Affordable Housing: Where Do We Go From Here?

Affordable housing, in recent years it’s been a term of aggravation, upset, dismay and anger. People not being able to afford a home in the town or county they love can obviously cause emotions to rise and the reason why must fall at someone’s feet, but who’s?

Sadly, I cannot offer a selection of homes in the region for sub £100,000 no matter how much I’d love to, but in writing this, I’m hoping it sheds some light onto why the above is not going to happen any time soon. I am aiming to detail options that are available to people out there who wish to get onto the housing ladder but also how local residents and developers can work together to create an outcome beneficial to all. Of course, this is purely a mix of my opinion, a smattering of facts & figures and, hopefully, direction.

Firstly, I think the term affordable should be addressed as its subjective, meaning it can mean something different to various people, what’s affordable to you may not be affordable to me and vice versa, so having a ‘typical’ affordable buyer is a hard concept to cement but I think herein lies the problem. In housing verbiage, the term ‘affordable’ relates to a buying scheme, it’s a classification of property whereas the public are thinking affordable relates to the price of said property and thus becomes the first ‘argument’, those buying properties are thinking affordable relates to price, those selling are using the term as a classification but going forward, in this text, the term ‘affordable’ is referring to purchasing schemes and not the cost of properties in the region.

The second point which has been raised to me hundreds of times over is the one above of a ‘typical purchasing local’ and everyone has different points of view on this. We have to have a realistic bench mark, whilst I would love it to be a world where a single working parent doing 16 hours per week on minimum wage can purchase a 3 bed home in a seaside town but with rising property costs it’s just not plausible sadly, there are so many variables to someone’s income and lifestyle. I see it hundreds of times a year, every single mortgage I do is individual, so to cover all aspects would be unfathomably difficult and create too many shifting ‘parts’ so again for this we will work off the lowest income possible and the average working week, I’m not going with the Cornish average wage, as currently at £28,000, I feel there would be quite a lot of people reading this (as its about affordable housing) thinking, “that’s quite high” or similar narrative maybe with the odd expletive thrown in. Expanding on this and throwing some finance figures into the mix, at the time of writing, mortgage lenders will do 4.49 x income before tax so using the above:

Min wage £9.18 (at time of writing) Average working week 40 hours 9.18 x 40 x 52 = £19,094 So a single applicant can potentially borrow £85,700 and a couple, £171,000, add a deposit to this of let’s say £10,000 and we are at a property price of £95k or £180k collectively, I think we can all agree that you could find a property in most towns in Cornwall for around the £180,000 mark, it may not be your dream home but it’s a home and its yours, again it’s about being realistic and maybe making a sacrifice or two, a small commute to own your own home isn’t a bad thing, I’m sure there are people in London who commute to work as they currently are not able to purchase in the city.

But let’s look at the issue surrounding homes not being £180,000 or even £200,000, many new homes are built over that asking price and of course those unable to pay that amount are going to think this isn’t fair so let’s try and understand where developers may be resting their heads and what they are trying to achieve. Now, naturally developers want to make a profit, they are a company and its to be expected but do they have to make ‘so much’? Well interestingly when it comes to housing the profit can be really really slim, take jewellery for example, some items of jewellery are sold for close to a 300% mark up, some affordable homes make 4%, which given the time, effort, paperwork and who knows what else, doesn’t seem all that worth it? Well, no, maybe it isn’t but what developers do is offset that lack of profit with the other homes on the estate or ‘development’ so when you see the big four bed for £300,000 its offsetting the cost of the 2 bed shared ownership they sold to a local for £90,000.

