Intelligence: 16 August 2018Standard Method: change needed if 300k homes per annum target to be met

Publication of the revised National Planning Policy Framework (NPPF) on 24 July 2018 carried forward the Government’s intention to introduce a Standard Method for assessing local housing need, thereby replacing the Objective Assessment of Overall Housing Need (the OAN) required since 2012. The NPPF confirmed that the Standard Method will apply immediately when dealing with planning applications (paragraph 212) but introduced a 6-month transition period for the examination of local plans with the Standard Method applying only to those plans submitted after 24 January 2019 (paragraph 214). Until this date the previous OAN method will apply for all Plans submitted for examination.

The interim statement regarding the supporting Planning Practice Guidance (PPG) on Housing and Economic Development Needs Assessments reiterated the three steps for calculating the Standard Method that was first proposed in September 2017 in the Government’s consultation on ‘Planning for the right homes in the right places’.

Although the parameters of the Standard Method remain unchanged from the initial proposals, the methodology note accompanying the interim PPG statement confirms that the Standard Method baseline (Step 1) should be based on the projected average annual household growth over a 10-year period, with the current year on the date of the calculation being the first year. 

On this basis, local housing need assessments using the Standard Method should currently draw household projections from the period 2018-2028, rather than 2016-2026 as was used by the MHCLG to calculate the indicative local housing needs figures published in September 2017. Furthermore, the methodology note also confirms that the adjustment to take account of affordability (Step 2) should be based on the most recent median workplace-based affordability ratios. On this basis, affordability ratios for 2017 should be used, rather than for 2016 as was used by the MHCLG to produce the indicative figures.

For now, the Standard Method is calculated using the 2014-based household projections, the same projections that set the baseline for the indicative figures published by MHCLG last year.  That being the case, we would not expect the Standard Method national housing need picture to change much, and that turns out to be the case.

The Step 2 calculation increases housing need from 299,000 to 300,000 homes per annum for England as a whole.  However, application of the cap (Step 3) based on the status of Local Plans as at 31 July 2018 (which takes account of 24 Local Plans that have been adopted since MHCLG calculated their indicative housing need figures last year), results in (capped) housing need of 264,000 homes per annum in England.

264,000 is a slight fall from the 266,000 published last year, but still towards the top end of the Housing White Paper assessment that 225,000 to 275,000 homes a year need to be built in England to end the housing crisis and fix the broken housing market.

In light of the Housing White Paper, the affordability problem it identifies and the remedy it proposes – to build many, many more homes than at present - it is reasonable to assume that the sum of local housing need assessments calculated using the Standard Method must amount to a need for in the region of 264,000 homes a year if, as a nation, we are to have any chance of ending the housing crisis.  Especially since, as the Chancellor tells us, and the Prime Minister recently reminded us, we need to ramp up housing building to 300,000 homes a year by the mid 2020s.

Looking forward to next month’s publication of the 2016-based household projections, which will immediately change the Standard Method housing need baseline, it is equally reasonable to speculate whether the Standard Method will continue to be fit for purpose, in terms of aligning with national policy commitments to build 225,000 to 275,000 homes a year or 300,000 homes a year by the mid 2020s.

Whilst it is not possible to accurately predict what the 2016-based household projections will show when they are published due to methodological changes being introduced in relation to the underlying household formation rates (HFRs), we do know that the 2016-based household projections will be underpinned by the 2016-based Sub National Population Projections (SNPP) which were published on 24 May 2018.

The 2016-based SNPP project 679,000 fewer people in England over the period 2016-2026 than the previous 2014-based SNPP; over the period 2018-2028 the 2016-based SNPP project 737,000 fewer people. The 2016-based SNPP therefore project slower population growth which will have implications for assessments of housing need given the SNPP are a key component of the household projections.

Indicative analysis by Barton Willmore (applying 2014-based HFRs to the 2016-based SNPP) suggests that projected household growth may fall from 221,000 to 196,000 households per annum nationally over the period 2016-2026; or from 217,000 to 191,000 households per annum over the period 2018-2028.

Feeding these indicative household projections into Step 1 of the Standard Method, using 2017 affordability ratios within Step 2, and taking account of Local Plan statuses as at 31 July 2018 according to the Planning Inspectorate within Step 3, our analysis suggests that nationally the Standard Method may provide 235,000 homes per annum.

235,000 homes per annum sits near the foot of the Housing White Paper’s range of 225,000 to 275,000 homes a year and falls significantly short of the Government’s commitment to ensuring that 300,000 homes are built per year by the mid 2020s. On the face of it, based on our calculations, 2016-based Standard Method housing need will fail our sniff test – and fail to ensure the number of homes needed are planned for and built nationally.

The Government appears to be aware that the 2016-based household projections are likely to show lower projected household growth when they are published in September 2018. The Government has stated that the reforms set out in the Housing White Paper should lead to more homes being built and therefore to ensure that outputs from the Standard Method are consistent with this, the Government has stated: 

“The intention is to consider adjusting the method to ensure that the starting point in the plan-making process is consistent in aggregate with the proposals in the Planning for the right homes in the right places consultation and continues to be consistent with ensuring that 300,000 homes are built per year by the mid 2020s”

It is unknown how the Government might adjust the Standard Method.  However, options may include:

  • Option 1: Adjusting the affordability uplift (Step 2). Although all this will serve to do is increase housing need within London and the South East, exacerbating the north/south divide in respect of housing need across the Country;
  • Option 2: Adjusting the cap (Step 3). It is unlikely that the Government will reduce the cap entirely due to the political sensitivity.  However, the Government may increase the cap from 40% to say 50%; or
  • Option 3: Introduce an uplift to support economic growth. Whilst the existing PPG HEDNA published in support of the 2012 NPPF requires consideration of an uplift where necessary to support economic growth, this component of the assessment is often the most debated at local plan examinations.  The introduction of such an uplift into the Standard Method is therefore unlikely to be favoured by Government, who intends the Standard Method to provide a transparent and simplified approach to assessing local housing need.

The table below demonstrates the potential effect of Options 1 and 2 above.

 

40% cap

50% cap

No cap

0.25 affordability uplift

235,000

241,000

261,000

0.33 affordability uplift

244,000

251,000

284,000

0.39 affordability uplift

249,000

257,000

300,000

Increasing the affordability uplift from a quarter (0.25) as currently proposed in the Standard Method, to a third (0.33), would increase uncapped need to 284,000 homes per annum but capped need to 244,000 homes per annum. Increasing the affordability uplift further to 0.39 would provide for uncapped need of 300,000 homes per annum but with the application of the current 40% cap, need would reduce to 249,000 homes per annum. This analysis demonstrates that the 40% cap is the biggest obstacle, as the greater the affordability uplift, the greater the number of authorities that are limited by the cap.

Increasing the cap from 40% to 50% marginally increases housing need. However, increasing the cap to 50% and the affordability uplift to 0.39 would still only result in a need for 257,000 homes per annum nationally.

The big question is, how will the Government react to the 2016-based household projections, if, as we suspect, they serve to undermine national house building policy goals? 

We would strongly argue that they must adjust the Standard Method in such circumstances, so that the national sum of local minimum housing need assessments remains at the top end of the Housing White Paper’s 225,000 to 275,000 homes per year. This was identified as the need per year to keep up with population growth and tackle years of under-supply with a view to need increasing to 300,000 homes per annum by the mid-2020s.

If not, the Government will fail to fix the broken housing market. 

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Standard Method, UK Housing, Objective Assessment of Overall Housing Need , NPPF, Development Economics