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Starter Homes uncertainty subdues housing market

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Uncertainty surrounding policy announcements on affordable housing provision and the land value implications of Starter Homes requirements continue to subdue the housing market, claims a report by property consultancy Savills.

The Starter Homes policy, now included in the government’s Housing and Planning Bill, aims to give first-time buyers under 40 the opportunity to buy a property at a minimum of 20 per cent below its open market value on homes where the discounted price is less than £250,000 outside London and £450,000 in the capital.

But Savills said the “biggest uncertainty” for those operating in the development land market is the cost implications of affordable housing and Starter Homes.

Although amendments to the housing bill aim to enable local planning authorities to ask for further planning gain measures that allow for a range of affordable housing other than just starter homes, the extent to which local authorities will be expected to help deliver the government’s pledge of 200,000 starter homes by 2020 is yet to be clarified.

Authors of the report say that until there is more clarity about how the Starter Homes policy will play out at local level “the value of development land is difficult to predict”.

Savill’s Policy Response report 2016 elaborates on this: “While developers can secure their cash flow by selling shared ownership units in bulk early to a housing association, this is unlikely to happen with Starter Homes. As a consequence, land allocated to Starter Homes may return a lower value than sites allocated for shared ownership.”

The report adds: “If a developer decides to retain control of all sales on a site, whether Starter Homes, Help to Buy or shared ownership, they would not secure the cash flow that they can currently receive through the sale of affordable housing to a housing association.”

But the urban land market continues to see the biggest increase in land value, according to Savills’ UK Residential Development Land report, with a particular boost evident in locations where the local economy is improving and employment is growing.

Urban development land values grew by 1.5 per cent in the final three months of 2015, while greenfield values rose by just 0.7 per cent. The report suggests that this is because greenfield values are further below their 2007 peak than urban land values (42 per cent compared with 21 per cent).