Also we need to look at the cost of building homes, ignoring the land purchase cost altogether (although we shouldn’t really) and just looking at the cost to build the home from the ground up, most builders, architects etc use a cost per square metre which, can be divided into class of finish, low, medium and high, so to showcase the lowest cost we will go on £1200 per SQM which I’m sure most people in the trade would be shouting is too low but let’s go with it. An average home would be around 100 SQM giving us a cost to build of approx. £120,000 and that’s ignoring the land cost, legal fees, paperwork, and several other costs which pop up along the way and of course that’s making no profit, throw in those costs and 10% profit and we are up to maybe £150-£180k. But again, if every home was £180,000 you’d have this trio of buyers for developers to try and sell to:

So Developers do the aforementioned plan of subsidising cheaper properties by selling other expensive ones on the same development, a recent development was proposed at an old hotel site in Newquay, now I’m ignoring the image issue and purely looking at the affordable aspect, the developer was planning to make a % of them affordable homes, now if the development gets objected or told to downsize etc the number of affordable homes will get reduced and therefore less homes for local buyers.

Again, this raises another issue, people want Cornwall to remain intact, green, plush, unobstructed views but without people allowing building to take place these homes, affordable or otherwise cannot be built. Just recently I heard a local say the following, in the same sentence, at the same meeting:

“My children cannot afford to buy a home in Cornwall because there are no homes to buy*……………(other non relevant conversation)…….But I don’t want the green fields to be built on, we don’t want new homes cluttering our countryside”

A common paradox, we want new homes but don’t want them built here.

This loops back to the start where I said/wrote a mutual understanding must be reached, locals must be open to the idea of development, they must be complimentary to the area, I get that, but they must allow it to happen, sadly without new stock being built all that will happen is existing prices will rise and boy have we seen a rise! Cornwall stands out as being the highest price rise in property in the UK last year, way outside other regions, supply and demand being the main cause to this, we had people converting homes to BnB to capitalise on staycations due to COVID restrictions, people spending savings on improving their homes thus increasing the price and a huge amount of people relocating to the Country. Due to people working from home since lockdown, most realised they don’t need to live near the office and thus decided to work from home in Cornwall instead of Milton Keynes for example, and given that people may be purchasing homes in the county to stay in for a long time, that means houses coming to market will be on a longer cycle, come up for sale every 20 years or so which I’ll assume won’t help many any time soon.

Putting on a different hat, lets push back to the developers, what can they do as its not all down to the local residents.

Well apart from being sympathetic to the local economy, local buildings and design, I feel they could be more understanding of the overall need for lower cost housing.

There are rules and regulations around affordable housing schemes for developers, they must produce a certain amount affordable properties within a development to meet these requirements but let’s be honest it could be more. I feel, and I doubt I’m alone in this, that housing developers could probably build more then 10% on an estate for instance. Seeing the number of buyers in the area who are in need of low cost housing but want to own not rent, I can see a huge gap for property. There are many systems out there for building properties, timber frame, pre fab, pre made, modular, these could all be utilised in a way by developers to create low cost housing for local residents.

I’m sure there are many many caveats to the above and its above my understanding but I’m pretty confident that there’s a chance more could be produced without crippling a developers bottom line too much, that conversation is to be continued…….

Before writing this piece I asked people on social media for some input, what does affordable mean to them, what barriers to purchasing have they faced, what would they like to change and the feedback was interesting, ill leave out the odd retorts I received and focus on the ones which didn’t see someone working 10 hours per week getting a Miami penthouse, yup it was a comment, albeit not a genuine one, if plausible id have 3.

‘If I can afford rent of £1200 per month, why can I not get a mortgage for £900?’

I totally get this train of thought from someone who hasn’t had the underpinning financial mechanics explained. £900 is less then £1200 so why does a mortgage company say no?

Well its due to what is known as a ‘stress test’ which is where mortgage companies work out the mortgage cost IF interest rates were higher, you see these companies have seen interest rates of 12-15% and, at the time of writing, rates are slowly climbing, along with most other costs so to be responsible they make sure you can afford a mortgage payment of more like £1700 not £900 which is what, in the example above, knocks the affordability out. If your rent went up, you can move out, in theory, ignoring the current housing issue, if your mortgage goes up and you cannot afford it and default the company has to reclaim the house, kick you out and all other unpleasant things which they try and avoid.

‘How can I save for a deposit and pay rent at the same time?’

