Shared equity schemes: evaluation reports

7. Developer and Registered Social Landlord perspectives

This chapter considers developer and Registered Social Landlord (RSL) perspectives on the Scottish Government's shared equity schemes, including views on the impact of the schemes on new build housing development.

As is noted in relation to lenders at chapter 6, developer support has been crucial to the operation of the HtB and NSSE schemes. The range of developers working with the schemes has evolved over time. A total of 353 private developers have sold properties through the HtB scheme (219 were active at the time of the evaluation), and 50 RSLs have sold properties through the NSSE scheme.

Findings presented within this chapter are based on a survey of private developers with experience of HtB (61 responses),^[20] and qualitative interviews with private developers and RSLs. Qualitative participants included a range of organisations in terms of scale and focus of housing development, such as private developers operating across the UK, national RSLs developing across Scotland, and private developers and RSLs with a relatively narrow focus in terms of geographic area and housing market (including some with a specific focus in regeneration areas). While this diversity was evident in participants' experience of shared equity schemes, a number of common themes did emerge.

Scheme objectives and expectations

Findings on organisations' initial choice to participate in the two schemes indicated that most saw this as a relatively straightforward decision. This is reflected in all HtB survey respondents having 'very' or 'fairly' positive expectations about the potential impact of the scheme. Qualitative findings indicate that private developers and RSLs alike welcomed the two shared equity schemes.

Positive attitudes towards the schemes also reflected a recognition from developers that intervention was required to support housing development and enable buyers to access lending. This was a particular priority for private developers who had been significantly affected by the global financial crisis. The focus of the two schemes was also in line with developers' and RSLs' business planning. This included a number of organisations with previous experience of shared equity and other low cost home ownership schemes. These developers and RSLs saw joining the Scottish Government's schemes as an obvious decision to strengthen their focus on providing affordable home ownership options.

"We introduced a range of schemes after 2008, not something we had to do before. HtB fit well with what we were already having to do in recovering from the financial crisis."

Qualitative participants also highlighted the role of the Scottish Government in legitimising the schemes. Several developers and RSLs suggested there had been limited uptake of shared equity and other mechanisms operating prior to the introduction of HtB and NSSE. Participants noted that the Scottish Government schemes rapidly overtook existing mechanisms, in terms of sales volume and impact. Scottish Government backing was seen as crucial in encouraging take-up of the schemes by building confidence for developers, buyers and lenders.

The 2008 global financial crisis was also a key aspect of the context for private developers' decision to join the HtB scheme following its introduction in 2013/14. For example, nearly all respondents who provided information on the impact of the crisis (17 of 19) indicated that they had been adversely affected, with 12 of 19 having been 'very significantly' adversely affected. Survey results indicated that larger developers were more likely to have been significantly affected by the 2008 crisis (8 of 9 larger developer respondents compared with 4 of 10 smaller developers).

This negative impact was most commonly in terms of decreases in the volume of sales (14 of 19 reported a significant decrease), buyer demand (12 of 19), profitability (10 of 19) and sale prices (7 of 19). Several private developer qualitative participants noted that their use of other low cost home ownership initiatives prior to HtB had been a direct response to the global financial crisis. Qualitative findings also suggest that the impact of the global financial crisis and experience of other low cost home ownership mechanisms were important aspects of developers' reasons for joining HtB.

The most common reason for joining the scheme was to attract customers who could not afford new build without shared equity. For 28 of 31 respondents answering the question this had been an important factor. Survey results and qualitative findings suggested that this was particularly important for smaller developers (all 18 smaller developers indicated this, compared with 10 of 13 larger developers).

"HtB came in and built confidence for consumers, developers and lenders. Government backing ‘legitimised’ the scheme, gave the confidence that it would be longer-term."

Giving developers confidence to bring forward new developments and build in new areas was also a key factor (mentioned by 16 of 31 respondents answering the question). This included 7 of 31 respondents who hoped to use the scheme to scale up their operations. As noted earlier, HtB was seen by qualitative participants as fitting well with developers' existing business strategy, and improving the viability of and demand for developments were key elements. As such, participants generally indicated that take up of HtB did not require a significant change in the profile of their development (including for those using the scheme to support moves into new areas).

