a flat will have to stump up £2,322 a month to cover the rent and mortgage. The housing association says buyers will need an income of £59,000 to qualify, but in reality even that income, nearly double the London average of £33,850, will leave them with little left over after paying the bills.

There are cheaper one-bed flats in the block – they start at £365,000 – but even these require the buyer to pay £1,209 a month for a 25% share.

Last week housing minister Grant Shapps traded blows with shadow minister Jack Dromey over the number of affordable homes being built in Britain. The Tories say they are up 25%, Labour says they are down. But however many are built, are they really “affordable”?

One Housing Group assistant director Matthew Saye says: “Affordable means something that is above social rent but below market levels.” That means that as house prices have escalated in the capital, so has the price of “affordable” homes.

Across the Thames, close to Guy’s Hospital in Borough, lies another shared-ownership development, built by Notting Hill Housing Association and opening this weekend. Potential part-buyers can find out about the 26 flats above shops a short walk from the station, on the First Steps to Home Ownership website.

First Steps has an encouraging message from the Mayor of London, Boris Johnson, to dispirited Londoners fearful of never being able to afford even the tiniest home in the capital. He writes: “This website is London’s gateway to affordable home ownership. My hope is that through First Steps, finding a home to buy will be made easier, and the cost of living in the capital more affordable.”

But the new Beacon development is likely to dash those hopes. When Money researched the First Steps site, we found that the “required earnings” for the biggest of the homes, a three-bedder, will be a minimum of £104,250 a year. Nurses up the road at Guy’s Hospital (average pay around £30,000) might find that a bit of a stretch.

When we contacted Notting Hill Housing Association, it said it had made an erroneous entry on the First Steps site. “The minimum share in these properties is 25%, not 50% as was originally stated on First Steps, so the minimum income required is rather less than £104,250.

“The qualifying income for what are superb three-bedroom properties is estimated at £75,500. While higher than the target income for the vast majority of our shared ownership properties, they still offer an excellent opportunity for those who … find it difficult to get on the housing ladder.”

Many smaller shared ownership flats in cheaper parts of the capital far from the centre have much lower costs. But why are some housing associations charging upwards of £700,000 for “affordable” homes, and who do they think can really afford them?

One Housing Group stands by its belief that the £705,000 homes at its Central Street development are affordable for key workers. “Since the start of June, you can qualify for an affordable housing product if you have a household income of up to £77,200. If you look at this particular property, which is three bedrooms and aimed at a family, the market rent would be around £850 a week [£3,600 a month], so it’s cheaper than going privately.

“If you are a couple of teachers, say, then it would be possible, although I accept it would be a stretch. One of our requirements for shared ownership property is that the purchaser sees a financial adviser. We have had very low levels of repossession at One Housing – maybe just one or two a year.”

One Housing and Notting Hill are not alone among housing associations marketing properties at full market value prices which are 10 to 20 times the salaries of key workers. In Highbury, buyers are being asked for £182,875 for a 35% share of a £522,500 home. The blurb says: “Want to invest in your own home, but not sure you can afford the best areas? You can at Highbury Park.”

In Hampstead, a one-bed flat is on for £335,000, in Marylebone a £600,000 two-bedder is already under offer, while in Crouch End a three-bedder is on offer at £455,000.

South of the river, in Putney, prices for a two-bed flat start at £445,000, and in Brixton the housing association expects £297,500, while in Mortlake, seven miles from the city centre, prices are £340,000.

Many potential buyers will struggle to understand how the mathematics of shared ownership stacks up. At the Mortlake development, for example, the housing association suggests the minimum income needed is £24,000, which will enable the buyer to take a 30% share. But it estimates the monthly cost of mortgage and rent at £1,242, which will take virtually every penny of the monthly take-home pay of someone earning £24,000.

In less desirable areas of London, there are several shared ownership properties where the equation is far less problematic. In Newham, east London, the First Steps site has a resale where the monthly cost for a 25% share of a one-bed is estimated at £585. In Lewisham, a new-build one-bed flat is going for £603 a month, which gives the purchaser a 25% share of a £182,500 flat.

A spokesperson for the Mayor of London, which runs the First Steps programme, said: “First Steps has helped more than 25,000 Londoners on low and modest incomes on to the housing ladder over the last four years, offering a very wide choice of affordable homes across the capital. The mayor has secured more than £627m to deliver affordable homes over the next four years, which will continue to deliver a range of properties across London aimed at meeting people’s diverse housing needs and aspirations.”

He said the average household income of First Steps buyers is around £34,000 and the average purchase price is just under £239,000.

One indicator that shared ownership is struggling, though, comes from the typical share buyers take. In the 1980s when shared ownership began it was typically 50% but now it’s closer to 25%. Not many go above 40% largely because buyers will not qualify for the jumbo-sized mortgages needed to pay today’s prices.

Likewise, “staircasing”, where buyers move up from 25% ownership through to 50% or even 100%, is becoming less common.

The chief benefit for shared ownership buyers is no longer the chance of owning their own place outright, but the ability to access long-term rental subsidies plus a secure tenancy. Taxpayer support for shared ownership mainly comes in the form of a reduced rent for the part of the property the buyer cannot afford to buy. Typically, once in the door, the part-owner/part-tenant will only see their rent rise by RPI plus 0.5% a year.

But PricedOut, the organisation campaigning for first-time buyers and cheaper housing, says shared ownership is not the solution. Spokesman Matt Griffiths says: “When looked at in the cool light of day, shared ownership is stupendously bad policy. It is insane that some of the highest young earners in Britain are having to rely on government intervention to buy 25% of a house.

“It is simply no substitute for increasing total market supply, and in London’s case dealing with a market that is being driven by speculative inflows of foreign money.

“There is very little trading up and if house prices go up further, the gap to the next stage of staircasing grows larger – trapping people in shared ownership. Government should be more concerned with cooling the market, rather than encouraging households to bid themselves up to the hilt with market exposure.”