Affordable Low Cost Home Ownership: A Case Study

Transcription

1 Workshop 2 - Housing Finance Affordable Low Cost Home Ownership: A Case Study Youngha Cho ycho@brookes.ac.uk Christine Whitehead c.m.e.whitehead@lse.ac.uk Paper presented at the ENHR conference "Housing in an expanding Europe: theory, policy, participation and implementation" Ljubljana, Slovenia 2-5 July 2006

2 2006 ENHR Conference Paper Affordable Low Cost Home Ownership: A Case Study Youngha Cho Dept of Real Estate Management, Oxford Brookes University ycho@brookes.ac.uk Christine M E Whitehead Dept of Economics, London School of Economics, c.m.e.whitehead@lse.ac.uk 1

3 Abstract The UK government has introduced a number of products to assist lower income employed households into homeownership. This research aims to explore the benefits and risks of the UK new Low Cost Home Ownership initiatives. The objective of this paper is to clarify the extent to which these schemes are appropriately targeted from the government point of view; and are they sustainable - value for money from the subsidies involved and appropriate risk sharing- for government and households both sides. Four specific research questions are identified to define the scope of the study: 1.Who is likely to benefit from the new schemes which follow on from two main tried and tested versions-shared Ownership and HomeBuy? 2. Are the schemes targeted on those who would not otherwise be able to obtain home ownership? whether such households would be able to achieve ownership by more mainstream means? are they different from different housing market-in high pressure and low pressure areas? 3. What are the risks for the households affordability and other risks of purchasing under these schemes? 4. Who will then be able to sustain it from the different household and employment attributes? 5. Are there other benefits eg appropriate risk sharing which makes them sustainable? Analyses will be undertaken mainly from the evidence from existing schemes. who buys under different schemes; what do they buy; and how much do they pay in terms of prices and expenditures. Those are compared with that of more mainstream (firsttime) buyers with respect to house prices and the dwellings purchased; housing costs and expenditure patterns as well evidence of household structure and employment. 2

4 Affordable Low Cost Home Ownership: A Case Study 1. Background: Motivation of the study Across much of Europe there are growing problems of access to owner occupation for younger employed households as prices rise out of line with income growth. Equally there are pressures to reduce public expenditure on income related housing subsidies and social rented housing - and to restructure social housing in line with twenty first century aspirations and increasing concerns about social exclusion concentrated among social tenants. The UK has been at the forefront of the development of what have come to be called intermediate housing solutions which have the potential for providing at least some of the benefits of owner-occupation to lower income households; a shallower subsidy regime; better use of the social rented sector; and encouraging mixed tenure and mixed income communities. In 1980 the Conservative government introduced a shared ownership programme aimed at helping those with some capacity to pay more than social rents for their housing. It was a new build programme which enabled social tenants and other households in need to purchase a proportion of the new dwelling and rent the rest at social rents from a housing association; and to purchase further proportions up to full ownership when they wished, thus achieving full ownership at their own pace. The objective was threefold: to enable better off social tenants to move out into owneroccupation, thus freeing up rented accommodation for households in greater housing need; to provide a means of providing a smaller - and one off - subsidy for those needing some assistance to obtain adequate housing but not requiring the higher long term subsidies implicit in social renting; and to support the more general aspiration of owner occupation. In the 1990s the growing problems of access and affordability for those trying to enter home ownership, as well as a growing crisis in recruitment in the public sector, especially in South East England, led to renewed interest in rolling out the general principles more widely than was possible with a scheme dependant on new housebuilding. The government therefore introduced other low cost home ownership products, including do it yourself shared ownership (DIYSO) and Homebuy. The first enabled people to purchase existing units using the shared ownership model of part individual ownership/mortgage and part subsidised rent. The second enabled households to obtain a 25% mortgage at a zero direct interest rate but at the cost of giving up 25% of any increased value between the time of purchase and of resale or paying off the shared equity mortgage. This type of approach has been further extended into the Starter Home and Key Worker Living initiatives. All these schemes were implemented through Housing Associations, which both allocated the grants and loans and built and took part ownership of the properties where relevant. Such schemes were directed at meeting the aspirations of a wider range of households in need of shallow subsidy and at reducing the costs per household assisted to the public purse inherent in a new build programme. 3

