Affordable Models For Community-led Housing Projects

• Published date: 12 November 2020
• Subject Matter: Real Estate and Construction, Real Estate, Landlord & Tenant - Leases
• Law Firm: Wrigleys Solicitors
• Author: Ms Laurel Sleet and Emma Ridge

Long-term affordability is often a key aim for community-led housing groups. Here, we outline models which can facilitate perpetual affordability.

You may already be familiar with freehold and leasehold, which are the two main ownership options in the mainstream housing market. However, these two tenures offer groups very little control over the future prices of the property. It is therefore very difficult to ensure affordability for future buyers.

Groups should therefore consider a wider range of options, including rental and part ownership tenures, which can be tailored to the unique requirements of the project.

Shared ownership

Shared Ownership is a part-ownership model where an individual purchases a share of their home. The standard model, which lenders understand, requires the individual to acquire a share of between 25% and 75%. The individual pays a deposit, usually of 5% or 10% of the share they are purchasing. This means the deposit is lower than usual (as it is only 5 or 10% of a reduced share) so it is more widely accessible. The remaining, non-purchased share would usually be owned and managed by the group, and the individual would pay rent and service charges on this element. The specifics will depend on whether the group adopts the Homes England standard model or a bespoke model.

The individual has the option to purchase additional shares, up to 100% ownership, through a process known as 'staircasing'. The freehold ownership of a property would be transferred to the individual when they staircase to 100%. Flats are normally leasehold for practical reasons and staircasing to 100% in such circumstances means an individual would own 100% of the lease, not the freehold.

An individual's ability to staircase cannot usually be limited. However, there are various exceptions which CLH groups might be able to use to cap the percentage of staircasing. These are rare (e.g. rural exception sites), but if a CLH group falls within an exception, capping the percentage that can be staircased helps to maintain affordability in perpetuity.

Shared equity

Shared equity is where an individual purchases their home (usually with a mortgage) and the CLH group also invests and has an "equity share" in the property i.e. the group owns a fixed percentage of the property. This percentage does not change, and its value goes up and down with the market.

It allows an individual to buy, for instance, 80% of a property with the group owning the other 20%. The group is paid...