UK government under pressure over ‘confusing’ housing projections

The UK government must revise its “confusing” approach to calculating housing needs, warn property consultants, after the Office of National Statistics released a report at odds with plans to ramp up housebuilding. Last week, the ONS published a report which showed that the number of new households in England over the coming decade is significantly lower than anticipated by local authorities and property professionals. In London, about 348,000 new households are to form between now and 2028, down by 39% from the previous estimate of 570,500. Across England, 1.65m new households are expected – a 24.2% reduction on previous estimates. The findings come after the government announced in the Autumn Budget that it was setting a target of building 300,000 homes a year until the mid-2020s. The ONS figures are based on household growth between 2001 and 2016, whereas earlier ONS projections had looked at growth since the 1970s up until 2014. Savills associate director Emily Williams was surprised at the results of the ONS report. “We could see there might be changes but no one knew what the full change would be or how big the impact would be. There has been some surprise at the impact, particularly the odd results in some areas.” For instance, in Cambridge, local authorities were planning to build 700 homes a year and the previous 2014 report indicated an annual requirement of 600 new homes. However, the 2016 figures indicate that there is no need for new homes. Williams adds: “I think the idea of using housing projections is solid but the way to ensure you don’t get anomalies is to start at a base of housing need (a certain percentage of existing housing stock) so there is always a requirement for new housing and then that gets uplifted based on the affordability of the area.” ONS projections The government’s standard method for determining an area’s housing need is based on ONS projections along with an additional uplift based on the affordability of that area. That means more expensive areas are expected to deliver housing beyond their projected growth to limit upward pressure on prices. However, Savills said the new methodology risked exacerbating unaffordability because the downward shifts were highest in places like London where house prices relative to income were highest and people had been least able to start new households. The fall, then, is a reflection of continued unaffordability rather than a fall in demand. Williams says: “If they don’t revise the standard methodology, the risk is that you just plan for those trends to continue. This produces another level of confusion for the local authorities. Now the numbers have all changed, they will likely have to look at it again, whereas the aim of this methodology was to give more certainty and determine housing needs more quickly.” Planning beyond minimum need Analysis by planning consultancy Barton Willmore added that there was no indication that local planning authorities had to plan beyond the minimum need. That means there could be a growing gap between what local authorities have to deliver and the government’s target for 300,000 new homes. Barton Willmore calculated that the government’s standard method identified a need for 212,000 new homes a year for the next decade – down from 266,000 under the previous methodology. It said that if local authorities move towards setting housing targets based on the standard method, the 300,000 homes a year “will not be achieved”. The government, in its response to the revised National Planning Policy Framework earlier this year, said it would consider adjusting its standard method after the publication of the ONS projections and would consult on the specific details at the time. The concern, however, is whether this will bring more clarity or more confusion to the planning process. Any issues, Savills urged, would have to be resolved before the NPPF comes into force in January. [caption id="attachment_946047" align="alignright" width="400"] James Donagh[/caption] Q&A: James Donagh James Donagh, development economics director at Barton Willmore, discusses the new housing projections What impact do the updated projections have on housing delivery over the next decade? Reduced household projections increase the risk that sights and targets are lowered, with a knock-on effect on delivery, and ignoring the fact that the projections are a product of over a decade of constrained household formation and that building to those projections simply reinforces the problem. The impact will not be immediately obvious, but for future years, if consecutive household projections (2018-based and 2020-based) turn this one-off into a solid trend, there could be issues with undersupply. Why have projections in certain places (especially London) fallen so dramatically? In London, we expected a fall in the household projections because there are lower population growth projections compared to the 2014-based series.  However, the extent of the reduction has taken us by surprise. It appears that the method has taken into account a household formation trend that assumes affordability constraints experienced since 2001 will continue, affecting young people in particular. What should local authorities and the government do to ensure the country will reach its 300,000 home target? Local authorities will understandably take a lead from government. Planning guidance is clear that standard method calculates minimum need and that actual need may well be greater, for example where growth above past trend rates is likely to or is planned to occur. Behind this guidance sits the government’s commitment to ensuring that more homes are built.  Government needs to act quickly to resolve the problem with the standard method. The problem is that the method has entirely decoupled from the 300,000 homes target set by government. With a gap of 30,000 to 40,000 homes, it would be easier to envisage that ambitious authorities, growth deals, garden communities and the like could have bridged the gap. It’s a smaller stepping stone to cross. But an estimated gap of nearly 90,000 homes is too large to leave to chance. 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