12 August 2011 Last updated at 00:01

Low-cost housing plan for first-time home-buyers falls flat

By Alvin Hall Poorer Than Their Parents, BBC Radio 4

Seven years ago, the then Deputy Prime Minister, John Prescott, announced plans to build homes for just £60,000 to help young first-time buyers priced out of the market - but did they ever get built?

He devoted much of his speech to the Labour Party Conference in 2004 to the problem of young people being priced out of the housing market.

Since coming to power in 1997, he observed, the average price of a home for a first-time buyer had tripled to around £220,000 ($355,000).

The former Labour minister's solution was to challenge the construction industry to build homes for just £60,000 ($97,000).

They could do this, he argued, by embracing more modern methods of construction, like building homes off-site and using materials more effectively.

The price of the property would further be brought down for the first-time buyer, he said, because they would be paying only for the cost of building and not for the land.

"We own the land; it's a valuable public asset. We don't need to sell it off. We can keep it in trust and we can lease it for essential housing," he said.

"So the first-time buyer pays the cost of building a home but not the full market cost of the land, which is helping to make it impossible for our people to buy those houses."

Strikingly different

Nearly seven years on from the announcement, what has happened to his plans?

Ten developments got the go-ahead under the Design for Manufacture scheme, as it became known - but two of them have failed to materialise at all.

One development that did is Oxley Woods, in Milton Keynes - an estate of 115 modern, eco-friendly homes which stand out strikingly from the town's other, more traditional, brick-built developments.

But first-time buyer Gillian Parker says she has not heard of anyone buying a house there for £60,000.

Her own three-bedroom house was originally advertised for sale at £225,000 when it was put on the market in 2008.

"When the valuer came round, he said it wasn't worth that. It was worth £210,000," she says. "Within 24 hours, the builders had dropped their asking price to match the lower valuation.

"Not having any experience in this, I didn't have any expectations, but I was told by people that were helping that that was rather quick of them to lower so swiftly."

Gillian's is one of 56 homes at Oxley Woods that were projected to cost £60,000 to build.

But the final construction cost was actually around £85,000, according to the Homes and Communities Agency (HCA), the national housing and regeneration agency for England.

Despite overshooting the budget, Campbell Robb, chief executive of the housing and homelessness charity Shelter says the scheme has its good points.

"On one level it did work because some of the manufacturers did come up with some good ideas about construction methods.

"This meant they could drive down some of the costs around building the homes and improve the environmental performance of them."

But did this lead to cheaper homes for first-time buyers?

"Fundamentally these did not have an impact on prices. If the cost of the house is £60,000 but the market sells it at £175,000 it just doesn't help," says Mr Robb.

And the average selling price for a property at Oxley Woods was even higher - £231,000 - with the most expensive home offered for £375,000.

One reason for the higher-than-expected prices is that the cost of the land was never separated from the selling price of those homes which were completed, as Mr Prescott had proposed.

Banking on parents

However, the HCA told the BBC: "From the outset, all competition material [for organisations bidding for the construction project] made it clear that £60,000 was not a sale price, but rather a target construction cost.

The HCA says the Design for Manufacture Competition has been successful in giving the house-building industry a much clearer idea of construction best practice, but "in any project testing new methods and approaches, there will always be some things that work and some that don't".

So, with these plans for cheaper homes failing to get off the ground, Gillian turned to an increasingly common source of lending for first-time buyers - parents.

They helped fund her deposit but after securing a mortgage, she was still short of what she needed to buy the house she wanted, so she turned to another government scheme for help.

The Homebuy scheme is the umbrella for all government-funded affordable home-ownership schemes. It is through one of these that Gillian took out a loan to cover the shortfall.

She will pay off the loan alongside her mortgage.

The Homebuy initiative also offers shared ownership through different housing associations, meaning buyers purchase a percentage of the property's market value, while paying subsidised rent on the remaining share.

The coalition government expects to provide 170,000 affordable new homes by 2015.

Chancellor George Osborne also announced a new loan scheme, FirstBuy, in which the government will work with housebuilders to provide £250m to help 10,000 first-time buyers raise deposits to buy homes.

"Homebuy can be a very positive experience," says Shelter's Mr Robb. "But it helps less than 1% of all households in this country.

"Unless we release more land and are careful about how house prices rise, and then we start to build enough homes in the right places and the right kind of homes, none of these schemes will make up for that fundamental lack in government policy," he says.

Back in Milton Keynes, Gillian ponders the fact that she had to pay substantially more than the £60,000 she and many other buyers might have hoped to pay, but she is still very pleased with her home and the Oxley Woods community.

"I'm very glad that we were lucky to find somewhere when we did," she says. "But I feel sympathy for everyone that's struggling like we were at one point."

Alvin Hall's Poorer Than Their Parents continues on BBC Radio 4 on Saturday 13 August at 12:00 BST and Wednesday 17 August at 15:00 BST. Listen again via the BBC iPlayer or by downloading the Money Box podcast.