As prices continue to rise, it is becoming increasingly difficult for first-time buyers to get onto the housing ladder, and we will see a growing number of people remain renters their entire lives.
While it was initially thought the Covid-19 pandemic may put a stop to this, the average house price quickly resumed its climb, breaching £240,000 for the first time during the second quarter of the year.
This coincided with a drop in transactions from first time buyers, who now make up less than 25% of the market, compared to mortgaged movers who dominate the market at 36%.
Although the unaffordability of the UK housing market – which has been dubbed a ‘crisis’ – has been well documented, solutions have been slow to emerge.
With government entities retreating from the provision of affordable housing, the space suffers from a lack of funding.
However, we believe the emergence of shared ownership models and affordable retirement housing – funded from private capital – could alleviate the dearth of affordable homes in the coming years.
Once investors recognise the benefits of investing in affordable housing – namely the near unlimited demand for social housing, the 99% rate of rent collection and the inflation-linked nature of these long-life assets – we expect the space to take off.
Moving in the right direction
The affordable housing space in the UK has until now been dominated by not-for-profit housing associations.
However, the ability of these debt-funded associations to invest in new developments has become restricted, with many reaching debt capacity constraints.
In addition, they are now being forced to dedicate more resource to building upgrades – including fire safety improvements in the wake of the Grenfell Tower fire and energy efficiency ameliorations as regulatory requirements tighten.
As a result, a number of for-profit registered providers of affordable housing are entering the space, benefitting from government grants.
With Help to Buy set to expire in 2023, shared ownership will become the dominant route to affordable home ownership, as set out under the Affordable Homes Programme 2021-2026.
Indeed, 50% of government grant money will be dedicated to shared ownership housing, supporting the development of 90,000 homes over the next five years.
However, more investment is needed if the UK is to deliver the estimated 100,000 new affordable homes required each year to meet demand.
Shared ownership provides an optimal solution for average earners to get onto the housing ladder.
Through a part-buy, part-rent model, owners can purchase a stake in a home with a very low deposit – indeed, much lower than under Help to Buy – and pay below-market rent on the rest of the equity.
Through a process called staircasing, they can also increase their stake in the property over time.
Quality is key
While the intentions of shared ownership initiatives are universally acknowledged to be positive, the execution, delivery and management of some schemes by housing associations has been met with criticism.
Already, more than a quarter of existing social housing does not meet basic quality criteria.
Therefore, in order to truly make a difference, shared ownership developments must be designed and managed to high standards with transparent and affordable ongoing costs.
We believe it is important shared owners are treated like traditional owners.
We manage almost 1,000 shared ownership homes and 3,500 rental homes, with plans to deliver an additional 5,000 shared ownership homes by 2026, and either manage the properties through our in-house property management and lettings teams or work with other property managers to ensure properties are managed to high standards.
For example, we seek out properties with minimal service charges and ground rents, commit to not increasing rents by more than RPI+0.5% each year and eliminate additional fees.
Shared owners in our newly acquired portfolio of properties in Barking, Basildon and Ilford, managed by Swan Housing Association, can buy a further 1% of the value of their home each year, without incurring extra costs, and can extend leases for only £1.
Rethinking retirement housing
In the retirement housing space, there is also a shortage of affordable rented accommodation.
The number of elderly people who have never been able to get a foothold on the property ladder is increasing, while many who have are realising the owner-occupied model no longer makes sense.
The loneliness epidemic, highlighted by the Covid-19 pandemic, has led many to reconsider their choice of living alone, and the transaction and maintenance costs of home ownership act as another deterrent.
We are seeing increasing developments in the specialist independent living rented accommodation space, which allows people to function on their own, but with access to a peer group and amenities promoting healthy living.
Currently, less than 1% of UK retirees live in retirement communities, compared to about 6% in the US and Australasia – showing how much room the sector can expand.
However, developments are largely being directed at the top end of the market, with monthly rents of about £3,000, necessitating a yearly pre-tax retirement income of about £60,000.
There is very little investment going into affordable accommodation, which makes the space ripe for investment.
With scale and understanding of the market across the country – through owning 3,000 properties of this type – we are able to offer a solution for average earners in retirement, with rents of about £700 per month.
More solutions of this type will be needed to meet the demands of the growing 65+ population in the UK, which is set to increase by 22% over the next 30 years to 15.1 million.
Ben Fry is manager of Residential Secure Income Plc (ReSI) and head of housing investment at Gresham House
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