Live and let buy

This summer’s Nationwide Building Society house prices report
suggests a worker needs a salary of £49,400 a year to afford
the average first-time buyer property in London. Even that is
assuming they can put down a 5 per cent deposit and are loaned
three times their earnings.

These figures make it abundantly clear why London and the South
East are in the grip of a serious recruitment and retention crisis
across public services as a whole. It is no longer simply those on
very low incomes or benefits who are unable to buy – middle income
earners and even those on more than the capital’s average wage of
£30,000 are finding it impossible to get on the housing ladder
in or near London.

The government’s three-year, £250m starter home initiative
(SHI) was intended to address the problem. Some £230m was
handed out to successful bidders last September to help 8,000 key
workers buy their first home in targeted areas mainly in southern
England, including 4,615 workers in London.

Most of these workers are police, teachers and nurses. Social
workers fall into the “other” category, and have to compete with
transport workers and fire fighters for the remaining 309 places. A
further 80 packages were available to “other” key workers as part
of round two, in which £20m was allocated in May to schemes
offering £10,000 equity loans to workers living outside
London.

Social care workers have been disappointed that the government has
chosen to define “key worker” so narrowly. When she was Association
of Directors of Social Services president, Moira Gibb, social
services director of the London Borough of Kensington and Chelsea,
wrote to health minister John Hutton when the SHI was launched,
arguing that social workers should be included.

In response, he pointed out the element of local flexibility over
priorities. But a fact sheet produced by the deputy prime
minister’s office – John Prescott is the minister responsible for
the SHI – makes no bones about the fact that the government sees
shortages of nurses, teachers and health staff as more
urgent.¹

But even for these targeted groups the SHI is something of a mixed
bag. For a start, it is fiendishly complicated. Because the Housing
Corporation cannot hand out money to local authorities, the scheme
is being administered by housing associations. Employers cannot
directly nominate staff because the financial assistance could be
treated as a taxable perk. So employers are telling housing
associations which groups of staff they view as a priority, and the
housing association then has to hand out assistance based on both
the individual worker’s eligibility and on the employer’s
priorities.

The help on offer varies significantly from borough to borough and
from employer to employer – so a social worker employed by an NHS
trust may qualify while a colleague employed by a local authority
does not. Because only first-time buyers are eligible the scheme is
useless for staff who have been owner-occupiers in other areas but
who cannot afford to buy in the South East. There are also strict
cost ceilings. The SHI is generally only available on properties
costing less than £160,000. Given that the average cost of a
home in London is now £185,000 and the maximum SHI loan
available is £35,000, these limits are starting to look
unrealistic.

The financial assistance available also varies – different housing
associations offer different options, including interest-free
loans, equity loans and shared ownership options. An interest-free
loan is simply repaid in full when a property is sold, with no
monthly repayments required. An equity loan is also free of monthly
repayments but when a home is sold the loan repaid is a proportion
of the value of the house. So if someone receives £25,000
towards the purchase of a £100,000 home and it is sold 10
years later for £300,000 the scheme manager will collect
£75,000. This is a reasonable return for the taxpayer – which
a normal interest-free loan is not – and the money can be
recirculated to a new first-time buyer. But some opponents argue
that this is unfair because the interest and repayments on a loan
of £25,000 from a high street bank or building society would
cost much less than £75,000.

Shared ownership – where someone buys a part of their home, and
rents the rest from a registered social landlord – is open to a far
wider range of people and may be an option for those not given
priority for the SHI. But according to Stan Logan, housing
initiatives manager for Kensington and Chelsea, even this has its
limitations. He says: “The problem is that in central London shared
ownership is still very expensive. You might be talking about
£250,000 for a one bedroom flat – even with shared ownership
that’s not very affordable.”

In London, the SHI is being co-ordinated by the Keys to the Capital
consortium of four big housing associations, Notting Hill Home
Ownership, Boleyn and Forest Housing Society, Metropolitan Home
Ownership and Tower Homes. Many other smaller associations are
running local schemes that may or may not coincide with council
boundaries.

One interesting development is the scheme being run by housing
organisation for vulnerable people London Cyrenians. This offers
interest-free grants of up to £20,000, repayable when the
house is sold, enabling those on lower incomes to put down
substantial deposits on flats. The scheme is operated only for
front-line staff working for the Cyrenians. Scheme manager Enid
Marron says: “We bid for, and received, £240,000, which will
go towards helping 12 staff over four years. It’s taken a little
while for it to get going, but now we have one person who has
bought a flat and several others have been approved and are looking
for places. It’s proving quite successful for us.”

The upsides are clear – this innovative scheme is one of the few
that target much needed front-line social care staff, and it seems
likely to be very successful in attracting and retaining key staff
for this particular employer. The downside of this type of scheme
is that anyone who leaves the organisation would have to repay the
loan immediately.

There are real problems with linking housing so closely to
employment. Anyone who wanted to take a better job nearby, or who
simply did not get on with their manager, would be forced to sell
their home. Some people would question whether this was a
reasonable demand for the government and employers to make.

This is not the case for most SHI schemes, for which someone’s
occupation and employer at the time of the purchase is all that
matters. A key worker could, in theory, become an investment banker
the day after they bought under the scheme, and there is nothing
anyone could do about it.

The SHI might be great news for individual staff, but as a scheme
designed to tackle widespread housing problems it is a non-starter.
House prices in London and the South East show little sign of
falling and as a result the only social care workers who can afford
to live and work in London are those who bought years ago. For most
others a job in the capital involves a long daily commute from a
cheaper area, a small flat in an unappealing area of the city, or
rented accommodation.

London mayor Ken Livingstone is attempting to persuade developers
to build more affordable rented accommodation – about 15,000 units
– although this will take years to become available and rented
accommodation is often seen as second best. Ultimately, the real
problem is how to pay public sector workers in the South East a
living wage.

¹ Office of the Deputy Prime Minister,
Starter Home Initiative, Housing Factsheet 6. See
www.housing.odpm.gov.uk/factsheet/starter/index.htm