5 Since these schemes were introduced encouraging mixed communities as well as increasing new house building and owner occupation have come to dominate the political agenda, with implications for the types of dwellings provided under LCHO schemes and the people likely to benefit (ODPM, 2005). As a result in 2005 the government announced a range of new and replacement schemes aimed at increasing the scale of the programme and further limiting the amount of public expenditure involved. These include Social Homebuy, which enables social tenants to purchase as little as 25% of their own social rented home; New Build Homebuy which replaces the existing Shared Ownership scheme with a shared equity loan approach; and Open Market Homebuy which involves 12.5% market and 12.5% government equity funding. The objectives of the reorganisation and expansion of low cost home ownership schemes remain those of the 1980 initiative to free up social housing for needier households; to spread available subsidy further by levering in additional private finance; and to expand the range of households able to become home owners. However the emphasis has undoubtedly changed to include the emphasis on mixed communities and to make the programme a central plank of public policy. The objective of this paper is to examine evidence on the existing schemes to clarify the roles that Shared Ownership and Homebuy have played in achieving affordable home ownership for lower income employed households. In particular we wish to examine whether these schemes are helping different groups of households as compared to those who are able to achieve owner occupation for themselves and indeed different groups between the two schemes. More generally does the evidence suggest that the objectives of achieving sustainable home ownership for a wider range of households at lower cost to public expenditure are being achieved without placing too heavy a burden on individual purchasers. In assessing the evidence it must be remembered that governmental objectives in developing these schemes are mediated by the private decisions of potential purchasers in that only those who see enough benefits for themselves will take up the option and these may not be the households that best enable government objectives to be achieved. There are a number of potential benefits from the point of view of the purchasers. There are also constraints in that potential purchasers must meet the allocation criteria specified by the government and the relevant Housing Associations. Moreover the properties on offer through the schemes are limited. So it is important to understand what the purchaser obtains eg is it a home of their own eg if they were living with friends or family beforehand; ; is it owner occupation or potential full ownership where stair-casing is allowed; is it a larger home or a house; is it a different location or different mix of location and affordability. In this context, first and most obviously, the schemes should make it easier for purchasers to achieve owner-occupation by reducing the down-payment, the regular repayments or both. However how purchasers assess the reduction in cost and associated constraints in relation to access, affordability and risk is not straightforward. Moreover there is usually considerable freedom in how Associations interpret the allocation rules As a result there are a number of possibilities in terms of who actually takes up the offer. 4

6 Ideally the households should be different from those who would anyway be able to purchase as first time buyers. However they may also be people who while apparently being similar to other first time buyers actually have other attributes. The most obvious question is that of risk. The government s objectives might be expected to allocate towards those who apparently have similar attributes to other first time buyers but who are for one reason or another higher risk eg because of their employment or household circumstances. So for instance single parent households with similar incomes to other first time buyers might be appropriately targeted. However it is also possible that those prepared to take up LCHO schemes might be households less prepared to take risks than the average first time buyer (as appeared to be the case in the early 1980s Littlewood in Booth and Crook, 1986). In these circumstances it might be argued that subsidy might be unnecessary but equally that additional subsidy is necessary to free up social housing. Second, the schemes may enable households to obtain different and more appropriate accommodation in terms of size and or the choice between houses and flats. This may be particularly important in pressure areas where there are continuing problems of overcrowding; in urban areas where social housing is mainly in the form of flats; and for social tenants who find it difficult to move within the sector unless they are in particular housing need. This is clearly desirable from the private decision maker s point of view. However, from the point of view of government this may be only a reasonable objective if it can be seen to reduce the subsidy required and or to free up other accommodation. Third, the schemes may allow households to find accommodation in other localities, something which is particularly difficult in the social sector - and may involve moving to a cheaper area to achieve more appropriate housing as well as moving longer distances for employment or family reasons. This again meets private objectives but is only a good use of subsidy if it reduces costs or increases opportunities for other less well off households. What can also be tested is whether take up and therefore value for money of the different schemes varies with the attributes of the local housing market. In many areas the costs of these schemes, especially when they involve new housing may not be significantly lower than other accommodation available on the market. In these circumstances one would expect purchasers to be obtaining specific attributes which provide the household with additional benefits as compared to purchasing on the market eg lower risk. In pressured areas one would expect to see the outcomes relating more to the type and location of property i.e. the extent to which low cost homeownership increases opportunities for those on the margins of home ownership as well as simply increasing affordability by the extent of the subsidy involved. To this end the paper examines: the detailed attributes of Shared Ownership and Homebuy schemes; the attributes of those who have been able to buy under the two main schemes; whether these attributes differ from first time purchasers; what households have purchased under the two schemes and where; 5

