Paper submitted to ENHR Working Group - Home Ownership and Globalisation Conference: Building on Home Ownership: Housing Policies and Social Strategies Delft University of Technology, the Netherlands
November 13th and 14th 2008
Dr Alison Wallace, Centre for Housing Policy, University of York. aw152@york.ac.uk
Moving on from shared ownership? Mobility in the intermediate market.
Abstract
Facilitating access to homeownership is a key component of housing policy across the UK as it addresses a number of ambitions, for both low to middle income households who aspire to own their own home and to the government who want to encourage asset-holding and the development of personal safety nets. Primarily these objectives are met by the expansion of a variety of low cost homeownership products on a shared ownership or shared equity basis, available largely to first time buyers and promoted as a ‘foot on the housing ladder’. Much research in the UK has examined issues that relate to the potential demand for these products and the owners’ satisfaction with their home after purchase, but little has been known about the longer term outcomes for low cost homeowners,
particularly with regard to whether or how people who purchased their homes using one of these low cost homeownership schemes are able to move on once their aspirations or housing needs change. This paper addresses these concerns by examining the mobility of shared owners across six case study areas across the UK.
1. Introduction
There has been a rapid expansion of shared ownership and shared equity low cost
homeownership (LCHO) schemes, with the number of shared ownership properties alone increasing by 40 per cent between 2000 and 2008 (CORE data). The LCHO schemes largely provide public subsidies to first time buyers and other priority households to access homeownership by purchasing a equity stake or share in a home. These schemes have been at the forefront of government policy for households who would not otherwise be able to afford to buy and now represent a third of new public subsidies for housing and a half of all housing association new business (Hills and Lomax, 2007). In exploring the processes and outcomes of mobility amongst households who part-bought part-rent their home through public shared ownership schemes in the UK this paper considers the targeting and expansion of low cost homeownership in the future.
LCHO schemes are geographically concentrated in areas experiencing high housing
affordability problems but have also been used to create mixed tenure communities in areas of regeneration (ODPM, 2005). In some areas, like Milton Keynes in England, shared ownership represents around 5 per cent of the local housing stock and in London, Wilcox and Williams (2007) estimated that 10 per cent of first time buyers had in 2006/7 purchased their first home using an LCHO product, suggesting that LCHO schemes have a
Since the advent of the ‘credit crunch’ a year ago the housing market has entered a period where house prices are declining at a rate faster than in the last housing recession of the early 1990s, and with transactions in the market place having fallen to below 50,000 a month in July 2008 for the first time since 1996 (Land Registry), and have no doubt fallen further since then as the continuing turmoil in the financial markets unfurls. But
interestingly, at this time the government continues to promote LCHO schemes as a response to the current housing market downturn. Although prices are falling, which we may have assumed would improve the affordability of housing, the constraint in the mortgage markets has meant finance is more expensive and larger deposits are required from first time buyers to enter homeownership, and so the affordability problems of the housing boom remain in this period of housing bust (NHPAU, 2008). The Rent to Homebuy and Homebuy Direct scheme have been designed to meet first time buyers’ aspirations and overcome constrained mortgage lending criteria and remove unsold surplus stock from housing association and private developers in the housing market downturn. Furthermore, despite the difficult market conditions, in terms of prospective housing reforms and the future of social housing in the UK, LCHO schemes remain much mooted for low-income working households who would be encouraged to leave social housing if their
circumstances improved and enter shared ownership (Hills, 2007; CIH, 2008). So, despite a falling housing market and unprecedented uncertainty in the financial markets, a study of the LCHO sector in the UK remains pertinent.
2 Homeownership
Undoubtedly, homeownership enjoys high levels of support amongst the public (Pannel, 2007; Parke et al., 2005), although this support amongst low-income households was recently qualified as being a proxy for safer neighbourhoods and not necessarily a desire for the investment aspects of the tenure (Edwards, 2006). Support for homeownership did weaken during the 1990s following the last housing market recession in the UK, but bounced back to record levels, although support from younger households remains weaker (Pannel, 2007). Indeed, the decline in the rate of homeownership amongst young
households is a matter of concern as first time buyers inject liquidity into the housing market, thus supporting transactions further up the chain (Andrew, 2006) and because their absence signals a possible contraction not expansion of the homeownership market in the future (Williams, 2007). This is a concern to policymakers because of the perceived benefits from homeownership. Rohe et al. (2000) suggest that in addition to asset
accumulation, homeownership also brings citizen benefits to the individual household, their commitment to their home and the neighbourhood.