Qualitative findings for RSLs suggested there was some commonality in the motivations of private developers and RSLs choosing to join shared equity schemes. In particular, most RSL participants indicated that NSSE had been a good fit with their wider business strategy, and in some cases replaced or ran alongside other tenure options (such as Shared Ownership and Mid-Market Rent). This included cases where RSLs had already identified an unmet need for low cost home ownership and had tailored their development programme accordingly. For these RSLs, NSSE was seen as an opportunity to support their wider development programme, and for some to move into development for sale for the first time.

While RSLs generally indicated that they had seen a clear role for NSSE as part of their wider development, few had clear expectations regarding the potential scale of shared equity development. This reflected a lack of robust evidence on the potential scale of demand. Some RSLs had used evidence on housing list demand and wider housing market dynamics to consider potential demand, but participants generally indicated that buyer demand had been somewhat of an unknown for initial NSSE developments.

Despite the positive expectations of private developers and RSLs, some appear to have remained sceptical around the potential for shared equity schemes to support a significant upturn in development. This is consistent with low cost home ownership not being core to the business of many survey respondents and qualitative participants. For example, several private developer and RSL participants indicated that they expected shared equity to remain a relatively small part of their development programme.

"Our initial NSSE developments were in areas where we felt more comfortable on buyer demand – we’ve been able to use experience and local knowledge to expand into other areas."

Several participants referred to having 'tested' use of the schemes with initial developments to assess their impact in terms of financial viability and buyer demand. Positive experiences around these initial developments appear to have been important in developers and RSLs having the confidence to use the schemes more widely. Participants cited examples of subsequent use of shared equity in developments where demand is typically more 'fragile', including a mix of urban regeneration areas and higher value rural areas.

Experience to date

Survey respondents and qualitative participants suggested that the HtB and NSSE schemes had met or exceeded the expectations of most developers and RSLs.

Nearly all private developers (25 of 26) indicated that HtB had met their expectations, and 9 respondents answering the question felt the scheme had exceeded expectations. This was the case across larger and smaller developers. Views were particularly positive on the running of the scheme (27 of 28 were content with the administration process) and provision of operational guidance (27 of 28 agreed that clear guidance was available). Qualitative findings also highlighted the simplicity of the scheme as a key positive; developers referred to simplicity in terms of marketing to buyers (e.g. simple eligibility criteria enabling easy identification of potential buyers) and acceptability for lenders. However, some noted that the administration requirements of the scheme can seem excessive. This is consistent with comments from lenders considered in the previous chapter.

A relatively small subset of HtB survey respondents (18 of 61) provided detailed information on the volume of sales delivered through the scheme relative to their wider development. This limited dataset was consistent with qualitative findings that there has been variation across developers in the proportion of sales delivered via HtB (from less than 5% to 50% or more), but indicated that the scheme has most commonly accounted for 15-20% of sales. This is also broadly consistent with the secondary data presented earlier (see table 4 and figure 15) which indicates that HtB has accounted for around 20% of all new build sales since 2016. Survey responses also suggested that smaller developer respondents include a number for whom HtB has accounted for a substantial proportion of all sales (4 of the 11 smaller developers who provided information reported that HtB had accounted for more than a third of all sales).

Qualitative findings indicated that RSLs were also generally positive on the extent to which NSSE had met expectations. Most participants indicated that buyer response to NSSE developments had been positive, and that RSLs' confidence in buyer demand had grown over time. This was reflected in some examples of RSLs choosing to expand NSSE to areas with lower or more 'fragile' demand. Good working relationships with local authorities in specifying NSSE developments, and effective marketing and financial assessment to identify potential buyers were identified as key factors in the success of NSSE developments to date.

Qualitative findings also identified some examples where weaker demand had contributed to difficulties selling NSSE properties. These examples reflected a mismatch with demand in terms of the profile and price of properties developed with NSSE, in some cases affected by higher development costs. However, while RSLs did not indicate difficulties associated with the specification or operation of NSSE, it was suggested that greater flexibility in the application of eligibility criteria could assist RSLs where they are having difficulties selling NSSE properties.