7 whether the schemes have worked to achieve their objectives across different housing markets; whether the purchases are affordable both at the time of purchase compared to other first time purchasers; and evidence about longer term viability. Together this analysis allows some assessment both of whether the government has been achieving its objectives within the current schemes and of whether the new schemes are likely to be more effective in the changing economic and housing market environment. 2. Low Cost Home Ownership Schemes Different schemes provide different attributes so it can be expected that who will take up the different schemes; what people obtain; and how easily they can afford their repayments will also differ. Equally the chances of meeting the government s objectives as defined above will differ with the schemes attributes. Traditional shared ownership schemes have some very specific attributes. They involve new building so increase the overall stock of housing. It is intended that shared ownership units should be offered first to existing social tenants so freeing up accommodation for others or to households on the waiting list. The rental subsidy involved varies greatly between different types of market areas because it reduces both the deposit and the regular payments required which depend on the extent to which social rents are below market rents in the particular area. There is also the very considerable benefit of being able to staircase to one hundred per cent at the purchaser s behest. On the other hand the type and location of properties is highly constrained by the emphasis on new building in particular the units involved are more and more likely to be smaller, flats in mixed tenure developments. Homebuy has rather different attributes and the potential purchaser is making a different set of tradeoffs based on short term access as compared to longer term costs. In particular there is no inherent ex post subsidy that depends on what happens to house prices as compared to the interest rate that would otherwise be charged. The benefits come from having lower outgoings and therefore increasing access and affordability at the cost of loss of potential capital gains. In this context one could expect very different attributes of purchasers using the scheme between different housing markets and perhaps between different groups with varying attitudes to risks and potential house price gains. The other major issue is that the shared equity loan is restricted to 25% - which limits the range of households for whom the scheme can be made affordable. Given these attributes we can now examine the evidence with respect of Shared Ownership and Homebuy to determine who actually has purchased within the two schemes and how they differ from one another across a range of variables relating to household composition incomes the dwellings purchased and the location of these dwellings. Further we can assess the extent of benefits that households obtain; their longer term affordability position. We can assess the extent to which government objectives are being achieved and the extent to which subsidy is enabling additional home ownership, Finally on the basis of this evidence we make some first assessment 6

8 of the impact of the new schemes on the potential to achieve both individual and government objectives. 3. The Attributes of Shared Ownership and Homebuy purchasers Evidence on the attributes of those buying under the two schemes; what they buy; and how much they pay is available from the census of sales provided by housing associations (CORE). The CORE (COntinuous Recording system) contains information on all sales via SO and Homebuy scheme, monitored by Housing Associations (HA) and Local Authorities (LA) in England Here we concentrate on purchases that have occurred between 2000 and In order to compare the LCHO purchases with market first time buyers, data from the Survey of English Housing data are also used. 3.1 Household attributes Table 1 provides some summary statistics about the attributes of the households involved. Appendix 2 provides the detailed analysis. It shows that there are very significant differences between those who purchase under the Shared Ownership programme as compared to those who use Homebuy to achieve owner occupation and further differences between both and market first time buyers. Shared owners are far more likely to be single people; to be younger; and considerably poorer than Homebuy households. Also a small but not insignificant number of shared owners are retired. Homebuy households are all in work and are generally better off, although still far less affluent than first time buyers in general. Indeed they appear to be much more like those who lost out on purchasing during their twenties with reasonable incomes but also more family responsibilities and somewhat older and more settled than first time buyers in general. They are also almost twice as likely to be from ethnic minorities than those in shared ownership and in both schemes the proportion is higher than among first time buyers overall Table 1: Household Attributes of Shared Ownership, Homebuy purchasers and First time buyers Shared ownership Homebuy First time buyer 34% 13% 12% 38% 44% 21% Income: < 15,000 15,000 25,000 Household type: Single person 38% 17% 23% Two parent 19% 46% 31% Household age < 29 42% 25% 35% % 67% 59% Ethnicity Non white 16% 28% 8% Employment status working retired Previous tenure Social renting Family and friends 92% 7% 99% 1% 95% 2% 13% 64% 7% 40% 15% 19% Number in sample 18,958 4,

9 About two third of the Homebuy purchasers appear to be previous social tenants, while the majority of the SO purchasers are from the private sector, although at least 40% are potentially social tenants as they come from family and friends accommodation. Table 2 shows how the household attributes of those using the two schemes vary between the pressured areas and the lower priced Northern regions, as indeed do first time buyers (appendix 2 gives the details for all the main regions). In the pressured areas of the South those on the lowest incomes are not able to benefit from the schemes in the way that they can in the North with more than a third of those using shared ownership and almost 60% of those using Homebuy earning more than 25,000 in these areas. Among first time buyers the proportion is over 80% - so even in pressure areas there is evidence that the policy is reasonably targeted. Otherwise SO and Homebuy purchasers (and indeed first time buyers) tend not to differ greatly from the national picture for each scheme except to the extent that single parents and indeed retirees seem to be particularly able to benefit from SO in the North. Fundamentally regional differences are a matter of income. At a national level, SO purchasers are younger, more likely to be single and not in work than first time buyers. Homebuyers on the other hand are older, more likely to be families and in work than first time buyers. Both are much more likely to be from ethnic minorities and to come from the social sector or in the case of SO from temporary accommodation. These cameos provide general evidence of who is able to benefit from the two schemes and how well the schemes are targeted. However it does not allow us to clarify the relative importance of each of these attributes in determining the makeup of households. For this we need to use statistical techniques to determine the extent to which patterns truly differ as a result of apparent differences in household attributes. Table 2: Household attributes: Regional analysis Income: < 15,000 15,000 25,000 Household type: single person two parent Household age < Shared ownership Homebuy First time buyer London & S E North London & SE North London & SE North 22% 39% 36% 8% 42% 50% 59% 32% 45% 11% 35% 35% 6% 36% 18% 49% 25% 65% 32% 47% 14% 44% 26% 64% 7% 12% 24% 26% 33% 62% 15% 26% 23% 35% 37% 57% Ethnicity Non white 22% 7% 37% 14% 12% 5% Employment status working retired Previous tenure Social renting Family and friends 95% 4% 14% 41% 78% 21% 11% 36% 100% 0% 68% 16% 99% 1% 71% 11% 96% 1% 3% 17% 95% 1% 14% 21% Number in sample