Nevertheless, the government had an ambition to meet the widespread aspirations to homeownership by expanding the tenure from the present 70 per cent to 75 per cent
(ODPM, 2005). However, such a large expansion in a mature homeownership market could only be achieved by subsidising access to the tenure, drawing in and therefore increasing risks to, more marginal households (Lyndhurst, 2006; Hills and Lomax, 2007). However, the policy emphasis on homeownership is once again called into question as it seems the tenure may have reached its natural ceiling in the UK (Williams, 2007; Lyndhurst, 2006) and the implications that buying a home is the only way to secure a good home or assets is challenged (Maxwell and Sodha, 2006; Edwards, 2006; Bill et al., 2008). Homeownership as a substitute for social welfare policy is also criticised as encouraging people onto a housing ladder that involves personal risk and debt could result in greater social exclusion rather than less asset poverty (Jarvis, 2008:229).
Notwithstanding, homeownership as a tenure in the UK remains the norm (Ronald, 2007; Gurney, 1999), and for the government the continued promotion of the tenure offers mutually beneficial outcomes, as it receives maximum political returns by meeting aspirations at minimum fiscal costs (Boelhouwer et al., 2004).
3. Low Cost Homeownership
LCHO schemes have existed in the UK since the 1970s (Munro et al., 2005) but were used infrequently until the 1990s and 2000s. There were a number of objectives for the recent focus on subsidising access to homeownership and the considerable expansion of the LCHO sector in the last decade, which included the following:
• To provide a chance for people to accumulate assets,
• To enable people to meet their aspirations to homeownership, • To create mixed communities in regeneration areas,
• To free up social housing units by tenants buying LCHO homes (ODPM, 2005)
In addition, a prime driver of the most recent expansion of LCHO schemes must be the opportunity it has, until recently, provided to housing associations to generate surpluses from new and repeat sales or ‘staircasing’ from owners as they move on or purchase additional shares in their home; surpluses that have been used to cross-subsidise social rented housing (HC, 2008). Many of the above objectives for LCHO schemes are therefore fiscal, reducing the need for public subsidies in other areas of housing or welfare policy. However, the outcomes for low-income homeowners attracted to these schemes must not be sidelined in favour of the reduced burden on the public finances.
Increasing access to homeownership through LCHO schemes has only been achieved through drawing more marginal households into the tenure, which represents a risk
(Lyndhurst, 2006). Although there are perennial concerns regarding the correct targeting of LCHO schemes, the proportion of ‘deadweight’ is thought to be minimal (Bramley et al., 2002). Indeed analysis of existing shared owners in the UK reveals that these households have less professional jobs, have lower wages and lower deposits than traditional first time buyers (Wallace, 20081), suggesting targeting is largely correct. Although it is arguable that some households have used the schemes to buy earlier and buy better than they would have done otherwise. New entrants to shared ownership are mostly single person households, in particular single women, and in previous years lone parents have also been attracted to shared ownership following relationship breakdown. Although, many potential purchasers of these products find the schemes complex to understand (Thompson and Flanagan, 2006, Housing Vision, 2008) or question whether it is the best way to purchase (Harries et al., 2008), evaluations of the various LCHO products show that shared owners have reasonable levels of satisfaction with their homes (Bramley et al., 2002; Clarke et al., 2007).
1
The data about mobility in this paper is drawn from Wallace (2008) a project undertaken on behalf of the Joseph Rowntree Foundation that looked at the process and outcomes of mobility amongst shared owner households across six case study areas of the UK – Glasgow, Belfast, Cardiff/Newport, Milton Keynes, Cornwall and Brent and Kensington and Chelsea in London. The study’s findings drew upon analysis of several statistical and administrative datasets, a survey of shared owners, interviews with professionals involved in the LCHO market and shared owners who had, or were in the process of, moving and those who wanted to move but had not done so.
However, little is known about the long term outcomes for shared owners. For example, the sustainability of low cost homeownership in anything other than a benign housing market has not been examined, and some concerns about arrears have recently been aired within the sector (Roof, 2008). Furthermore, NACAB (2008) suggest that the government have paid too much attention to the initial affordability and entry price of homeownership and too little about the sustainability of low income households who have bought their homes using an LCHO product. Clarke et al. (2007) found many shared owners had high housing costs in relation to their income and were unlikely to sustain additional costs.
