Increasing the availability and affordability of housing is widely recognised as one of the greatest long-term challenges facing the country and the government. But how will the introduction of “First Homes” impact social housing providers and developers?

Boris Johnson’s administration has stressed the importance of increasing the supply of affordable rented homes, but its main efforts nonetheless appear to be dedicated to ensuring that more people are able to buy their own homes at affordable prices. Their chosen tool for achieving this aim is the introduction of “First Homes”.

What is the “First Homes” concept?

The broad concept is simple – First Homes will be newly-built properties which are sold at a discount of at least 30% of open market value, sold to local people, prioritising first-time buyers, key workers, serving members and veterans of the armed forces. That same discount will also apply to any subsequent sale, so that the next generation of first-time buyers and prioritised groups can also benefit from a significant price reduction.

How will this impact developers?

As with many existing affordable housing products, First Homes will be funded by developer contributions under section 106 agreements. The current proposal is that at least 25% of new affordable units provided by way of developer contributions (both on and off site) must be First Homes.

The government has also proposed that First Homes should as far as possible be built instead of other forms of affordable ownership housing (such as shared ownership), rather than displacing affordable rented products. If, for example, the affordable housing on a development would previously have been 25% shared ownership and 75% affordable rented properties, then the First Homes would take the place of the shared ownership dwellings and leave the provision of affordable rented homes untouched.

The direct impact on developers from these proposals ought to be limited, since the changes are to the way that developer contributions are expended, rather than to the level of contribution which developers are required to make. However, there may be cash flow issues to consider since, unlike shared ownership or affordable rented properties, First Homes will need to be individually marketed and sold (and to a limited pool of eligible purchasers) before the developer can realise their value.

Developers would not be able to rely on a predictable and near-guaranteed recovery inflow of cash in the same way as they can with the common affordable housing products which are sold to social housing providers.

How will “First Homes” impact social housing providers?

For social housing providers, the government’s enthusiasm for First Homes poses a more significant challenge. Perhaps most obviously, the mandatory requirement that at least 25% of affordable units provided by developer contributions should be First Homes threatens to reduce the supply of other affordable housing products – shared ownership homes appear to be particularly vulnerable here, presenting a particular challenge for providers who rely on this form of tenure.

More generally, a consensus has emerged that each affordable unit built as a First Home will absorb more developer contributions than a unit built as one of the existing forms of affordable dwelling, reducing the overall number of affordable units delivered.

As identified by the National Housing Federation, a very significant increase in social housing grant would be needed to offset this reduction, and it seems debatable that such an increase is likely in present economic circumstances.

If you would like further information or to discuss how this may impact your organisation, please get in touch and our team would be happy to advise.