2nd October 2020

What does the First Homes scheme mean for housebuilders?

The First Homes scheme has the potential to allow a whole generation of young people who’ve struggled to get on the property ladder to get started. It could also have big implications for housebuilders, both national and SME.

First Homes will be marketed and sold at a discount of at least 30% below market value, and in high house price areas this could reach as high as 50%. This will have a knock-on effect for providers and developers, so to encourage housebuilders to engage with First Homes, the scheme will see First Homes themselves being exempt from the Community Infrastructure Levy (CIL).

The government proposes to deliver First Homes through two routes: section 106 developer contributions and through an amendment to the policy on exception sites. First Homes fall under the remit of affordable housing, and the scheme proposes that a minimum of 25% of all affordable housing secured under section 106 should be First Homes. 

However, as the government want to start this scheme quickly, they initially plan to secure First Homes through the current planning system before these changes are fully implemented. 

Now, the CIL is being replaced by the nationally set, value-based flat charge Infrastructure Levy. The whitepaper states “this reform will enable us to sweep away months of negotiation of section 106 agreements and the need to consider site viability.” So, it will be interesting to see exactly what amendments for site viability the government have in mind. Rural Exception Sites are highlighted in the First Homes scheme consultation response as areas that could be “used to their full potential”.

At present, there are two broad routes for local planning authorities to secure developer contributions, both of which are discretionary for authorities: section 106 agreements and the CIL. Local authorities secure affordable housing via section 106, but the CIL cannot be spent on it. With section 106 planning obligations removed, the government propose authorities would be able to use funds raised through the Infrastructure levy to secure affordable housing.

There is a new provision to ensure affordable homes are good quality too. Currently, if section 106 homes are not of sufficient quality, developers may be unable to sell them to a provider or have to reduce the price. To ensure developers are not rewarded for low-standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider were willing to buy the homes due to their poor quality.

Local authorities obtained £7bn in section 106 developer contributions in 2018/19, £4.7bn of which was in the form of affordable housing contributions (30,000). As the government states that the new Infrastructure Levy will raise more revenue and deliver more affordable housing, aspects of the planning system change and the First Homes scheme could mean higher costs and greater scrutiny for developers.