10 Statistical analysis To this end we use statistical analysis to look at whether the household characteristics are significantly different between those entering the two different schemes and also how they are different from open market first time buyers. Logistic regression model is useful here as it addresses situations in which we want to know which factors are significant predictors where the dependent variable is dichotomous (here, whether they are SO/Homebuy purchaser or not). This model also lets us predict the presence of an outcome based on the values of a set of independent variables. For example, we are able to predict the likelihood of being a shared owner or Homebuy purchaser based on the estimated coefficients of independent variables. For the analyses, we used CORE sales data, which include information on LCHO purchasers in each year. As a counterpart of the LCHO purchaser, the data on first time buyers was sourced from Survey of English Housing. Table 3 shows the number in the sample in each year. As we used the whole population for the LCHO purchasers, we have to make the counterpart s sample consistent. Based on the proportion of the sample to total number of first time buyer in each year (around 10% of whole moving household population), the number of first time buyers was weighted. The two data sets were merged into a file for the statistical analysis. Table 3. Number of sample Year SO Homebuy First time buyer* (no. of sample in the SHE) First time buyer** weighted number , , , , Total ,969,820 *Sample of the first time buyers Included in the Survey of English Housing data. ** The number of first time buyers was weighted, based on the proportion of the sample to total number of first time buyer in each year. The variables used are: age and ethnic group of household head, household type, economic status, regional variable, previous tenure, annual income, whether they are first time buyer or not, whether they were on LA waiting list or not before buying the property. In the models, all of the explanatory (independent) variables are categorical. The attributes of Shared Ownership purchasers Table 4 sets out the results of the model showing which factors are significant in determining who are SO purchasers, using first time buyers as the base. The success of the logistic regression can be assessed by looking at goodness-of-fit measures, such as model chi-square, as indicators of model appropriateness. The chi-squares appear significant at the 1 % level. The most crucial element involved in the interpretation of logistic regression is the value of odds ratio which is expressed as Exp(β) in the SPSS output. This is an indicator of the change in odds resulting from a unit change in the independent variable. The odds of an event occurring are defined as the probability of an event occurring divided by the probability of that event not occurring. 9

11 Odds = P ( event ) P ( no event ) In this case the odds in Table 4 means the probability of being SO divided by the probability of not being SO, in other words being a market first time buyer. Table 4. Model estimates of SO compared to first time buyers Variables in the Variables Equation Total London/SE SW/E Mid North odds ratio odds ratio odds ratio odds ratio odds ratio Age of ** 0.07** ** household head ** 0.08** ** * 28.72** 0.04** ** Ethnic White 1.15** 1.24** ** Mixed 4.95** 4.43** 20.33** Black 3.96** 2.92** * 2.08* asian/others Household type single hh 1.46** 1.13** 1.38** 1.57* 2.55** couple hh 1.40** 1.17** 2.06** 1.84** 5.40** lone-parent hh 3.09** 7.36** 1.60** 1.94* 1.96** multi-adult hh 3.27** 2.97** 5.24** 5.75** 18.86** two parents hh Economic Working 0.02** 27.71** ** 15.72** ** Status Retired 2.61** ** 11.43* 6.55* ** economically inactive Region North 0.14** Midlands 0.32** SW/East 0.20** London/SE 1 Previous LA tenants 0.76** 2.36** * 0.13** Tenure HA tenants 1.21** 2.18** 10.40** * Private tenants 0.32** 0.31** 0.40** 0.29** 0.18** Homeowner 1.46** 0.83** ** living with family/friends Annual income ** 12.89** ** ** ** ** 32.06** 97.57** ** ** ** 17.93** 35.35** ** 18.57** Constant log likelihood Model Chi-square ** ** ** ** ** R Square (Nagelkerke) *denotes significant at p<0.05, ** significant at p<0.01. If the value is greater than 1, then it indicates that as the category of the independent variable changes from the base category, i.e. the odds of the outcome occurring thus increase. Conversely, a value less than 1 indicates that as the independent variable s category changes, the odds of the outcome occurring decrease. In this case, for example, as seen in the third column (total odds ratio), we interpret that the 10

