Keep the champagne on ice

“Homes for all” is the banner under which New Labour is marching towards the general election. In particular, it has declared that low-paid public sector workers – the nurses and teachers who will be fulfilling many of Labour’s other key election pledges – should be one of the housing sector’s highest priorities. And the highest of all will be those locked out of the overheated housing market in London and the South-east.

So as the government’s three-year Key Worker Living programme nears its first anniversary, you’d expect it to be oversubscribed by key workers keen to take advantage of subsidies to own or rent houses. The reality is very different. So far, £633m has been distributed to housing associations, but Key Worker Living has helped just 3078 of its target 16,000 key workers find affordable housing – and of these just 22 in new-build shared ownership.

Housing associations that bid for development grants under the £690m scheme report empty newly built homes, and many are unsure where to find tenants for shared-ownership schemes in particular.

At Barking and Dagenham council, for example, director of housing and health David Woods was shocked by what happened to 13 key-worker shared-ownership flats that came on the market in 2003. Most were left standing empty. “It was ridiculous,” he says. “This brand new key worker development hung around for almost a year before they found people to move in, while we have 6000 to 7000 people on our housing register. Normally accommodation like that would be sold before it was completed.”

The Key Worker Living scheme provides subsidised home ownership and rental for a narrowly defined group of public sector workers through three routes. The first, Homebuy, offers buyers equity loans of up to £100,000 to buy properties of their choosing. It continues the work of the Starter Home Initiative, which was launched in 2001 to help key workers buy homes but only recently met its target of housing 10,000 key workers – a year behind schedule.

The second option is shared home ownership, where key workers take out a mortgage on part of a newly built housing association property and pay rent on the rest. And the third is “intermediate rent” on housing association stock – a subsidised rent that is cheaper than the private sector but more expensive than social housing.

Nine registered social landlords have been given the role of “zone agents” for specific areas within London, the South-east and the east of England. Their main task is to distribute Homebuy funds from the ODPM, but they must also market new-build Key Worker Living developments by other RSLs in their area, and supply them with lists of interested key workers. So far, zone X X agents report keen demand for the Homebuy part of the scheme. But the ODPM envisages this helping only 6500 workers, with 9500 others taking up the newly built option. Most of the £284m so far given to new developments by the Housing Corporation is for shared ownership.

Most zone agents agree that applicants are more interested in Homebuy than the other options. Adrian Shaw, director of Southern Housing Home Ownership, which has Key Worker Living funding to build shared-ownership homes, explains: “If you say to someone, ‘Here’s £50,000 for a home and you don’t pay rent’, and to someone else, ‘you get a mortgage on part of the home and pay rent on the other half’, what would you do?” What’s more, Homebuy usually lets workers choose their own homes, rather than being restricted to a certain development.

Many housing experts believe the emphasis on home ownership is misguided. “Our experience suggests intermediate rent works better,” says Peter Kudirka, development director of Toynbee housing association, which built 60 shared-ownership and intermediate-rent key worker flats in a pilot scheme in 2003. “For example, there are lots of NHS staff who don’t have residency in this country so can’t get a mortgage.”

The ODPM, however, claims its programme is on track. A spokesman said: “The difference in figures between the number of new-build units and the number sold or let to key workers is because many of these units have only recently been completed and RSLs are in the process of marketing them. It takes, on average, three months from the unit being finished to it being sold or let.”

But one of the main concerns for housing providers is that although shared ownership is supposed to be affordable, for those on nurses’ or teachers’ salaries, the properties are still too expensive.

“Shared ownership is not affordable for key workers. Generally people earning up to £27,000 can only afford to rent,” says David Gregory, programme manager for Keep London Working, a project based at Peabody Trust and funded by the London Development Agency to research the link between London’s housing and labour markets before Key Worker Living launched.

Woods adds: “If you want to attract a head teacher who is already a deputy head in the North, they won’t be able to afford a four-bed house down here.”

Another problem is that with South-east associations desperate to find money to build, some have been tempted to bid for key worker funds without thinking through whether the size and location of their properties actually fit with what people want.

If you want to attract a head teacher who is already a deputy head in the North, they won’t be able to afford a four-bed down here

David Woods, Barking and Dagenham council

Dawn Pettis, affordable-housing project leader at Oxfordshire council and chair of an Oxfordshire-wide strategic partnership on key workers, says: “I heard of a scheme for 10 key workers in rural Oxfordshire where no one was interested. It was a small market town and there were no hospitals and no primary school.” The scheme had originally failed to get funding for general housing needs, but succeeded for key workers.

Woods says the Dagenham development was unsuccessful probably because it consisted of one- and two-bed flats outside the town centre. “There is a need for three- and four-bed homes or larger, but the problem is that one-and two-beds give the ODPM the most properties for the grant,” he says. “These flats were not the right location for singles or couples, but we’re obliged to build key worker housing almost irrespective of location. There’s an expectation we’ll get some Key Worker Living funding as part of every development, whether it’s the right location or not.”

The underlying problem is that when the ODPM was handing out money for new build schemes in 2003, people were unaware of any research on exactly what demand there was from different key workers in different areas, and for what types of tenure.

Kevin Taylor, head of the ODPM Key Worker Living team, says the OPDM did a lot of research, including some with pollster Mori, on key worker demand and points to the Keep London Working research as “very valuable” in planning the programme.

But only now is it planning detailed analysis, in the form of a review of current projects that won’t be out for at least a year.

Tim Seward, head of sales and marketing at Circle 33, says it did its own market research before bidding to build a 40-unit shared ownership development in east London, but admits it paid more attention to the pressure to grab funds. “We didn’t want to be left behind… but retrospectively possibly there should have been more work done by the zone agents, the Housing Corporation or ODPM to pinpoint what demand there was in which areas.” As a result, Circle 33 is cautious about how much demand there will be for its scheme, so it has started marketing it early – a wise decision, it turned out, as the zone agent was unable to drum up enough interest to fill out their launch event, he reveals.

It is possible that the problem is not with demand but with awareness of what Key Worker Living offers.

Because zone agents are funded to coordinate and market Homebuy, most marketing until now has focused on this element. But they admit they need to do more publicity – in the form of their websites, press adverts and building relationships with employers – to improve public understanding of the new build products.

Adrian Shaw admits: “Getting key workers to realise there are other products apart from Homebuy is the next challenge. A lot of people don’t understand what shared ownership is about.”

Graham Moran of Moat Home Ownership, the zone agent for south London, Hampshire and Essex, says many key workers have misconceptions – for example, that shared ownership means living in hostels. “The zone agents need to promote what new builds can deliver,” he says.

Some RSLs aren’t going to wait.

Dick Mortimer, development director of London and Essex-based association, Mosaic Homes, which has built 31 homes with Key Worker Living funding, and has another 40 due to be finished by the end of 2006, says associations need to market their own schemes too until zone agents are able to work at full tilt. Mosaic persuaded some schools to promote their scheme to new teachers. “We will use the key worker website to deliver our programme but we don’t think it’s mature enough yet,” Mortimer says.

However, as with any venture relying on the whims of the public, there will always be an element of uncertainty for developers wanting to sell their new builds to key workers. As Adrian Shaw says: “The government and employers have stated there’s demand for shared ownership, but ultimately it’s down to personal choice whether people choose to buy. It’s not something you can predict.”