However, shared owners also occupy a unique position straddling as they do two tenure, owning and renting. Whilst support for low-income or unemployed homeowners in the UK is limited, shared owners remain eligible for housing benefit on the rented portion of their home. Shared owners may also have access to ‘down-staircasing’, whereby the housing provider buys back all or a portion of the property, either reducing the shared owners’ exposure in the market or converting the shared owners’ occupation to a fully rented tenancy. So although shared owners may comprise a greater risk profile than traditional first time buyers, they may also have recourse to safety nets unavailable to other first time buyers. Nevertheless, in difficult housing market and economic conditions, it is reasonable to express concern regarding the ability of many low cost homeowners to sustain their homes over the long term.
Another long-term outcome that until now has received limited attention is that of mobility within the LCHO market. One outcome claimed, or implied in the marketing of many shared ownership schemes is the prime goal of achieving full homeownership as and when the household’s circumstances improve. Traditionally, shared ownership has been
conceived as a transitional tenure between renting and owning with an impermanent status. In this vein many LCHO properties are marketed on the basis of being a ‘first rung’, ‘first step, or ‘first foot’ on the housing ladder. Indeed, much of the popular discourse
surrounding the sector in the media, conference or government reports reflects these
epithets, all of which carries the implication that there will be further steps, rungs or feet on the ‘housing ladder’ that purchasers of these properties will be able to travel. Bramley et al., (2002) suggested there were reasonable opportunities to move on but this was not central to the evaluation of the sector. Little is known about the extent to which this transition to homeownership occurs or how, if it does it is achieved, given that shared owners could not at the outset afford open market values. The purpose of the study reported in this paper was to fill this knowledge gap.
Having set out the background to the recent expansion of LCHO properties in the UK, this paper draws upon a recent research project and considers whether LCHO schemes are the ‘stepping stones’ to full homeownership as commonly assumed? The paper continues in section 4 by looking at rate of mobility within or out of the sector and the outcomes for moving shared owners who were involved with this study. Section 5, 6 and 7 consider the households, housing market and housing associations factors that facilitate or act as a barrier to shared owners wishing to move on to full homeownership. In section 8 the paper provides some broad conclusions about how shared owners can be assisted within it and the sector more broadly.
4. Mobility outcomes for shared owners
Residential mobility is important so that households can move to access employment opportunities and satisfy their housing needs or aspirations. However, the Survey of
English Housing (SEH) shows that mobility has declined for homeownership and social renting across the last decade. Table 3.1 shows that the rate of mobility amongst the private rented sector has moved around the 40 per cent mark, compared to homeowners with a mortgage, which has declined from 10 per cent in the late 1990s to around seven per cent by 2005/6, levels last experienced in the last housing market recession, although in 2005/6 the housing market was yet to reach the peak of this last cycle.
Figure 1.1 Households moved in last year by current tenure (1984-2005/6)
Source: S212 Survey of English Housing CLG
The ability to move on was a matter of concern for the Hills Report into the future of social housing in the UK (Hills, 2007), and yet it appears that shared owners have lower rates of mobility than any other housing tenure. Although the data available in the sector is poor, the best estimates from London housing associations and a small survey of housing associations from the study reported in this paper suggest that the mobility rate amongst shared owners is around 3-5 per cent a year, a rate that is comparable to older homeowners without a mortgage than people who own their first home who move on more frequently than other homeowners.
The key reasons for shared owners wanting to move was to obtain a larger home; for family reasons, which included expanding and starting a family and for reasons such as moving closer to older parents; and to move to a better neighbourhood.
Moving to a larger home was cited as a reason to move by 30 per cent of shared owners. SEH data reveals that traditional first time buyers most frequently have one or two
bedrooms above their needs compared to shared owners who do sometimes have one spare bedroom but also are more likely to have no spare bedrooms. Around five per cent of shared owners are also overcrowded, compared to around 1-2 per cent of first time buyers. The shared owners in the study survey were mostly in two or three bedroom houses so it may be the case that shared owners are even more likely to report the need for larger accommodation as their reason to move in the future, as they are now typically purchasing one and two bedroom apartments.
0 5 10 15 20 25 30 35 40 45 1984 1988 199 1 1994/5 1995/6 1996/71997/8 1998/91999/00 2000/1 2001/2 2002/ 3 2003/4 2004/5 2005/6 Own outright Own with mortgage All owners Social rented Private rented All tenures
Some owners had consciously bought a smaller home to save money at the outset but later regretted their prudence.