12 households aged between 50 and 64, compared to those older than 65, are 1.2 times more likely to be an SO purchaser and that residents in London and the South East region are more likely to be SO purchaser than other regions, as the odds of the other regions are significantly less than one. Apart from the age of the household head, all independent variables appear significant at the 99% confidence level. Annual income generates the most important variations. As compared to the highest income household (more than 45,000), those with lower income are far more likely to be SO purchasers (36 times for those with less than 15,000; 39 times for those with 15,000-25,000). In addition, based on the results, we may say that mixed ethnic (4.95), black ethnic (3.96), lone-parent (3.09), retired (2.61), previous HA tenant (1.21) are more likely to be SO purchaser. The table also shows the results when we run the model separately by four different regions and suggests significant differences. Income and economic status variables show the greatest effect as the unit changes. SO scheme in London and the South East region are more likely to support somewhat income level (which is between 22,000 and 25,000 between 2000 and 2004), whereas SO purchasers in the other regions are more likely to be in the lowest income group(less than 15,000), especially in Midlands and the North region. In London and South East region, and the North region, retired household are more likely to be SO purchasers, compared to those who are economically inactive. In the South West, East and Midlands, on the other hand working households are more likely to be SO buyers, compared to those economically inactive. Compared to two-parents households, lone parent households and multi-adult households are much more likely to be SO purchasers in London and the South East region. That is also true in Midlands. Multi-adult households are more likely to be SO purchasers, compared to two parents household in the South West, East, and North regions. It is noteworthy that SO purchasers in London and South East regions are much more likely to be younger than other regions. It means that SO schemes are supporting quite different age groups in London/South East and other regions. Mixed race households are the most likely SO purchasers in London and southern regions, whilst black minority household are more important in Midlands and the North (5.75, respectively). The previous tenure position differs between regions. In London and the South East region, previously social tenants (2.36 for LA tenants for HA tenants) are more likely to benefit from the scheme. In the South West and East region, previous HA tenants(10.40) are more likely to be the benefactors. However in the Midlands and the North, households in temporary accommodation are more likely to become SO purchasers; along with previous homeowners (5.36) in the North. In summary, SO purchasers tend to be lower income group, working households, retired household, ethnic minority, lone parent/multi adults, previous social but not 11

13 necessarily LA tenants (except in London and the south east region), and London or South East residents. The attributes of Homebuy purchasers Table 5 shows the results of the model in terms of the factors which significantly affect who purchases under Homebuy using first time buyers as the base. The model chi-squares suggest that the model overall is appropriate at the 1 % level. Table 5. Model estimates of Homebuy compared to first time buyers Variables Variables in the Equation Total London/SE SW/E Mid North Odds ratio odds ratio odds ratio odds ratio odds ratio Age of household head * Ethnic White ** Mixed 2.60** 3.97** 6.97** 0.46* 0.00 black ** 99.67** 51.87** asian/others Household type single hh 0.27** 0.36** * 0.22** couple hh 0.45** 0.48** 2.06** 0.44** 0.76 lone-parent hh 3.71** 4.87** ** 3.05** multi-adult hh 3.74** ** 21.55** 2.04 two parents hh economic working 93.52** ** Status retired 76.15** economically inactive Region North 0.01** Midlands 0.21** SW/East 0.68** London/SE 1 previous LA tenants 4.77** 16.96** 9.63** 5.98** 0.71 tenure HA tenants 25.26** 41.32** ** 24.21** 6.25** Private tenants 0.31** 0.32** 0.52** 0.42** 0.34** homeowner 0.41** 0.43** 0.65* 0.48** 0.36 living with family/friends Annual income ** 10.87** ** ** 58.23** ** ** 21.01** 94.15** Constant log likelihood Model Chisquare ** ** ** ** ** R Square (Nagelkerke) *denotes significant at p<0.05, ** significant at p<0.01. Homebuy purchasers are more likely to be lone parent household (3.71) but less likely to be single or couple household (0.27, 0.45 respectively) than two parents households. They are more likely to be working households (93.52) and in a rather 12