Qualitative findings for private developers and RSLs highlighted the role of marketing in supporting uptake of the schemes. This included some, particularly smaller private developers and some RSLs, who had experienced a 'steep learning curve' in developing their approach to marketing but who now had an effective approach to marketing in place. However, participants were clear that uptake of the schemes has also been affected by growing buyer awareness.

Several HtB developers noted that awareness of the scheme is such that a substantial proportion of potential buyers mention the scheme unprompted, although it was also noted that consideration of the scheme is integrated as part of the sales and marketing process. These developers also commented on the acceptability of HtB for buyers. Some reported buyer resistance to the principle of a third party taking a share in their home, but most indicated that buyers have typically seen the scheme as an attractive means of improving their prospects of accessing home ownership. This was particularly the case for purchases under the reduced £200,000 price cap, where developers were of the view that buyers were more likely to require assistance to access the new build market.

RSLs were less positive about awareness of the NSSE scheme. This included some who directly contrasted their experience with the increasing profile of HtB in the private sector in Scotland. RSLs indicated that they had to take a more pro-active approach in identifying buyers who may be eligible for the scheme, including from current housing list applicants. Some also noted that substantial staff time can be required to take potential buyers through the scheme in detail, to ensure buyers are clear on how NSSE works for them (RSLs cited some examples of buyer confusion regarding how NSSE compares with shared ownership schemes) and to address any concerns (most commonly around the requirement to secure Scottish Government permission before reselling).

Impact of shared equity schemes

Survey results and qualitative findings indicated that developers and RSLs were positive about the impact of the HtB and NSSE schemes. This included those for whom the schemes had played a relatively limited role in their development programme.

Views were positive on the impact of HtB and NSSE in terms of reaching customers who would otherwise have been unable to buy a new build property (26 of 27 agreed that the schemes had achieved this), increasing sales volume (24 of 26 agreed), and increasing demand for new build properties (21 of 26 agreed). Respondents were less likely to indicate that the scheme has helped them to increase staffing levels (10 of 26 agreed) or to build in new locations (13 of 26 agreed). Survey results and qualitative findings suggested that smaller developers were more positive than larger developers on the impact of HtB, particularly in terms of increasing demand, supporting an increase in sales, and reaching customers who could not have otherwise accessed the new build market (14 of 17 smaller developers agreed that HtB had delivered all of these impacts, compared with 6 of 13 larger developers).

Consistent with survey results, qualitative findings suggested a general view that HtB has had some success in reaching customers who would not otherwise have been able to buy a new build property, and increasing demand for new build by supporting access to lending. Some participants noted that the initial £400,000 price cap had meant that a larger proportion of those using the scheme were likely to have capacity to access ownership without assistance. However, developers were generally of the view that under the current price cap a majority of those buying through the scheme would have been unable to access suitable housing without assistance. This is also reflected in qualitative participants suggesting that the proportion of first-time buyers using the scheme had increased since introduction of the £200,000 price cap (consistent with published data showing a 13 point increase in the proportion of first-time buyers since 2016).

"Early years were influenced by the higher price cap, but sales from 2015/16 have been targeted at clients who would have been unable to buy without assistance."

Qualitative findings for RSLs also indicated very positive views regarding the impact of NSSE in terms of supporting buyers who would have been unable to access the market without assistance. Participants suggested that buyers using NSSE are most commonly those with insufficient income or equity to buy, and insufficient priority to access social rented housing (and estimate that around half of NSSE buyers are likely to have been housing list applicants). RSL participants also noted that use of affordability assessments as part of the application process has ensured the scheme is supporting those most in need.

In terms of impact for private developers, survey results and qualitative findings suggested that developers typically see HtB as having enabled them to deliver more and larger developments (24 of 26 agreed that HtB had supported an increase in sales, and 11 of 26 agreed that HtB had enabled them to deliver larger developments). While few qualitative participants suggested that the financial viability of developments was dependent on the scheme, the ability to sequence HtB sales to support cashflow early in the build process had allowed developers to bring developments forward more quickly. Smaller developers reported having benefitted from this in particular.

"The scheme has not really affected which projects are brought forward, but has influenced the sequencing of builds."