“We’re really cramped; the house is suitable for two small children but not a larger older family” Owner, Northern Ireland.
While other shared owners tried to plan ahead and wished to move prior to expanding the family.
“We feel we could cope with another child and we also wanted more than one and so are looking for a larger property” Owner Cornwall.
Interestingly, other family reasons such as wanting to move nearer older relatives was cited almost as frequently, 17 per cent, as those reasons relating to starting or expanding a young family, 16 per cent. What was different about these other family reasons was that they frequently would involve long distance moves, something not currently supported or facilitated within the LCHO sector.
Twenty-six per cent of shared owners surveyed cited the desire for a better neighbourhood as the reason they wanted to move. A recent study found that LCHO owners were the least satisfied with living on new high density mixed tenure estates (Bretherton and Pleace, 2008), however, the Survey of English Housing suggests that shared owners are no more dissatisfied with their area than ordinary first time buyers. One explanation for this
discrepancy may be that most shared owners in the SEH live in houses, whereas most new entrants surveyed by Bretherton and Pleace live in new build high density developments, which may exacerbate the impact of neighbour nuisance. Interview data collected for this study certainly supported the view that dissatisfaction with neighbours, estate management, developments and the local neighbourhood were commonplace:
“No [not fulfilled our hopes]. I think to be honest we’re very disappointed that we weren’t informed that the 4 floors below weren’t social housing and the way it was marketed was as shared ownership and we weren’t told the rest was social housing so people with mental health issues in block, urinating in the lift, damage to communal areas, my car was broken into. There has been a lot of those issues, I know they happen anywhere but they have the wrong kind of people in the block.” Owner, South East
While most shared owners did not wish to move, it is concerning that a large minority, 37 per cent of those surveyed reported that they would like to move but have not done so, primarily because they could not afford the additional borrowing that it would entail. Although the numbers involved with the survey were small, the qualitative interviews with shared owners also revealed a significant minority of households feeling they had become stuck in their first purchase, unable to staircase up – invest further in their home - or out of the sector.
“Cannot afford to. We cannot even afford to buy the other 50 per cent share as we would have to pay current market value. We regret buying a home on shared ownership as we believe it has prevented us making money and moving up the property ladder” Survey Respondent.
Shared owners recognised that they did have the option to move to another tenure if full homeownership was not available, but this was financially and emotionally uncomfortable. Repaying the mortgage early was likely to incur expensive charges amounting to several thousand pounds and owners felt they had advanced their circumstances by becoming homeowners and so considered renting to be a retreat from their ambitions.
“Well we’re not stuck here, we could obviously sell and be renting again but that would be a step back” Couple, Cornwall.
“It does seem to be that you’re quite trapped, in a position where house prices are rising and you only own a quarter of the house you might as well be renting, because if you own say, well my bit of it is £25,000, what can you buy with £25,000?” Survey Respondent.
The scale and importance of the receipts housing associations have recently received from shared ownership sales indicates that shared owners were moving on from their properties or purchasing additional shares, but no housing associations knew the moving destinations in terms of tenure of their exiting shared owners, and had no mechanisms in place to capture this information. The survey revealed that fifteen per cent of owners surveyed (n=182) were in the process of moving or had moved, with some completing during the course of the study. The survey revealed that half of these went on to achieve full homeownership, and of the remainder four went on to another low cost homeownership property, four to the private rented sector and two back to family and friends, with the destination of the others unknown. From the comments received in the survey forms it was clear that the moves to private renting or social housing were sometimes made reluctantly as the option to move to another shared ownership property was not available. Most of the moves were from two bedroom properties to three bedroom houses, and most moving households were couples, with just over half of the moving households were couples with children. Indeed, analysis of the survey data revealed that over half of the households who wanted to move but could not were single adult households or lone parents.
The extent to which a household was able to move on was dependent on what combination of a series of factors, such as their household circumstances, the local housing market and their shared ownership providers’ policies, were applicable to them The next section of the paper goes on to discuss these issues in more detail.
5 Household Factors that influence mobility
A number of factors contributed towards a shared owners’ ability to move on to full homeownership. These included a households disposition to live in high cost areas, the nature of the household’s employment, whether the person formed a relationship whilst a shared owner and the age of the owner.
