Labour, Lib Dem and some crossbench peers vote to moderate plans to offer ‘affordable’ homes to first-time buyers at 20% discount

The government has been defeated again in the House of Lords over some of its plans for starter homes in the housing bill.

Labour, Liberal Democrat and some crossbench peers voted to moderate the flagship scheme proposed by the Conservatives at the election, which means that one in five properties in new developments will be available to first-time buyers under 40 at a 20% discount.

Critics say that only middle or higher income earners could qualify for those homes, and yet developers will be able to classify them as “affordable”.

It is one of a number of defeats inflicted on the government in recent months by the House of Lords, where the Conservatives do not have a majority, with other issues including trade union reforms and disability benefit cuts.

Peers first backed an amendment requiring repayment of the 20% discount on a sliding scale if the property is sold during the first 20 years.

The amendment tabled by crossbencher Lord Best would “gently” reduce the 20% discount on starter homes by 5% for each year of occupation up to 20 years. Best said it would help “moderate” the generosity of the scheme and reduce potential resentment among new buyers who would not benefit.

“It gets to the heart of the fundamental problem with this bill – namely the introduction of measures to generously subsidise home ownership schemes – with the subsidies being found by a transfer of public resources away from low-cost rented homes for less affluent households,” he said.

He said very few wanted to see more homes for “better-off potential buyers at the expense of significantly fewer homes for those on lower incomes who struggle to find rented housing they can afford”. Peers backed a move to let councils decide on the proportion of such homes in new developments.

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Lord Kerslake, the former head of the civil service and an independent crossbencher, said the aim of the amendment was to make the bill fairer. He said it was hard to think of a “more overbearing and centralising action” when it should be a matter for local authorities.

He said a figure of 20% on starter homes might be right for some parts of the country but not others, particularly as they would only be available to those on middle or higher incomes.

Labour urged a number of improvements to the scheme. Lord Beecham, the

opposition spokesman, said: “We are being invited to buy not just a pig in a poke but a whole herd of such animals.”

He added: “We are being asked to endorse therefore a costly approach to a massive housing problem for the benefit of only one section of the population, to a greater or lesser degree, at the expense of people whose own needs and aspirations will continue to be unmet.

“We are in a position to encourage the government not only to think through properly the implications of these polices, but to ensure that what is the outcome of this bill is one which is fair to those seeking new homes to buy and fair to the taxpayer in general and those in great housing need.”

Brandon Lewis, a housing minister, said the government would reflect on some of the concerns put forward in the debate but was committed to the starter homes policy.

“This government is determined to help anyone who aspires to own their own home achieve their dream,” he said. “The housing bill will increase housing supply alongside home ownership and we are doing this with the biggest housebuilding programme since the 1970s to deliver the homes our country needs.

“The government believes it is wrong that a 30-year-old couple’s aspirations should be thwarted by having to wait until they are 50 to benefit from the full value of their starter home.

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“We will listen carefully to the points made in the debate but our manifesto commitment to introduce starter homes at a 20% discount for first-time buyers is unwavering.”

It comes after the Conservative leader in local government urged peers to vote against the government on a number of key amendments amid fears it could force more people into homelessness.

In a letter to the Guardian, Cllr David Hodge – leader of the Tories at the Local Government Association (LGA) – warned that elements of the bill being debated in the Lords this week could have the “unintended consequence of increasing homelessness and pushing more families into the more expensive private rented sector”.

He teamed up with his Labour and Liberal Democrat counterparts to ask members of the House of Lords to try to block legislation that would force councils to sell their most expensive properties in order to fund the government’s right to buy policy.

“At a minimum, we urge peers to back amendments that allow councils to retain enough receipts from every home sold to be able to replace it in the same area,” the LGA leaders wrote.