14 higher income group (those with income between 25,000 and 45,000, 13.24). Also they are more likely to be previous HA and LA tenants and residents in London and South East region. The age of household head does not show any significant difference, apart from that those aged between in London who are more likely to be Homebuyers. Economic status also does not appear as a significant factor, when considered at different regional levels, except that working household are much more (108.1) likely to be Homebuy purchaser in the South West and East region. Household income was a significantly influential factor only in the South. Especially in London and South East, rather higher income households (between 15,000 and 25,000 and between 25,001 and 45,000) are more likely to use the scheme than those in the lower income group. On the other hand, in the South West and East regions those on the lowest incomes are more likely to access the Homebuy scheme. Across regions, lone-parent households, multi-adult households and those who have previous been social tenants are more likely to access the Homebuy scheme. Summarising the differences: those entered Homebuy scheme are generally in London and the South East region, and slightly higher income groups are more likely to be supported. In the Midlands and North regions, economic status and income do not appear as significant factors. Those who were previously HA and LA tenants and lone parent household and multi-adults household are more likely be Homebuy purchaser in the Midlands. In the North, in particular lone parent households and those previously HA tenants are more likely to be Homebuy purchasers. The attributes of SO, compared to Homebuy Table 6 shows how SO purchasers differ from Homebuy purchasers using the same independent variables. The model chi-squares appear significant at the 1 % level and the R 2 of the model are reasonably high (between 31% and 50%). There are no significant differences in age, economic status, income level between the two groups. However, household characteristics differ. As a whole SO purchasers are more likely to be white ethnic (1.33) rather than ethnic minority; single (2.22) or couple (2.04) households and multi-adult households (1.52); residents in North region (2.22); y previously temporary accommodation residents; not first time buyers; and those not registered on the LA waiting list. The estimates show no big difference across regions. It is noteworthy that SO purchasers are less likely to be previously LA and HA tenants, but more likely to be those not on the LA waiting list (2.61), especially in Midlands (7.44) and North (20.82). This means that majority of households using this scheme do not enter as a result of the local authorities decision process although they still might be potential social sector tenants. They are also less likely to be first time buyers, especially in the South West and East (1.73) and Midlands (1.65). 13

15 In the North region, retired/single and couple household and those previously homeowner appear to be more likely to be SO purchasers, implying both applicants and allocation rules in the region might be different from other regions. Table 6. Model estimates of SO, compared to Homebuy Variables in the Variables Equation Total London/SE SW/E Mid North odds ratio odds ratio odds ratio odds ratio odds ratio Age of household head * * Ethnic white 1.33** ** 2.48** 4.11* mixed 1.45* * 4.89 black asian/others Household type single hh 2.22** 2.44** 1.47* 1.83** 11.44** couple hh 2.04** 2.08** 1.65** 2.10** 5.04** lone-parent hh * multi-adult hh 1.52** 1.91** * two parents hh economic working status retired * economically inactive Region North 2.26** Midlands 0.45** SW/East 0.25** London/SE previous LA tenants 0.15** 0.16** 0.18** 0.15** 0.57 tenure HA tenants 0.09** 0.10** 0.12** 0.04** 0.04** Private tenants * ** 1.03 homeowner * living with family/friends Annual income ** First time buyers No 1.34** ** 1.65* 2.14 Yes Those on LA waiting list No 2.61** 1.65** 3.24** 7.44** 20.82** Yes Constant log likelihood Model Chi-square ** ** ** ** ** R Square (Nagelkerke) *denotes significant at p<0.05, ** significant at p<0.01. These findings suggest that the two schemes are helping households who would not otherwise have become home owners; and also that they are helping different types of 14

16 households in different housing markets. Homebuy clearly assists s rather better off households than SO but the programme also seems to be overcoming real constraints eg with respect to entry to owner-occupation for ethnic minority households. The previous tenure pattern presents a rather less clear picture. In some contexts the programme may be doing relatively little directly to free up housing for social tenants but may well be accommodating households who otherwise would end up in social rented housing. 3.2 The Properties Purchased There are obvious reasons why the properties purchased should differ between schemes because Shared Ownership properties are all new build or renovated while Homebuy purchasers are likely to be looking in the market for existing homes. Table 7 gives summary statistics on what is purchased by the three groups and shows very significant differences reflecting both available housing and the reasons for using the particular access route (Appendix 3 provides the detail). Table 7: Property Attributes Shared ownership Homebuy First time buyers Flat/maisonette Total London and SE North Three plus bedrooms Total London and SE North Median market value of property ( 000s) Total London and SE North 38% 48% 41% 28% 24% 33% % 21% 3% 68% 65% 72% % 37% 6% 57% 48% 64% Distance from previous home Short 96% 88% 92% Four out of 10 homes bought by SOs have been are purposed-built flats or maisonettes - and this proportion has been rising rapidly as the emphasis on increasing total output has increased. The proportion is particularly high in London/SE but is also significant in the North, whereas it is much lower in the Midlands and SW/E. At the other extreme far more Homebuy purchasers obtain houses than first time buyers as a whole with almost 80% able to purchase houses even in London and the South East. SO purchasers appear happy to be able to buy while Homebuy purchasers appear to be looking for the home they want to live in into the longer term. Of interest is the high proportion of flats among retirees in SO - at 47% in the Midlands, 58% in the North and 84% in London. This almost certainly reflects the extent to which such households are buying housing with additional care of one form or another which is most readily available in the social sector. 15