One of the factors that meant that some shared owners remained unable to afford properties on the open market was that they were committed to living in high cost housing markets. Concerns over the safety of less expensive housing markets, lifestyle, family or
employment commitments were issues that meant owners were reluctant to move away. Some had been born and raised in Cornwall and had parents nearby who helped with childcare arrangements, some lived in Northern Ireland where the market had experienced unprecedented house price inflation and others had moved to Central London in their early twenties or younger and become accustomed to the lifestyle and were concerned that
moving to a lower cost housing market would entail a risk regarding neighbourhood safety that some shared owners were reluctant to take.
“Not really [considered moving out] as I really love London, I’ve lived here since I was 17 and I really don’t want to sacrifice that…I think without the scheme we wouldn’t have lived in a nice area as we’ve lived in. It has allowed us to stay in West London and not move out to Heathrow, which I think is the case for a lot of young couples- that they get pushed out of the city.” Couple,
Kensington.
These households’ attachment to pressured housing markets constrained their ability to move to full homeownership as they were unable to afford the open market prices in the local area. These households sought solutions to their housing needs through moves within the low cost homeownership sector itself. It must be recognised however, that there are not always lower cost housing markets for all shared owners in reasonable proximity. For shared owners in London, although it may not be their preferred solution, the option of moving out of London and using any equity gains in lower cost housing markets does always exist; albeit, one steam of access to LCHO is intended to retain low to middle income key public service employees within high cost regions (Battye et al., 2006; Morgan et al., 2005). However, for shared owners on low incomes in the East End of Glasgow holding only 25 per cent shares, there are few such options available to them.
Shared owners in less professional employment more frequently discussed their inability to move on, principally as their incomes had only kept pace with inflation since their initial purchase, compared to others who enjoyed employment with rapidly advancing salaries and career structures. Although caution must be expressed because of the small numbers
involved households were moving had greater mean households incomes than those were wanted to move but could not. Teachers, accountants or IT specialists reported a positive ability to move, some even when they were single adult households, but for civil service clerical officers or manual workers for the local authority move on was problematic.
“I think it works if you can pay them off but if you’re on a low wage it’s hard…and its only people really struggling who go down this route.”
Owner, Belfast.
“My salary has gone up but so has everything else…I’m only an administrative officer” Owner, Glasgow.
Becoming a couple was a commonly reported factor that influenced the original single shared owners’ ability to move on, increasing the household income significantly.
“It was only when I got together with my now husband that we thought about the possibility of staircasing, which we then did a couple of years later.”
Owner, Kensington.
The Survey of English Housing allows us to compare single adult and couple households in both the shared ownership sector and traditional first time buyers on the open market (Table 1.2). The numbers of shared owners represented in any one year of the survey is small, between 50-100, so we must be cautious, but Table 1.2 indicates the large differences between the household incomes of couples and single adult households, especially lone
parents; and the much larger incomes of traditional first time buyers compared to similar households in the shared ownership sector. Data from the owners survey conducted across the six case study areas is presented for comparison purposes.
Table 1.2 Average annual household Income by household composition (2003). SEH 2003 – Open
Market First time buyers buying with mortgage SEH 2003 –Shared owners Owners’ Survey 2007 Mean Annual Household Income Number of cases Mean Annual Household Income Number of cases Mean Annual Household Income Number of cases Single adult below 60 50,0981 7 22,371 14 26,774 31 Single adult over 60 17,2641 3 9,9191 4 9,080 11 Couple no children 42,484 23 33,233 19 33,304 23 Couple with children 51,575 52 34,803 23 28,663 44 Lone parent 27,942 11 19,318 6 22,447 21 Multi family household - - 22,2041 1 35,850 4 1
Results are indicative and are not statistically significant
Forming a couple did not automatically mean additional household income as some people used the opportunity to return to study and retrain for another career, while others started a family and one member of the couple left or reduced their involvement in the labour market. In addition, not all single people envisaged going on to form relationships whereby they would share the housing costs.
“I think for the foreseeable future this is where I will live. I don’t think my circumstances will change significantly as they haven’t for the last ten years.”
Owner, Milton Keynes.
Lastly, a shared owners’ age influenced their ability to move on to full homeownership. Several older shared owners spoke of their frustration as they were unable to take on additional borrowing to accomplish a move at a cost they could afford due to having too few years left prior to retirement or because they had already retired. They wanted to move for reasons of disability or because they had a growing and older family and could not afford a suitable property. As the sector matures the low rate of mobility suggests that it is likely that there will be greater numbers of older households in shared ownership.
