Is shared ownership the solution to the housing crisis? (September 2013)

Below is a blog from the Nearly Legal website, who provide valuable updates on housing case law and legislation, on why Shelter are wrong to promote shared ownership as a solution to the housing crisis. Personally, I’ve never understood the idea of shared ownership and why this would be preferential to renting or buying outright and it seems several others share this opinion

I want to put this post in context:

(a) I write this post for myself and do not necessarily speak on behalf of the other NL writers.

(b) I have enormous respect for Shelter. I have friends who work there. I make regular donations to Shelter. We have lots of Shelter readers who we love and respect. The world is a better place because of Shelter.

(c) I also despair of the ability of “progressives” or the “left” to degenerate into in-fighting over who can be the most ideologically pure (witness the recent nonsense criticism of Jack Monroe and whether she represents the “right sort” of poverty) and sincerely hope that this post isn’t seen as part of left-wing in-fighting.

But, in their recent call for a “new generation of shared ownership” Shelter are simply wrong. As Talleyrand apparently didn’t say, C’est pire qu’un crime, c’est une faute.

In Homes for Forgotten Families, Shelter have – again – identified the urgent and pressing need for more, reasonably priced, quality accommodation to be built (for young people wanting their own home; for families to move into; for people to “downsize” etc). Likewise, they clearly demonstrate what we all know to be the case, namely that insufficient numbers of properties have been built over the last 20 years or so, with each passing day simply adding to the problem of ever increasing prices.

They are also right that the myriad of different schemes tried by governments over the years (e.g. New Build Home Buy; Key Worker Living; First Steps; Home Buy Direct, etc), have not made any meaningful contribution to solving the problems identified in the last paragraph. In all this, I entirely agree with Shelter.

Where we part company is the remedy. For Shelter, the answer to these problems is the creation of a “…major, mainstream shared ownership market…” with 600,000 such properties being created over a four year period. Shelter recognise that this would need to go hand-in-hand with other work (i.e. more building generally is needed), but, in their view, “…. shared ownership offers real hope for most of England’s low to middle income families…” and they seek to make it a key part of the housing debate ahead of the 2015 General Election.

Regardless of what one thinks politically about this sort of statement, as a lawyer, (whether acting for landlords or tenants), shared ownership is a disaster area and, without substantial legal reform, is not something that I could ever imaging advising an occupier to take-up (at least, not without having given them very clear advice about the dangers involved and making sure I had a detailed note of that advice).

There are three main problems with shared ownership as it stands. First, it is – if not missold – then at least misunderstood. The occupier puts down a proportion of the purchase price (between 25% and 75%) and then has an option to purchase the rest over time. This is not “ownership” in any legal sense. Indeed, as we know from Midland Heart v Richardson [2008] L. & T.R. 31 (see our note here), all you have is an assured tenancy (albeit for a long term, i.e. 99 or 125 years) with an option to purchase. And, because it is an assured tenancy, you are vulnerable to possession proceedings in the usual way. Including Ground 8 (i.e. mandatory possession order). If a possession order is made, then you lose your capital payment. And your home. Quite why anyone would sign up for this is beyond me. Why Shelter would recommend it further baffles me. There is nothing shared because there is no ownership by the tenant. The landlord owns it all!

Secondly, despite (so you think) only “owning” (sic) a percentage of the property, you are usually liable for 100% of all service charge costs. So, if a new roof is needed, you pay 100% of your share. Your “co-owner” (sic) pays nothing. And, if you don’t pay your service charges, you’re liable to lose your property and, again, your capital deposit (see, e.g. here).

Thirdly, there are usually significant restrictions on your use of the property; you cannot usually, for example, sub-let (at least, not without permission). There may be restrictions about who you can sell to (e.g. only other key workers), seehere for examples.

There may be other objections, certainly, there has been recent comment on the problem of shared ownership which repays reading (see here and here).

Now, you would know nothing of these problems from reading the Shelter report. There is no mention of Richardson (an astonishing oversight and, in Twitter exchanges once the report was published, very few Shelter people seemed to have ever heard of Richardson) or of the substantial legislative reform that would be needed to make shared ownership an attractive proposition (having discussed this, albeit briefly, with some of the other NL writers, I think you’d probable need to create a new form of estate, which is an enormous and far reaching reform).

In fairness to Shelter, they do say that there needs to be reform, but give no details of what problems they are aware of and what those reforms might be. That, again, is a striking oversight. The Shelter brand is a trusted one, so it matters when they support policies. It adds to public awareness and trust in those policies. But shared ownership does not deserve that trust. It is a bad policy and Shelter are wrong to support it, at least in its current form.

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