17 The picture is similar with respect to the size of property as measured by the number of bedrooms significantly lower size properties for shared owners than first time buyers and significantly higher for Homebuy purchasers and across all the three groups, generally smaller dwellings in London and the South East than in less pressured areas. The property prices of dwellings purchased by SO and Homebuy scheme, which are market prices before discount and grant during the period between 2000 and 2004, is compared to those of first time buyers. Due to the small number of sample in the SHE data, the property value of first time buyers are sourced from Nationwide online data. The pattern with respect to property values is more complex. In part because the properties are new, more likely to be in high valued areas and increasingly in mixed tenure developments, the value of shared ownership properties average values are very much higher than those for first time buyers as a whole. Homebuy prices are similarly high again because they are concentrated in higher priced areas but also perhaps because of their size. Once the figures are broken down by region the importance of location becomes clearer. There are then few differences between average values across the three groups even though the properties are themselves very different (Figure 1). The major difference is that those who bought houses by Homebuy scheme in North and by SO in SW and East regions are about 10% expensive than those of market first time buyers based on median values. Thus in general purchasers of low cost homeownership properties are not purchasing something the market sees as less valuable but are able to buy in higher pressure areas as a result of the subsidy. Figure 1: Property values by region (median) property value (median) north mids sw/east London/se SO (A) homebuy(b) first time buyer ( C ) In addition we could use the more broadly based data from the first time buyers average property price from Survey of Mortgage Lenders, which provides national median property price of first time buyers based on building society mortgage completions. On this basis the median price between 2000 and 2004 for first time buyers was 70,788, which is much cheaper (around 30% cheaper) than those for LCHO purchasers. 16

18 The figures have important implications. Based on several previous studies, Low Cost Homes have been seen as on average about 20% cheaper than the average price paid nationally by market first time buyers (Littlewood and Mason 1984, Price 1990). This new evidence suggests that there is a changing trend with LCHO purchasers since 2000 not purchasing cheaper properties than market purchaser any more. Figure 2 shows the property price of LCHOs as compared to lower quartile prices of dwellings transacted. The property values of SO and Homebuy in London/SE and in the SW/East are 10-20% higher than those in the lowest quartile price, 20-30% expensive than those in Midlands and nearly more than half expensive than those in North. This further suggests that recent LCHO purchasers are not down-end market purchaser any more. Figure 2: Property values compared to lowest quartile transactions: regional analysis property value (median) north mids sw/east London/se SO (A) homebuy(b) LR 1LQ property ( C ) A final important issue with respect to the properties purchased is their location, in particular because one of the recognised problems of social renting is that there is very little capacity to move (Cho and Whitehead, 2003). The evidence (Figure 3) suggests that SO enables very little longer distance mobility but that Homebuy tenants are more likely to move longer distances than first time buyers. Other evidence (Cho and Whitehead, 2003; 2004) suggests that even within short distance moves (within same district) they move relatively further to cheaper areas in order to obtain the type and size of property they desire. Figure 3: Distance moved 100% 80% 60% 40% 20% 0% SO homebuy first time buyer long distance short distance

19 Looking at the regional picture (Figure 4) shows that this capacity to move among Homebuy households is less in London and the South East than in the North and South West/East. Only in the Midlands is the picture different where first time buyers are more likely to move longer distances. Figure 4: Distance moved: regional analysis 100% 80% 60% 40% 20% 0% SO home first t SO homefirst t SO homefirst t SO home first t north mids sw/east London/se long distance short distance Affordability Homeownership offers considerable benefits. It offers choice, flexibility and control over their accommodation, and there is the prospect of added security and nest egg once the mortgage has been paid off (ODPM 2005). But with the benefits of home ownership also come responsibilities for meeting mortgage payments, including any rises in interest rates, and for the upkeep of the property. People entering homeownership need to know that they can afford it over the long term. Affordability is a complex issue and a number of different measures can be used for the assessment. It is traditionally suggested that households can spend up to 30% of their net income on rent or mortgage payments. A recent study recognised that some households in London could be expected to contribute as much as 50% of net income towards their total housing costs at least for a short period, noting that the amount of residual income available after the identified costs have been paid (Lee, 2004). This section examines whether the LCHO purchases in the period appear to be affordable both at the time of purchase (and to some extent into the longer term) and whether this has varied between different housing markets. As affordability measures, we use price to income ratio (PIR); the ratio of housing cost to income; and residual income. 4.1 PIR Households buying their home are better off than tenants in the private or social rented sectors. There are a number of studies on the income difference across tenure (Allen 1982, Levison 1990, London Research Centre 1989, Lynn 1991, Wood 1988). General points emerging from those studies are first, home buyers on average have 18