Furthermore, older shared owners who stay put have no access to equity release products that provide for an income in later life from their housing wealth. The shared ownership leases only provide for equity to be withdrawn to fulfil the repairing, maintenance or property improvement terms of the lease, which is surprising as asset accumulation is one reason behind the promotion of the sector.
6 Housing market factors
As with other homeowners the factors affecting the wider housing market influenced shared owners individual plans for moving on. At the time of the fieldwork in late 2007/early 2008 nearly all of the shared owners interviewed had made equity gains on their stake of the home in proportion to the share of the property bought. For example, if someone purchased a 50 per cent share of a property originally valued at £100,000 and it was later valued at £200,000, when sold the owner would get 50 per cent of the £100,000 rise in equity, i.e. £50,000. However, the rising market that has now ended represented both a benefit and a bind to various shared owners. Some had seen substantial rises on their shares, which reflected the rapid rises in house prices in London or Northern Ireland for example, but for others their equity gains were more modest, such as those shared owners in Glasgow. Many shared owners expressed dismay that rising markets had meant the value of the equity gap that they needed to bridge to reach full homeownership had increased making their
ambitions less achievable than ever.
Such equity gains helped some owners move on to full homeownership, although often in circumstances where there was also some additional income from a partner, higher wages, or where a move to a less expensive housing market area was involved.
“…it does mean now that I do have a deposit and I can now move on to the next stage of the housing market…I wouldn’t have been able to [move locally], if I hadn’t moved geographically and moved so far north
geographically, I couldn’t have done it, no.” Single Woman, NW London.
However, for those shared owners who wanted to move within their current local housing market area, for reasons of employment, family or children’s schools, the equity they had in their home did not facilitate a move, as the properties that they would have liked to
purchase had also risen in value by similar proportions.
“No-one would have imagined in their wildest dreams that it’d have risen like it has…I just want to turn the radio off when talk about the house prices comes on. Estate agents and building societies say its great, but I suspect underlying it there are a lot of people like ourselves who bought at lower prices and can’t realistically move on” Owner, Northern Ireland.
In many instances house prices had risen at a far faster rate than shared owner household’s ability to take on additional borrowing to bridge the equity gap, which was a more
important factor to them than the equity they had available to them. One owner in Glasgow cited the main barrier to her moving on was that “the quarter share just isn’t worth very much”.
Shared owners are able to increase their investment in their homes by buying additional shares, a process known as ‘staircasing’. It seems that very few shared owners attempt to bridge the gap to full homeownership by increasing their shares incrementally, only 11 per cent of the owners surveyed had increased their holdings short of 100 per cent ownership. Additional shares are purchased at their current market value but many owners reported that they were able to afford the additional borrowing required to purchase the remaining share, which for some was worth more than the initial purchase price of their whole property.
“At least when people have a straight mortgage it goes down, but mine keeps going up. Ideally I’d love to pay them off as it is a debt, but next year it could be £72,000…they know that people who go on this scheme go on it because they can’t afford to pay the full amount and like my debts started off at 11 grand and for people who are on the lowest wage they know its quite hard to pay it off now” Owner Belfast.
Some shared owners were able to purchase additional shares in their property but were concerned that doing so would make their property harder to sell on, as they were aware that lower shares are more attractive to prospective purchasers. Although this reflects an awareness or knowledge of the market into which these shared owners bought, it could also act as a detriment to them in the future if they deferred purchase when they could afford it and prices rose in the future. Also, the lease provides for such events by allowing the property to be sold in its entirety to the open market if no buyer can be found, so the owners would not be disadvantaged by making attempts to bridge the equity gap when they can afford it, but it is unclear whether owners fully appreciated that this was the case. The local housing market circumstances are fundamental. Rising markets meant that gaining a financial asset could limit them in other ways by contributing to their immobility. Furthermore, modest gains in low cost areas where shared ownership has been developed as part of a strategy of tenure diversification and regeneration of an area may represent limited benefits in terms of mobility. Undoubtedly, many households do achieve full
homeownership and manage to overcome the difference between their current holdings and the wider market, but little attention has been paid to those whose circumstances have not altered sufficiently for them to afford the additional borrowing required to buy their home independently.
