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The writer is a journalist specialized in social affairs
After the impact of the Grenfell Tower tragedy and the still-developing damp and mold scandal, social landlords can breathe a sigh of relief this week at the prospect of a new, more sympathetic government. It would be foolish to relax. Public scrutiny is likely to return as a new crisis looms: the desperate fate of shared ownership.
Shared owners are usually lower-middle income families. Priced out of the mainstream housing market, they buy a share of a property (usually less than 50 percent of its value, making a down payment usually between 5 and 10 percent of that share’s value) and rent the rest of a housing association. . The product was designed more than thirty years ago to meet the needs of low-paid key workers, such as teachers and nurses, in Britain’s expensive cities. It worked well: as their salaries increased over time, they could ‘move up’ to take full ownership of their homes. Meanwhile, the real estate itself increased in value. It offered a good deal compared to private rentals.
Things have changed in the past twenty years. As the cost of housing soared, with the average home price tripling between 1999 and 2019, the product became popular with a growing group of high-priced, middle-income earners. Central government funding for social housing has been dramatically cut in the years since 2010, forcing housing associations to be creative in finding ways to house the poorest families. They did this by building shared ownership homes and funneling the profits back into social housing. They balanced their books on the backs of the not quite poor.
Because when things go wrong, shared ownership is a really bad deal. Shared owners now face a triple threat to their finances, leaving many in a desperate position. Higher mortgage payments are being exacerbated by housing associations rapidly raising rents for their share of properties – linked to the consumer price index, which has skyrocketed over the past two years. In the wake of the building safety crackdown caused by the Grenfell fire, service costs for building maintenance (including cladding repairs or 24-hour security guards) have also skyrocketed.
The shared ownership agreement requires a buyer to take on the maximum equity they can afford when assessing their eligibility. On the day they complete and collect their keys, they are already under financial strain. No shared owner enters into an agreement with the capacity for rapid and staggering growth in monthly housing costs. Yet one co-owner I interviewed in east London described how their service charges had almost doubled since signing her agreement at the end of 2018. Meanwhile, her rent has risen from £630 to £883; her mortgage payments have also doubled. Her total monthly repayments now exceed £2,000. They are stuck in a building that has had its cladding completely removed, meaning the lease cannot be extended and the property cannot be remortgaged.
Many shared owners now feel much worse off than private rentals, even though rents in London have risen by 7 percent in the past year. They are keen to get out, but even many who own flats in blocks with no cladding or fire safety problems say they cannot find a buyer. The combination of house price inflation and rental prices that make saving for a deposit unthinkable has put even shared ownership out of reach of the lower middle income market. The ongoing political battle over the future of leasehold has only increased the uncertainty for potential buyers.
In March, a long-running select committee inquiry finally emerged, with MPs concluding that shared ownership is now failing to provide an affordable route to home ownership. Worse still, it has become a form of financial entrapment. Housing associations and successive governments need to be challenged about their role in creating it.