Spotlight: Planning

Planning
 
Redefining Housing Need Assessments

12 May 2016, by Nick Gregori

If local targets are to meet the national need then a new approach to assessing housing need must be implemented

 

Forecasting housing need and translating it into an appropriate housebuilding target is a critical challenge for national and local policy makers as they attempt to address issues of affordability, delivery, and a decline in homeownership. Our analysis shows that a new approach to assessing housing need is required if local targets are to meet overall national need. The 2016 Budget recognises the challenges in assessing housing need and highlights the need to speed up the process.

FIGURE 7

Savills and LPEG uplift scenarios

 
Figure 7

Source: DCLG, Local Plan Experts Group, Savills Research

Household projections

Following the closure of the National Housing and Planning Advice Unit, the task of estimating national housing need has been taken up by a range of academics, think-tanks, and private sector consultancies. The one set of official figures we do have are the household projections produced by DCLG, which are trend-based and indicate the number of additional households that would form if recent demographic trends continue. These projections are identified by the Planning Practice Guidance (PPG) as the ‘starting point’ for objectively assessing housing need.

The projections however are imperfect for a number of reasons; the main one being that because they are based on recent trends they can be influenced by factors other than population growth. For example, where migration has been suppressed by low levels of housebuilding, this will be reflected in lower future household projections. This is a perverse outcome given that areas of past undersupply are those where higher levels of future delivery are most likely to be required. The latest 2012-based projections give an average annual growth figure for England of 220,000 households from 2012 to 2022.

Other estimates of housing need tend to be significantly higher. Kate Barker’s 2004 Review suggested 320,000 market homes per year would be needed to keep house price growth in line with inflation. More recently, Glen Bramley and Geoff Meen have separately shown that housebuilding in excess of 300,000 per year would be needed to have any meaningful impact on affordability. Meanwhile, Christine Whitehead and Neil McDonald’s work for the TCPA suggested a figure of 312,000 homes per year is required in order to deal with the backlog from recent under-delivery.

If, as the evidence suggests, national need is well above the latest household projections then significant uplifts should be applied to the baseline projections. This could in part be achieved by uplifts to demographic projections that reflect market signals.

FIGURE 8

Local authorities per uplift band

 
Figure 8

*25% for LPEG

Source: Local Plan Experts Group, Savills Research

Uplift, uplift, everywhere

The LPEG recommends a banded system of uplifts based on house price to income and rental affordability ratios. We consider that the sentiment is correct – the current system is inconsistent and fails to deliver sufficient uplifts to demographic projections in the most unaffordable of housing markets. However, the LPEG approach is neither sufficiently flexible or ambitious.

Our analysis of the LPEG approach based on median house price and rental ratios indicates that the total uplift to household projections would be 22% to some 266,000 homes per annum. This is still significantly short of the number identified by the academics mentioned. This undershoot can in part be explained by the fact that the suggested uplift bands put over half of all local authorities in the highest (+25%) category. Consequently Boston in Lincolnshire and Kensington & Chelsea are in this same category. This suggests the need for additional higher bands of uplift to fully reflect the wider range of market signals that exists beyond the range considered by LPEG.

To get to, say, 300,000 homes per year requires a national uplift of 36%. We have set out a scenario where this can be achieved by increasing the 25% band to 30% and adding more bands for the least affordable markets, as shown opposite. Such a system needs to be introduced promptly if it is to have an effect on the Local Plans that are currently emerging. The risk remains that a locally-led approach, with no check to ensure local targets add up, could continue to deliver significantly fewer homes than are required.

 

STRONG MARKETS

The challenge of how to improve affordability

Cambridge and Bristol are both examples of fast growing economies with rapidly rising house prices. They also highlight the challenges when assessing the scale of new housing required to improve affordability.

Cambridge has recognised the need to increase housebuilding with a pro-growth Local Plan adopted in 2006 that included the release of land from the Green Belt. A step-change in housing delivery followed with over 1,300 new homes delivered in 2013/14, adding 2.5% to the housing stock. This was the second highest rate of any local authority in the country. House price growth has however continued and prices in the city are now 47% above their 2008 peak, higher than any other local authority outside of London.

This result shows that increasing housebuilding is a not a quick fix solution. It can take decades to have any significant impact on affordability, particularly if there is an undersupply in other connected markets (e.g. London). A recent update to the Council’s evidence based on OAN suggested that an uplift of 30% to reflect market signals would be appropriate, justified with reference to an Inspector’s approval of the same uplift for Canterbury. Figure 9 shows that affordability in Cambridge has worsened relative to Canterbury in recent years and a greater level of uplift may therefore be justified.

The Wider Bristol SHMA was published in June 2015, and shows too little ambition when it comes to tackling high house prices and worsening affordability. The report concludes that an uplift in the housing target due to market signals of 7.5% is sufficient, mainly on the basis of comparison with Eastleigh, where the Inspector approved a 10% uplift.

Business West commissioned a review of the SHMA and found many weaknesses in the approach used, citing an over-reliance on household projections, insufficient regard to employment growth, and optimistic affordable housing assumptions. On market signals, it suggests that an uplift of 35% to 60% above the demographic projections would be a more appropriate response to the evidence, and that this would produce a target sufficient to fully meet need for market and affordable housing in the sub-region.

FIGURE 9

Market Signals

 
Figure 9

Source: ONS, Land Registry

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Nick Gregori

Nick Gregori

Associate
Residential Research

Savills Margaret Street

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