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Two key failings of the Standard Method for calculating housing need

One of the challenges the government has identified in tackling the housing crisis is the way in which councils determine how many homes they need to build. In an effort to address that, the government is currently consulting on a new “Standard Method” for calculating housing need.

This post explains what is proposed, and identifies two significant failings of the intended approach.

What is the “Standard Method”?

Current planning guidance identifies what sorts of factors should be taken into account when calculating housing need. However, there is no real detail as to how that should be done. The result has been a wide range of different methods being used producing vastly different results.

That, in turn, has resulted in long delays in the Local Plan process due to arguments over what is the correct approach and how many homes actually need to be built. Those debates are often incredibly detailed, involving lengthy discussion about arcane matters such as Economic Activity Rates and Derived Headship Rates.

Few professional planners truly understand them, let alone members of the public. That can’t be a good thing for the planning system.

The Standard Method attempts to cut through that and provide a simple, transparent, easy to understand approach.

The starting point is the Office for National Statistics forecast for household growth over the next 10 years. The Standard Method then adjusts that figure to take account of the affordability of housing in each local authority.

The government’s assumption is that the maximum level of mortgage finance that is typically available to home buyers is four-times their salary. Therefore where median house prices are more than four-times median incomes, houses are unaffordable. That must mean too few homes are available, and the housing target is increased as a result. The more unaffordable homes become, the greater the increase to the housing target required.

And that’s it. Two simple steps to produce a clear, unequivocal answer as to how many homes are needed with no room for dispute.

Will it actually work?

Simple may be good in theory, but the Standard Method needs to work in the real world too. The critical question is whether it produces an accurate assessment of housing need; and it doesn’t seem to.

There are two key factors that the Method does not take into account, which could result in an underestimate of the number of homes that are needed. Let’s consider each in turn.

1. Affordable housing need

Affordability might be central to the Standard Method, but that is different to the need for affordable housing.

The ratio of median prices to median incomes is an important factor, and one that the current approaches ignore. But what it doesn’t reflect is the need for affordable housing – essentially, homes for those who can’t access market housing at all.

More than a third of affordable housing is delivered by private developers alongside market housing as a requirement of planning permission being granted. The proportion of those homes required to be affordable is set out in the Local Plan and reflects, amongst other things, the viability of development.

In some council areas, delivering the maximum viable amount of affordable housing from market housing schemes leaves a shortfall against the need for affordable homes. In those circumstances, planning guidance suggests increasing the housing target to enable the need for affordable housing to be met.

In simple terms, a council might need to deliver 1,000 new homes, including 300 affordable ones. But if the maximum proportion of affordable homes that can be viably delivered is 25%, that would mean only 250 affordable homes being built – a shortfall of 50. To avoid that shortfall occurring, the council could plan to deliver 1,200 new homes instead. If 25% of those were affordable, that would deliver the 300 affordable homes that were needed.

Currently, that is the process that should be followed. The housing target in Warrington Council’s Core Strategy was even quashed by the courts for failing to take proper account of affordable housing need.

As it stands, though, the Standard Method does not take into account the need for affordable homes at all. It therefore risks failing to meet affordable housing need.

2. Economic growth

Local Plans aren’t just about delivering new homes. They should plan to deliver economic growth too.

Many councils set out plans to deliver better economic growth than they have achieved in the past. That’s especially true in the North and Midlands, where the government is actively encouraging enhanced economic growth in an effort to re-balance the economy away from London and the South East. The Northern Powerhouse Minister and the Industrial Strategy both came into being with that aim in mind.

Growing the economy of a region creates more jobs. Those jobs need people to fill them, and those people need homes. So the more ambitious a council’s economic growth strategy, the more new homes are needed.

The Standard Method doesn’t take that into account at all.

The consultation document does pay lip-service to it – it makes it clear that councils “may” plan for more homes than the Standard Method would require to help support economic growth plans. But it goes on to say that where authorities do wish to plan for more homes, planning inspectors should assume the proposed target is correct unless there are “compelling reasons” to indicate otherwise.

That doesn’t suggest there is likely to be much robust interrogation that the housing target actually supports and enables the economic strategy.

Even with that possibility, the political pressure on councils is usually to limit house building. So how many will actually take the “build more” option if they aren’t compelled to balance their housing plan with their economic one?

Set up to fail

Simplifying the way housing need is calculated will be of huge benefit. Far too much time and effort is currently wasted arguing over the minutiae of housing need models. As happens all too often in planning, perfect becomes the enemy of good.

Yet simple should not be at the expense of missing crucial influences on the housing market.

The central objective of the Standard Method is to address the housing crisis and make house prices more affordable. But if it doesn’t reflect affordable housing need and economic growth, it will simply defer the crisis. We will become locked in an endless cycle of reacting to unaffordable prices rather than avoiding them reaching that point in the first place. Planning should be proactive, not reactive. Without change, the Standard Method is set up to fail.

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