Comment
If it’s broken you’d fix it: wouldn’t you?
The revised standard method for assessing housing needs
The Government yesterday published details of the much-anticipated revised standard method for calculating Local Housing Need (LHN) figures across England. Unfortunately, it seems to be a significant step back from the objectives that Government set for itself in the summer when looking to improve the formula as a means of addressing the housing crisis and levelling up the country.
This is immediately apparent when it is recognised that:
- The new approach (“SM2”) implies a national need for only 297,605 homes per year across England, falling short of the Government’s ambition for a housing market that delivers 300,000 homes per annum. The approach proposed in the summer (“draft SM2”) produced a national figure of 338,000, which was (at the time) considered necessary because ‘not all homes that are planned for are built’ [1]. The uplift amounts to a 12% increase in the outcome of the current approach (“SM1”) – if this translated into a 12% increase in completions this may see annual completions rise to around 275,000 homes. This is still well short of the ambition for 300,000 homes per year by the mid-2020s.
- It retains the use of the 2014-based household projections. These cannot be described as up-to-date, having been superseded twice through the release of new projections by the ONS and being inexorably based on demographic trends during the great recession (2009-14). The Government appears to have given up on its goal of a more ‘agile’ [2] method that used the latest available data, which it targeted back in 2018 when the standard method was first introduced. Government acknowledged at that time that the use of the 2014-based data in the standard method was only a short-term solution; it now appears that it will underpin decisions on housebuilding for an extended period, despite its datedness.
Ministers have made the surprising decision to retain SM1 for the vast majority of the country, with only one limited adjustment – an additional step that applies a 35% uplift to England’s 20 largest cities and urban centres [3]. This approach fundamentally fails to deal with two longstanding criticisms of the current approach:
- It fails to reflect actual demand across the country, as clearly illustrated by actual delivery.
- It directs an excessive – and now increased – share of housebuilding to London which many commentators believe is unlikely to be deliverable.
This is shown in the chart below, which compares – at a superregional scale – the outcome of SM1; draft SM2 consulted in the summer; final SM2 as published on 16 December; and actual housing completions last year (2019/20).
The north and midlands now receive minimum figures which are collectively uplifted by less than 8,000 homes per annum. This is nearly 18,000 fewer homes per year than were delivered in 2019/20. London’s figure, in contrast, is increased by over 24,000 homes per annum to a minimum of over 93,000 homes per annum – almost double recent peak delivery (c.42,000 in 2019/20).
It is hard to see how this is consistent with the Government’s objective of levelling up (it would mean that almost one in three new homes is expected to be delivered within the capital) or how it fulfills the commitment, repeated many times over the summer, to focus additional homebuilding in the country's least affordable areas, many of which will see no change in their need figures.
Why this approach?
In a word: politics.
The response to backbench concerns about the implications of the approach consulted on in August is clear. Outside London, only 3% of the councils required to apply a 35% uplift are Conservative-led and less than a quarter are represented by a Conservative MP; the vast majority of the cities and urban areas receiving higher figures are within Labour control. Within London, where Labour Mayor Sadiq Khan is responsible for strategic planning, less than a quarter of the affected local authorities are Conservative-led and less than a third have a Conservative MP.
So whilst the consultation document [4] noted that introducing a stock based element to the method would bring stability, ensure all areas contribute to addressing the housing crisis, and help to reinforce development in existing urban areas, it finds no place in the new formula. And despite acknowledgment that the 2014-based household projections are out of date they are retained as the starting point for assessing need. Add to this the dropping of the proposed measure to reflect changes in affordability over time and the new approach is unrecognisable from what was consulted upon.
Will this deliver the right homes in the right places?
The intention to prioritise brownfield sites and optimise the conversion of under used space in urban centres is clear and the allocation of additional funding to support is welcome. Many centres have untapped potential to incorporate more homes. The Government clearly hopes its proposed extension of permitted development rights will accelerate delivery [5].The reality, however, is that this is likely to produce types and tenures of homes which respond to only a fraction of the market’s needs. In particular it will deliver insufficient family and affordable housing which are in such short supply.