“What people don’t understand, who are just getting into it, is that from the day that you [purchase] there is no way that I could pay them off” Owner,
Belfast.
7 Provider factors
Shared owners’ ability to move was determined by the local housing market and household circumstances, but how the housing association mediated between these factors was also important. If the purpose of shared ownership is to assist people on a journey towards full homeownership then sustainably maximising the owners’ shares in their homes is important to ensure the equity gap towards the open market is minimised. If the purpose is acquiring assets alone then it is less significant, but then shared owners need to be able to move within the sector. Housing associations influence both these issues.
At the outset it seems that many shared owners may not have invested as much as they could into the property, taking the share of the property offered rather that what they could actually afford. This has been noted before (NAO, 2006; Bramley et al., 2002) but usually in relation to the opportunity to reduce the level of public subsidies to the sector, but minimising the equity gap is also crucial if owners wish to move on to homeownership in the future. However, the study found that the proportion of home the shared owners were purchasing has reduced over the recent period, falling from an average of 50 per cent of the property to 40 per cent and the volume of shared owners purchasing 25 per cent has
does beg the question as to whether the ability of shared owners to cross this ever growing gap towards full homeownership in the future may be further diminished.
The LCHO provider in Northern Ireland had reduced the tranches that shared owners could staircase up in to five percent, to encourage greater staircasing, but each purchase would involve valuation and legal fees, which are therefore likely to inhibit such small
incremental increases in shared owners’ purchases. Anecdotally, other associations may be considering meeting the transaction costs of shared owners’ staircasing but there were few incentives to staircase evident from the study.
“For myself I had hoped we’d have been able to buy the whole of the
property and then move on, I definitely saw it as a stepping stone as then you would have the freedom to choose any property…If they were say to us that you could have a discount it would make us look to purchase the other part of the property.” Couple Owner, Cornwall.
If the targeting of shared ownership properties has been correct then it is unsurprising that there are significant pools of owners who remain unable to afford to purchase their whole home or buy on the open market. Clarke et al. (2007) revealed few shared owners were not in a position to sustain additional housing costs and as described above that was the case for many owners in this study, who nevertheless wished to move. However, only some
providers in and around London in the study were able to say they would facilitate the movement of shared owners within the LCHO sector, possibly relating to the maturity and volume of the LCHO sector.
“Absolutely, definitely [help them move within shared ownership]. Important that we do that, someone buys a one bedroom studio their circumstances are going to change, what they do at 25 will be different at 35, and if they don’t have another option for another shared ownership property they’ll go to the private rented sector which is more expensive, or go on [the] waiting list for social housing property which is obviously expensive [to the public purse]. A small, but common, occurrence.” Housing Association, London.
Elsewhere, many schemes were targeted solely at first time buyers so shared owners were ineligible to buy another LCHO home, despite the fact that their original home would be offered back to the shared ownership sector.
“Visit housing advice and housing options, they’ve only really got the choice to go into rented or put their names on the housing register. We don’t operate a scheme to take people to the next level, that’s part of their responsibility, I know these things do happen, you’re in that situation and you have to manage your life around that”. Local authority provider, Wales.
The advice given to shared owners regarding movement to another shared ownership property differed between and within associations and it is clear that further guidance on the issue is required from the Housing Corporation, who currently regulates the sector in the UK. But moving within the sector represented problems for some associations that related to interpreting the different regulations for shared ownership type schemes built under different funding streams, the availability of other shared ownership property in the local area and the appropriateness of those properties to the moving households. Some shared owners wanted to move because of illness or disability or wanted to move to
accommodate a growing family and the new shared ownership opportunities have
predominantly been new build apartments that are unlikely to meet these needs, and indeed were turned down by a retired couple.
“But we have owners who have purchased a one bedroom shared ownership on their own and a few years down the line have got a partner and a baby and it is very difficult to make it possible for them to move on.” Housing
Association, South East.
The resale process was examined only in so far as it contributed to shared owners ability to move on. There was a tension between the associations wishing to retain control of the next purchaser and a desire for some owners to want their property sold on the open market where they perceived the property would attract greater values. Newer leases state that the property cannot be sold for a sum in excess of the valuation, which is generally conducted by an independently qualified valuer in accordance with Housing Corporation rules or similar body. In London and Milton Keynes the associations had experience of sellers frustrating the nomination process because they wanted to get through this period quickly and get to the open market where they felt they would get more for their home. This further reflects the confusion surrounding the shared ownership sector and whether it is seen as market housing or some form of public housing. This confusion creates a tension between the market and bureaucratic administrative allocation of buyers.
