The rise of Shared Ownership as a genuine tenure option is both a welcome and worrying sight. The news that it is now seen a key route to getting on the housing ladder shows the fruits of labour of the CIH and its partners. But it is also a sign that for many home ownership remains a very difficult dream to achieve and that the market is failing them.
In an ideal there wouldn’t be a Shared Ownership programme. And certainly not the gearing up of a tenure as is currently being seen. This is because Shared Ownership is the sign of market failure. Or at least, severe market dysfunction. Shared Ownership exists because people aren’t able to scrape together enough collateral to convince banks and/or building societies to lend them enough cash to buy a house. If household incomes and price of houses/their increase broadly matched there would be no need for such a product.
Sadly we don’t live an ideal world, we live in this one. Shared Ownership is needed and for a number of reasons it has had a welcome kick up the sweetspot. Firstly Government has bought into it, big time. From the point of view of the previous Prime Minister it was a perfect product to suit his Government’s agenda around increasing Home Ownership (see chart below, this was becoming an issue).
Chart 1 Falling Housing Owership
Thus, instead of social rent housing, shared ownership was to become the new housing for poor people. Something that aligned with the thoughts of one or two in the sector as well. In addition to a few Think Tanks tied to Number 10. Secondly, the sector finally got round to looking at the long list of issues with Shared Ownership as a product (like maybe promoting it would be a good idea). Thirdly housing is becoming so unaffordable in parts of the country that products like Shared Ownership actually start to make sense.
Increasing Popularity, Increasing Problems
The CIH and Orbit* (plus other partners) reports on Shared Ownership – creatively called Shared Ownership 2.0, and Shared Ownership 2.1 have made genuine progress in terms of refining a product that for years was the inbred forgotten cousin of the sector. They might not like to admit it but Housing Associations did Shared Ownership the same way Nuns in Catholic Schools did the awkward bits of teaching sex education in biology i.e. embarrassingly blundering their way through in the hope that no-one was paying any attention because they didn’t have a clue.
The report rightly highlights the dissatisfaction with some of the aspects of rights and responsibilities. Always a grey area where there has been a substantial amount of confusion. Typically around who should do/pay for repairs (the customer) restrictions on sub-letting/adaptations (many) and the fact that when the rented element, mortgage, service charges and associated additional charges/red tape involved with stair-casing it wasn’t always the best deal for the buyer. These existing kinks have sought to be addressed by a variety of measures including ensuring greater levels of consistency of service across providers, tweaking the rules around eligibility and generally making the offer a bit more flexible.
Location, Location, Location
However, there are some issues with Shared Ownership that can’t be as easily ironed out. It is a perfect product in rising housing markets, where increased equity enables the part owner to leap onto a ‘proper’ i.e. fully owned house when looking to sell. It is also why as a product it works so well in London, the South, South East and South West (Chart 2, highlights the distinct regional variations). But if you’re in a shared ownership property in a depressed market where prices are stagnant, or worse, regressing, you’re more or less fucked. In such a market it would always make more sense to buy outright and avoid the red-tape (still a significant drawback).
Chart 2 – All dwellings annual house price rates of change: UK, country and regions
But, for those looking to buy in areas of increasing house prices Shared Ownership is an easy sell in every sense of the word. Hardly surprising as it was first conceived as a way of resolving affordability issues in and around the Greater London housing market for those on modest incomes. And as the report shows the product is much more affordable than outright ownership across a wider area (on day one, at least).
Putting it into Perspective
Shared Ownership is still a small proportion of the overall market, but as a tenure it is set to grow quite dramatically. As better exposure through Help to Buy branding (and the £4.1bn in funding), HAs getting their arse in gear (and the £4.1bn in funding), and massive pressures on the housing market in particular locations (can’t stress that last one enough, have I mentioned the increased funding?) all have an impact. More tweaks are needed, but progress is at last being made.