There is growing evidence that the effects of the pandemic have shifted housing demand away from city centres and towards locations less dependent on a daily commute, and where facilities for home working and access to gardens and greenspace can be more easily met. The revised approach does nothing to address these needs and potentially exacerbates the constraints on supply of new homes in such areas.
It is to be hoped that in its promised updating of national planning policy the Government recognises that meeting needs is not all about the numbers – the quality, type and tenure of homes is equally important.
When will the changes be likely to take effect?
Government will hope that in the vast majority of areas where SM2 makes no change to the minimum amount of homes to be planned for, authorities will press ahead with local plans (including in those areas where work was paused pending the review of the standard method and wider planning reforms).
Elsewhere the changes will be unlikely to have a material impact in the short term. The concentration of additional need in only 52 local authority areas (the 33 London boroughs, plus 19 others) makes early progression of these local plans vital. Eight of the 20 cities have adopted or advanced plans which propose housing requirements below SM2 – we estimate this to amount to around 43,000 homes that are effectively “lost” in the prevailing development plans.
Our major cities have a mixed track record of successful strategic planning. The Government itself concedes, for example, that where it expects to agree the new London Plan with the Mayor ‘shortly’ this will set the capital’s housing requirement for the next five years. We are all too familiar with the travails of planning in cities such as Bristol (west of England), Greater Manchester and Leeds to name a few. SM2 will only therefore take effect through plan reviews and the hope of seeing the 35% uplift being reflected in development plans before the mid-2020s is faint. While it may bite through five year land supply calculations, there must be doubt about whether this will have a material impact on the nation’s housing supply. The failure to account for such situations by applying uplifts throughout the country is a glaring omission, and weakens the plan-led approach to meeting housing needs.
Looking for positives: planning as an agent for change
It is clear that the Government has missed an opportunity to radically change what it has acknowledged to be a broken formula. The onus must therefore, in this context, be on local authorities to plan proactively for the homes that are needed. In large parts of the north and midlands in particular, this will require plan-makers to create ambitious plans which see the standard method as it is intended, as only a minimum “starting point” from which to build, in order to create resilient and thriving economies which can bridge long-standing inequalities and genuinely level up the country. In our view, it is critical that the Government in releasing funds to support the growth of these areas also holds them to account to ensure ambitions are translated into plans.
For authorities across the South, including London, a positive mindset is essential to support the delivery of new homes if extreme affordability issues are to be addressed. This will be ever more important in those areas where the behavioural shifts of 2020 have increased pressures on local housing markets, to ensure that housing options are open to all, and not just those who can afford rising prices.
This setback makes the conclusion of proposed planning reforms all the more important. It is hoped that SM2 is a “sticking plaster” to hold things together pending a comprehensive approach to meeting housing needs. One has to wonder how the experience of SM2 may have affected the Government’s appetite for what it envisages to be the most radical changes to the planning system for several decades. Hopefully we will not have to wait too long.
For more information please contact Dave Trimingham or Antony Pollard.
We have once again collaborated with the Land Promoters and Developers Federation (LPDF) to summarise the minimum housing need implied by the new standard method for each local authority, recognising that the indicative figures published by Government will change in the New Year. For further context, this document also allows comparison with past delivery, existing housing requirements and the outcomes of the draft SM2.
17 December 2020
[1] Changes to the current planning system. MHCLG. August 2020. Paragraph 40
[2] Changes to the current planning system. MHCLG. August 2020. Paragraph 14
[3] Fans of “algorithms” may want to look into how the ONS classification of these urban centres works!
[4] Changes to the current planning system. MHCLG. August 2020. Paragraph 25
[5] Current consultation on wider permitted development rights for conversion of Class E uses to residential
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