“The sales people here quickly realise when someone’s trying to fob someone off, and we will be very stringent in forcing them to say you have to sell it to that person as what people tend to do is just try and get rid of a buyer to sell it on the open market and get a higher price, as they’ll put it on the open market with Foxtons.” Housing Association, London.
“{association} are excruciatingly slow with the process, both when we purchased flat and now we are trying to sell” Survey Respondent.
It is fair to say that many owners in the open market may also be frustrated with the process of buying and selling homes and that there are some advantages to selling the home through the housing association, mostly regarding the cost which are usually but not always less than an estate agent. The processes by which some associations found active buyers from long lists of interested parties was cumbersome and caused unnecessary delays, although if properly promoted to people expressing active interest in the sector could again prove advantageous, especially in a difficult market. Except that although housing associations are using commercial marketing techniques to sell new build shared ownership
opportunities, the same techniques are rarely if ever afforded to resale properties and in a difficult market this may provide additional challenges for shared owners.
LCHO providers must act to ensure that their policies reflect the long term nature of the hybrid tenure for many of their clients. Supporting movement to another LCHO home for the small number of shared owners who may wish to move each year is necessary, but does highlight a tension inherent within this sector. Shared ownership is increasingly marketed as market housing at an affordable cost, with brochures imitating the literature of private developers, but is administered bureaucratically akin to social housing. This is reflected in some owner’s experiences of estate management, the resale process and then requests to access or move within shared ownership. For example, if owners are permitted to move to another shared ownership property, will this be on the basis of housing need or housing
demand? Associations who facilitated move on, did so largely on the basis of demand, but
other associations considered movement to be similar to social housing tenants transferring, and thus would require proof of housing need. Whether such an approach would be
acceptable to shared owner households is unknown, but could conflict with notions of homeownership.
8 Expanding shared ownership in the future?
Many shared owners spoke of their positive attitudes towards the housing opportunity shared ownership gave them, especially women following relationship breakdown or those seeking independent housing. However, that this hybrid tenure seems to have restricted mobility is a matter of concern for existing shared owners and if more marginal households are to be attracted to the sector in the future.
Bramley and Dunmore (1996) asked whether LCHO was a short term expedient or a long-term tenure and we can suggest it represents both of these things for different households. Many shared owners are content with their homes and do not wish to move and for them shared ownership represents a long term permanent hybrid tenure, between owning and renting and not the transitional tenure to full homeownership as widely envisaged. In addition, many shared owners successfully move on to full homeownership homes where their circumstances have changed to enable them to take on additional borrowing or they were able to move to a less expensive housing market. However, for other shared owners their choices to move on or remain in the sector are constrained and there is a high likelihood that some will get stuck in their initial shared ownership home unless reluctant moves are made to the private or social renting sectors, or their housing association
provider supports them moving to another LCHO property. Yet not all housing associations support movement within the sector, and although Dunmore et al. (1998) advocated a national mobility scheme for low cost homeowners we still find the LCHO market fragmented and difficult for some households to navigate.
The changing market conditions may raise additional concerns. Firstly, a more prudent lending regime, although desirable to many, may further inhibit some shared owners from increasing their investment in their home or moving on to full homeownership as access to mortgage finance to low income households may be constrained (CML, 2008). Secondly, many housing providers reported that people wished to move on more quickly from flatted accommodation, which as this is now the primary source of shared ownership opportunities could mean that the issue of mobility becomes more pertinent in the future. Thirdly, the spectre of negative equity is beginning to haunt the whole housing market, but for these more disadvantaged households this must also be a concern for those who have bought into some parts of the apartment market. There is much work to be done to advance our
knowledge in this sector and improving the statistical and monitoring data that describes the sector is imperative, but in the meantime it is necessary that the flexibility for people to move within the sector is resolved.
If we require better mortgage safety nets to support marginal homeowners in the future (CML, 2008) then similarly, it is imperative that further expansion of the LCHO sector is underpinned by supporting shared owners drawn into the sector in a number of other ways. These include being confident that LCHO is sustainable, that equity built up in the home is accessible for reasons other than property maintenance and importantly by ensuring that mechanisms are in place to support moves within the sector if their needs or aspirations require.
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