Where does shared ownership fit in the UK housing market?

Boris Johnson’s time as Prime Minister has seen the Government renew its commitment to the delivery of home ownership, and with it a refocus on shared ownership housing, a tenure popular with Boris during his time as London Mayor.

Perhaps little known, is that since its introduction in the 1970s, shared ownership has provided a steppingstone to home ownership for hundreds of thousands of households, with more than 200,000 currently living in a shared ownership home. As the government again signals its support for home ownership, with a consultation on the future of this part buy-part rent model, we consider the value of the tenure, and its continued importance in the housing market.

Shared Ownership offers Housing Providers a mechanism to engage in ‘whole market’ interventions, taking in both rental and ownership. Whether it be rental or ownership, housing affordability remains a continuing focus and struggle for the public, with Ipsos Mori polling this August 2019, indicating that 57% of people, think that the rising cost of housing will impact on them personally in the next five years. In this context, the objectives of the social housing sector to support those in ‘housing need’, whose ‘needs are not met by the housing market’, does not just mean vulnerable or low-income families requiring subsidised rents, but actually large sections of the population, trapped by housing affordability challenges in unaffordable and often unsuitable accommodation.

These challenges have been captured in the media with labels like ‘generation rent’ and ‘frustrated first time buyers’, to describe those who feel acutely the impacts of a failing housing market. But it isn’t just the young who are affected, those forming new households later in life, or wanting or needing to move for economic, social or personal reasons may also stumble on the barriers of housing affordability and find relief through a first steps housing ladder product.

Shared ownership is a low-cost home ownership tenure, which allows the purchase of a share in a property (typically 25% to 75%) while paying rent on the remaining share with the ability to ‘staircase’ to full ownership over time. While shared ownership alone will not provide a panacea to the unaffordability of the housing market, it can address the pressing need in one segment of the market and combined with interventions and innovation in renting move us in the direction of a more inclusive housing market.

Shared Ownership not only broadens the reach of a product such as Help-to-Buy, providing greater flexibility for owners, and a valuation-based sales methodology that means it does not artificially inflate house prices. A criticism that has been aimed at Help-to-Buy.

The recent consultation (now closed), on a ‘new national model for shared ownership’, which includes the potential to introduce provisions to enable staircasing in smaller 1% shares and a commitment to making easier to sell shared ownership homes, demonstrates the government’s commitment to flexibility in home ownership as well as its intent to maximise these opportunities.

Recent entry into the shared ownership market by new For- Profit housing providers demonstrates investor confidence in the value of the tenure as an investment proposition, both for capital growth and a long-term income stream.

However, in a softening or stagnating housing market resulting from Brexit uncertainty, particularly in London, many housing providers have seen challenges to the long term viability of shared ownership schemes and the contribution that they make to a provider’s overall operating margin, both in its own right and as a cross-subsidy to delivering affordable or social rental homes. A reinvigorated model, including grant support could help the continued supply of the tenure in more challenging housing markets. The model works but its continued success may need some new thinking.