Survey results also suggested that most developers were of the view that HtB had contributed to their recovery from the 2008 crisis. Few developers indicated that their organisation had recovered fully (5 of 19 indicated that most aspects of their business had fully recovered), but 18 of 26 answering the question agreed that the scheme had supported their recovery. This experience was similar across smaller and larger developers, although as noted earlier, survey results suggested that larger developers were typically more significantly affected by the crisis than smaller developers (8 of 9 having been very significantly affected by the crisis, compared with 4 of 10 smaller developers).

"The scheme has been an incredible positive for the area. It has provided confidence for us to build in greater numbers, enabling us to retain lower costs and more affordable sale prices."

RSL participants were also generally positive on the impact of NSSE for them as an organisation. As noted earlier, for some the scheme had been a good fit with their business strategy and development programme. These RSLs indicated that NSSE had been a clear positive in supporting their programme, even where NSSE had remained a relatively small proportion of their overall development. Some participants also cited a positive impact on their reputation in local communities where NSSE has helped RSLs to meet a wider range of housing needs, and supported regeneration of local communities.

In relation to wider housing market impacts, only one private developer survey respondent felt that HtB had resulted in an increase in sale prices, and a minority indicated that use of the scheme had changed the property type or size profile of their developments (7 of 26). This is consistent with comments noted earlier that the objectives of the scheme fit well with developers' existing business strategy and development programme.

However, some qualitative participants suggested that the HtB price cap of £200,000 is now limiting scope to use shared equity in higher value markets in Scotland. Consistent with comments from lenders (see Chapter 6), developers broadly described an east/west divide where the role of HtB in the west is focused in regeneration areas where the price cap not a constraint, while use of HtB is constrained in higher value markets in the east. These developers suggested that this has become a factor in the last one to two years as a result of continuing house price inflation. Some participants suggested that HtB may have effectively been placing artificial downward pressure on the pricing of parts of the new build market to meet the £200,000 threshold.

"Specification of HtB has been tightened and works better, but the price cap is too restrictive for some areas."

Looking forward

Looking forward, private developers identified a number of constraints or concerns for their development programme, primarily relating to planning regulations and housing market dynamics. Survey results suggested that the main concerns for private developers were planning systems and regulations (a significant concern for 18 of 26), the UK exit from the EU (17 of 26) and wider economic uncertainty (16 of 26). Few developers highlighted constraints related specifically to the objectives of HtB - for example only two survey respondents suggested that shortage of customer demand was a major concern for them.

RSL participants also identified a number of potential constraints on their use of NSSE. These were typically more directly related to the purpose and operation of the scheme. Key constraints highlighted by participants were limited buyer awareness and understanding of NSSE, suggestions that the scheme's administrative requirements can be onerous (particularly given the potential diversity of buyers and the need for RSLs to tailor their approach accordingly), a lack of information on which lenders offer mortgage products suitable for NSSE, and inconsistency in access to solicitors and mortgage brokers with a good understanding of the scheme. Some RSLs also noted cases where high development costs in some areas had limited their scope to use NSSE and/or led to returns from development being lower than anticipated.

Qualitative participants were mixed in their views on the continuing role of shared equity. This appeared to reflect differences in the role of HtB in their development programme over recent years. For example some smaller developers for whom HtB had supported a substantial proportion of sales suggested that they would require a period of adjustment if the scheme ceased. This appeared to be less of a concern for larger developers for whom HtB accounted for a small proportion of sales.

"The key question is how to move to developers being more self-sustaining, without disadvantaging buyers who need assistance."

These comments were also consistent with suggestions from participants that a managed withdrawal of the scheme may be required. This included private developers who referred to the HtB scheme as having played the role of 'life support' for the industry following the global financial crisis, and recognised there had been a significant change in housing market and economic conditions since the scheme was introduced. However, some participants also saw a need to retain alignment with the UK Government Help to Buy scheme, for example in the timing of any withdrawal of the scheme, to ensure households in Scotland are not disadvantaged.

"HtB has played a role in market recovery for some time, but markets are still fragile. We feel it remains an effective use of public money for those who need assistance."

Qualitative participants - both private developers and RSLs - also reflected on the positive impact of the scheme in enabling customers to access home ownership. It was suggested that there remains a potentially substantial proportion of Scottish households who may struggle to access suitable housing without some form of assistance.