This week is Shared Ownership week – but do you, as a developer, really know what Shared Ownership means? And are you making the most of it?

Despite some negative comments from the media regards Shared Ownership as a way to ‘get on the ladder’, this method of partial home ownership is becoming more mainstream as local authorities are encouraged to get their eligible households to buy in to properties, rather than being in subsidised rental properties for the foreseeable future. And as a developer, you will see many larger schemes have a Shared Ownership requirement amongst the affordable housing element. While housing associations, private or local authority led, take all types of units (shared ownership, affordable rent and social rent) it is important to understand what the difference is between the categories as they can massively impact the offers you will get from the local authority or affordable housing provider.

So, what are these different types, and how would the mix impact you and your profit margins?

Frequently, social rent is seen as the least desirable type of affordable housing as this has the lowest revenue/yield following placement of eligible individuals or households. There is also an unfortunate stigma attached to this type of housing, associated with individuals who have ended up benefits without good cause – despite the fact that many of these individuals are in work or looking to get into work, but will be low income. Others supported within this category are formerly homeless, young people and women feeling domestic violence, perhaps also with dependents. Rents are determined by the national rent regime and are much lower than market rents and as a factor of this, associations are likely to offer around 50-55% of OMV for these units.

Affordable rent is open to individuals that cannot afford full market rents, for many reasons. The rent on these units is capped at 80% of local market rents which is far more than social rent, and consequently you are likely to achieve around 10% more of the OMV value of these units from the local authorities and private housing associations than you will for an identical unit which is social rent. The local authority or housing association will remain fully responsible for the asset as the legal owner, as per with social rent.

The most attractive type of unit for a housing association, and consequently therefore for a developer in regards to return, is Shared Ownership. Developers sometimes can achieve up to 75%-80% of the OMV of a unit if this is the allocated use. The scheme is modeled like the Help to Buy model available for the general market in that, with a small deposit, a household can get on to the ladder by owning a small percentage of the property that the housing association or local authority owns the majority of. This deposit can be as small as £5,000. The household will need to pay rent on the remainder of the asset, normally at an affordable rent level. For the housing association and local authority, they get the rent from the portion they own, but the household is responsible for the asset in sense of bills and some of the general maintenance, and will be restricted in what they can do (in sense of home improvements, sub-letting and when or whether they can sell) because of the element of ownership of the affordable housing provider – a far preferable scenario for a housing association that has to fully manage and maintain the other types of units.

Many developers do not fully understand the differences between these elements. Therefore, when they review S106 requirements, especially when taking an outline planning permission to full, they do not analyse whether they can improve their affordable housing return in the project. Developers can do this by doing research on the local demand for affordable, type required and speaking to housing associations that may be making offers to get their feedback as to what would be most attractive. Many will favour the shared ownership units, for the reasons stated above.

If the research supports a change of mix, the developer can then position to the council an alternative more to the area and project’s advantage. Bear in mind, that a lower ratio of social rent and higher percent of shared ownership may also have a positive impact on the scheme in general and therefore improve sales of the units in the overall scheme. There are many firms around who can conduct this research and work with a developer to help garner the offers following this work, and will then take a fee based on the uplift in value – a kind of ‘no win, no fee’ model.

With this week highlighting the Shared Ownership model and the government continuing to push and support this, it seems like a good time to make sure you do your research, understand affordable housing and ensure you are maximising your returns wherever possible. Affordable housing doesn’t have mean 55-60% of OMV. Negotiation and research can improve this massively… So make sure you’re making the most what should be seen as a positive, guaranteed return on a percentage of your site!