This is hard, I get that, unfortunately on this blog/report/rambling I cannot answer that for everyone reading, you get that, but I can offer some, a small ‘some’, pointers which may help.

Saving is hard, not fun, totally boring BUT we need to do it to get things, so it really should form part of someone’s monthly budgeting. When I go into schools and speak to young adults about finance I focus on saving for a future, the same thing here really. We discuss getting your monthly income and paying your bills first, then saving, then spending what is left over, sounds basic but its this habit which helps people save/build for a future. That’s assuming you can save, if you cannot save due to commitments and outgoings then sadly it’s a tad more difficult, lenders want some sort of commitment from borrowers in the form of deposits, now deposits can be as little as 5% which is a great place to be in term of options but for some its still may be a tad difficult, we do have zero deposit options for shared ownership properties which could be explored but that’s on an individual basis and I’m going to refrain from anything which can be considered a sales pitch here, even though I wrote it but let’s stay on track. Sidenote: I am working on a scheme to help people get a deposit upfront, and save after they are in the home but as you can imagine the hoops and tape to fight through is heavy and time consuming, but ill keep pushing to get a solution out there.

‘Why is housing rising so much quicker than salaries, years ago a house was 4 x income and now it’s more like 9’

Yeah, this isn’t good, by any means, honestly I do not have a response for it but I didn’t want to leave it out because I feel it needs addressing, realistically are incomes going to rise by such a large amount to get back to 4 x, I’m not sure that’s going to happen, so the other only option is for house prices to come down, are they going to? That’s a whole other issue isn’t it, Ill address it soon, but not here.

‘I’m a single parent, how can I buy my own home on a part time wage and benefits?’

This is such a difficult one, I know many single parents are they are all super stars so why do they have to struggle to buy a home, I think ultimately it comes down to time versus income, they do not have enough time to go and earn due to having parental responsibilities but there are lenders out there who will take into account the benefit income they may receive which will help some, there isn’t a solution for everyone, I wish there was but don’t always feel its out of reach, speak to someone in the industry, a mortgage broker etc and they will advise what’s possible.

I’m sure there is a whole host of questions people have which haven’t got to me so I’m sorry but you can email or DM me any time.

Solutions: Are there any? Sure, we all win the lottery, I joke but sadly it seems that way to most, but no, there are solutions/options, let’s have a go:

We’ve touched on the increase of affordable homes by developers and local residents being more lenient with planning applications from developers to allow these homes to be created. The house itself coming down in cost is not a simple fix, materials going up are going to eat into profit margins as it is but maybe governmental subsidy could be provided to developers to help bring the cost of the finished product down, maybe give up council owned land to be developed, thus reducing outlay for developers allowing them to offer a lower cost of house to buyers, its an idea, has it got legs, ill see what I can do.

But what if there is no chance initially, well affordable home schemes are out there, section 106 properties where they are offered cheaper to locals, shared ownership where you part buy and part rent until you can afford to purchase the full 100%, sure its still renting which isn’t great, but it’s a portion of rent, and its still your home not a landlords who cannot find the money to fix the shower but are currently in Greece on holiday. There’s also help to buy on new builds which is where you get a % off the price as a interest free loan, all the above I’m happy to explain individually.

Honestly I wish I had a click of a finger solution, I really do, equally I wish I had a development company to build properties using the methods above, lower cost build options, I get that its not built to the same standard and some people may ask why a lower cost home should be lower standard of build but that’s due to rising material costs and I think changing that is out of pretty much anyone’s control right now but maybe in time things will level out, trade and import becomes cheaper and house costs can come back down but we have to use the information available to us right now.

I started this with the intention of explaining what affordable means in a housing market at least, to help people understand a bit better what is going on so maybe they can use the tools and schemes out there to their advantage and ultimately to maybe, just maybe, open some lines of discussion around how this can be resolved to everyone’s benefit.

Have I helped? Not sure.

Have I tried? I’d like to think so, but lets all try and remain positive, difficult I know, but we all need to work together and that includes with those building the homes instead of attacking them.

‘And that’s all I have to say about that’

Forrest Gump 1994