Committee of Public Accounts: Press Notice

19th PAC Report 2006-07

A Foot on the Ladder: Low cost home ownership assistance

Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:

“Increasing the level of home ownership among low income and other priority groups is a highly desirable social objective. With house prices rising at a greater rate than increases in average earnings, however, a growing number of people cannot afford to buy their own places - especially those trying to buy for the first time.

“But inefficiencies and poor targeting of low cost home ownership assistance are wasting large amounts of money. And information on the effectiveness of the assistance is thin. For instance, the Department for Communities and Local Government is in the dark about the effect of its assistance on local housing markets - in particular the extent to which it might actually drive up prices further - and the proportion of those who part-purchase properties who actually take the intended path towards full-ownership.

“It is unclear whether the availability of this assistance is helping to recruit and retain essential public workers. And controls for recovering this assistance where the workers leave those key jobs are weak.  Poor controls on the housing waiting list are also permitting those who are less deserving to gain assistance at the expense of those who are genuinely in housing need.

“This is a well-meaning scheme but, without much tighter managerial grip and much better information on how the money is being used, the first rung of the home ownership ladder will remain beyond reach for many needy families.”

Mr Leigh was speaking as the Committee published its 19th Report of this Session which, on the basis of evidence from the Department for Communities and Local Government and the Housing Corporation, examined how better targeting and further refining of the low cost home ownership assistance programme could improve efficiency and help more people .

An imbalance between the demand and supply of housing has resulted in recent years in increasing numbers of people finding it difficult to afford to buy their own home. The Department of Communities and Local Government provides financial help, via Registered Social Landlords, to those who would otherwise be unable to buy, including key public sector workers in London and the South East and East of England. Despite the Department spending an increasing amount of its total spend on affordable housing on low cost home ownership assistance, demand for help exceeds availability.

Low cost home ownership assistance therefore needs to be properly targeted. Some HomeBuy Agents, those Registered Social Landlords with most responsibility for delivering the assistance, may however be too far removed from local housing markets to have the detailed knowledge needed to target help where it is most needed. There is also a risk that the assistance will push up house prices in locations or sectors of the housing market where demand for properties is already high. The Department has little information however on the impact on local housing markets. Nor does the Department collect sufficient information on what happens to low cost home ownership properties after their initial purchase or the extent to which people subsequently move on to purchase their property outright.

Increased spending on low cost home ownership assistance means there is less money available for building affordable housing for rent. It can however be a cost-effective way of freeing up a social rent home for another family and helping to relieve the pressure on housing waiting lists when targeted at existing social housing tenants or those households in priority housing need. The assistance going to these two groups has nonetheless been limited, and the new Open Market HomeBuy product, with its requirement to purchase 75% of a property, will make low cost home ownership unaffordable for many of these households.

The Department currently cannot separately identify the effects of the assistance from other measures employers are taking to improve the recruitment and retention of key public sector workers, nor is it able to tell whether the assistance is being targeted at individuals in those institutions where the benefits of retention are greatest. The list of workers eligible for help has grown to such an extent that there is a risk of assistance being spread too widely to have the intended impact. Controls over the recovery of assistance should a worker leave eligible employment need further tightening.

The benefits that low cost home ownership brings to the affordable housing sector need to be maximised to ensure that more money is available to help more people. In 2004-05 there was a general lack of controls within Registered Social Landlords to ensure that they sold purchasers as large a share of a property as they could safely afford and so minimised the amount of assistance given. To make the assistance go further, commercial lenders have agreed to part-fund the new Open Market HomeBuy product but under the terms of this deal the lenders are unlikely to suffer any losses if house prices fall and will receive the financial gains from increased house prices. These gains previously went to Registered Social Landlords for reuse in the affordable housing sector. Some Registered Social Landlords have been slow to reuse the gains that they have made and there is scope for Landlords to use their equity stakes in low cost home ownership properties as security for raising extra funds to invest in affordable housing.

Notes for Editors

1. Contact details for requests for further comment from Mr Edward Leigh are provided below. ISDN facilities are available for broadcasting purposes.

2. The full text of the Committee’s Conclusions and Recommendations is attached to this press notice.

3. This report can be accessed via the internet from around 11.00 am on the day of publication.

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