Written evidence submitted by End Our Cladding Scandal [FSS 074]
We represent leaseholders, including shared owners, who are directly affected by the building safety crisis in England and Wales. There are an approximate 200,000 shared owners in England. Many of them live in blocks of flats. London has a particularly high percentage of shared owners impacted by the building safety crisis.
This submission on the finances and sustainability of the social housing sector addresses questions that relate directly or indirectly to the shared ownership scheme, from a shared owner perspective.
This question illustrates one of the main issues with the shared ownership scheme: shared ownership is ‘social and affordable housing’, yet it is also ‘market housing’. It is currently largely delivered under an Affordable Homes Programme yet must provide financial returns to enable the development of further ‘affordable housing’ development.
In practice, the cross-subsidy model inevitably creates a disconnect between the objectives of different stakeholders: government, housing providers and shared owners. At worst, it crystalises conflicts of interest where the interests of shared owners are often second to those of other stakeholders. This is often demonstrated when registered providers refer to their ‘social purpose’, i.e. delivering homes for social rent to people on the waiting list – something shared owners are not told about when their buy into the shared ownership scheme. They may in fact be reassured by the ‘not-for-profit’ image of registered providers, where in fact the transaction they enter into is never governed with this ethos. Shared ownership sales and income from shared owners’ rent as primarily seen as an income stream. The relationship between shared owners and registered providers is not one where support is provided, as illustrated by our ‘Dereliction of Duty’ report, where we set out how housing association failed leaseholders trapped in the building safety crisis. For more information, you can download the report from our website: https://endourcladdingscandal.org/building-safety-crisis/new-report-shows-housing-associations-have-failed-leaseholders/
The Government’s development funding model creates a need for housing providers to extract monies from shared owners at different stages in the lifecycle of shared ownership, including:
The ongoing process of value extraction often results in shared ownership homes becoming increasingly poor value for money, and in many cases unaffordable for shared owners.
The building safety crisis has shown how undesirable the shared ownership tenure is for shared owners who are trapped, unable to sell or remortgage. We carried out a research survey in November 2021 to understand how housing association leaseholders, including shared owners, were coping with the crisis amidst alarming reports of huge remediation bills being sent to them. Some 352 leaseholders from 35 housing associations responded to the survey. The vast majority of respondents (83%) had used the government-backed shared ownership scheme to buy their home.
Our findings were published in our report Dereliction of duty: How housing associations failed leaseholders trapped in the building safety crisis published in February 2022. Key findings from the report include the following:
The building safety crisis has widely exposed how the tenure is stacked against shared owners, causing financial hardship for many, while protecting the interests of housing associations. There is an unacceptable imbalance between the risks and costs that first-time buyers are expected to bear, and the risk-free financial security afforded to large institutions by the scheme, which is not matched by any requirement to support those they sold homes to.
The huge costs of the building safety crisis, either from building safety remediation – for those not covered by any of the Government’s schemes – or from having to pay for interim measures (e.g. waking watches) or significantly higher buildings insurance costs, acts as a magnifier exposing the many flaws of the scheme. We know that some shared owners have lost their homes as they were unable to pay for increased service charges due to interim costs such as waking watch, increased buildings insurance and so on. Others are facing very high interest rates as they are unable to remortgage. Some are now accidental landlords in a very precarious situation as they facing the same costs as other landlords but are prevented from making any profit from subletting due to the scheme’s rules.
It is worth remembering that shared owners were not able to buy a home on the open market and are a cohort on lower to middle incomes, where single women, single parents with children, older people and disabled people are overrepresented. This cohort cannot easily accommodate higher outgoings and the mechanics of the scheme, combined with the building safety crisis exposes them to debt and impoverishment by design.
Monitoring of the shared ownership scheme and what happens to shared owners is scarce. It largely takes a short-term perspective, focusing on recent buyers. We are not aware of any monitoring from the government or other authorities providing funding for shared ownership of the impact of the building safety crisis on the viability of the scheme for shared owners impacted. There is however a mounting body of evidence showing a disconnect between aspirations for the tenure as a ‘step on the ladder’, marketing used by housing associations, and the experience of shared owners. This is magnified for those who are trapped, unable to remortgage, staircase or sell their property, and facing years of uncertainty, financial difficulties, as well as being unable to move on with their lives. We are particularly concerned about the failure to monitor the number of and severe financial impact of distressed sales on shared owners. For example, these sales are conflated with staircasing data – see Mayor of London response to written question from Siân Berry AM: https://www.london.gov.uk/who-we-are/what-london-assembly-does/questions-mayor/find-an-answer/cash-sales-shared-ownership-homes-2
Value for money and low risk
It is not clear whether this question is referring to ‘value for money’ and ‘low risk’ for shared owners or housing providers.
From the perspective of shared owners, there is an increasing body of evidence suggesting that shared ownership is not always good value for money, and for them it is certainly not low risk. It could be argued that, by contrast, the scheme is very good ‘value for money’ for housing providers – guaranteeing an inflation proofed income and several opportunities for further wealth extraction – and it is also ‘low risk’ for them as shared owners are liable for all major works costs, even where these are life-changing, as evidenced by the building safety crisis.
Affordability checks that shared owners undergo to join the scheme do not carry out stress testing over the long term for rent and service charge. Providers also insist on buyers purchasing the maximum share they can afford at the time of purchase. This designs out any ability to cope with a sudden increase in outgoings, such as increased service charges, including those driven by the building safety crisis. This presents very significant risks for shared owners. Such risks are obviously compounded when inflation is high.
In buildings where the housing association is not the freeholder, for example ‘section 106’ buildings, shared owners face even more difficulty accessing information compared to other leaseholders and in buildings with mixed tenures they also face higher service charge costs than private leaseholders.
The powers of the Regulator of Social Housing do not currently appear to enable them to tackle these issues or monitor outcomes for shared owners. This is compounded by the fact that data is lacking, for example staircasing data does not separate incidences of staircasing form a shared owner buying additional shares from staircasing taking place as part of a simultaneous ‘staircase and resale’ which can also be a distressed sale. There is currently no requirement for housing associations who have this data to publish it.
Government, funding authorities and the Regulator of Social Housing should undertake robust data collection, evaluation, and reporting on the ongoing financial sustainability of shared ownership for shared owners.
Complexity of financial and corporate structures proliferating in the social housing sector
There is evidence that shared owners are being left vulnerable to the consequences of increasingly complex financial and corporate structures. For example, whether the housing provider is the freeholder or just a sub-lessee with a short interest in the lease – can have a profound impact on shared owners’ experiences of the scheme.
It is unfortunately in the commercial interests of providers of shared ownership to promote benefits and to downplay the complexity and hazards involved. With the building safety crisis, many shared owners experienced the negative impact of the complex structures used to deliver the scheme. Providers’ lack of clarity and failure to communicate appropriately was a significant finding of our aforementioned research and subsequent report. Regrettably, there has not been any discernible progress in the 15 months since its publication.
May 2023