20 had incomes that are one and a half times the average but first time buyers tend to have incomes that are only just above the average; while the incomes of households who buy through the LCHO schemes (right to buy, house purchase grant or shared ownership schemes etc.) have been just below that average. Secondly, there has been remarkably little difference in the average incomes of household buying under the different LCHO schemes. They have all been between 80 and 90% of the incomes of market first time buyers and about double those in social tenants but less than two thirds of the income of homeowners with a mortgage (Littlewood and Mason, 1984; Housing Corporation, 2004) Incomes of the LCHO purchasers in 2000s show a different picture (Figure 5 and ratios below which clarify differences). Their incomes are only about half or so of that of first time buyer and the pattern is consistent across regions. Homebuy purchasers incomes are around 20% higher than those of SO across regions but still well below those of first time buyers. Figure 5. Monthly income Monthly income (median) north sw/mids/east sw/mids/east London/se SO (A) homebuy(b) first time buyer ( C ) This gives an important message that the affordability of low cost home buyers might have worsened considerably over the years as house prices have risen. Moreover taking into account the evidence that SO and Homebuy properties are not necessarily cheaper in comparison with those of market first time purchasers suggests that it is only the subsidy that makes purchase possible. Our data set unfortunately does not provide evidence on PIRs between LCHO buyers and first time buyers, because of the small number of property values of the first time buyers in the set. As an alternative we use the national average first time buyers PIR from CML. These figures (Table 8 and figure 6) show first that there is definite North and South gradient in house prices, suggesting that more households living in the North of England can afford to buy on the open market than can their counterparts in the more affluent South. However, the level of affordability may not reflect this directly because of the North and South gradient in household incomes. 19

21 Table 8. Price to Income Ratios (PIR) region Median Mean N Std. Dev. SO North Mids Sw/east London/se Total homebuy North Mids Sw/east London/se Total first time buyer* north mids Sw/east London/se Total 2.7 *Source: CML/Bank Search Regulated Mortgage Survey Figure 6. Price to Income Ratios (PIR) PIR (Median) north mids sw/east London/se Total SO homebuy first time buyer 2.7 The evidence of PIRs for SO and Homebuy purchasers shows a clear South and North gradient- with higher PIRs in the South and lower PIRs in the Northern region. Moreover SO buyers PIRs are consistently higher than those for Homebuy purchasers even though their house prices are somewhat lower. Table 9 shows median PIR by household type by different regional areas. The PIRs for the working household purchasing LCHO products are comparatively higher than those for average working household (Wilcox, 2003). 20

22 Table 9. Median PIR by household type Region Working Retired unemployed/inactive SO North Mids Sw/east London/se Homebuy North Mids Sw/east London/se Average North Working household* Mids Sw/east London/se * Family Resource Survey PIR for working households with a household representative aged from 29 to 39 inclusive. Calculated with house prices for 4/5 room dwellings and average household incomes It also shows PIRs for retired and economically inactive households, which are much higher than those of working households, even though those economically inactive groups, especially the retired households, seemed to have put up much higher equity stakes as down payment when the properties purchased (Figure 6). Working households are considerably less likely to have savings when their properties bought as presumably they tend to be younger and in early stage of employment. As seen in the Figure 7, the savings used for down payment when they bought their accommodation for retired SO purchasers were around 50% and 75% of the price of the property purchased, compared to only 3-5 % for working households. The high proportion of savings to property value helps ensure that retired households can afford their accommodation even if the PIR is high. Figure 7. Ratio of saving to property value (Shared Ownership buyers only) SO: ratio of saving to property value north mids sw/east London/se working retired unemployed/inactive

23 4.2 Housing costs Absolute housing costs vary considerably across the types of tenure. There was also a much greater variation in the percentage of income spent on housing costs among poorer households than there was among those who were better off. This suggests that people differ in the way they allocate their money (Littlewood and Mason 1984). Some choose to spend more on their housing and cut back on other expenditure, while others keep their housing costs lower in order to spend more on other things. Figure 8 shows the monthly housing cost of those in LCHO schemes compared to those of first time buyers. There are only very small differences between SO and Homebuy purchasers with Homebuy purchasers having slightly lower costs but also only a 10% difference between these groups and first time buyers. Again the patterns are rather consistent across regions. Figure 8: Monthly housing costs Monthly housing cost (median) north mids sw/east London/se SO (A) homebuy(b) first time buyer ( C ) However, once the costs to income ratios are measured, the differences are very large (Figure 9), with SO purchasers paying the highest proportions and Homebuy not far behind. Both are clearly much more burdened than the average first time buyer even after subsidy. 22