Recently proposed changes to national planning policy have prompted lots of debate about what their impact will be on meeting the government's target of building 300,000 new homes in England each year. And is that even the right number to be aiming for in the first place?
Nobody seems quite sure where the government's target came from. It's a political target so it could well be fairly arbitrary and, in any event, calculating how many homes we need isn't an exact science. Interestingly, however, it is very similar to the estimate in economist Kate Barker's comprehensive report "Review of Housing Supply" from 2004.
Usually known simply as the Barker Review, the report identified the need to significantly increase the supply of new homes. In order to keep real house price inflation to 1.1% per annum, it recommended we should build 260,000 private homes a year and a further 52,000 social homes - so 312,000 in total.
In England over the last 20 years, we've averaged about 187,000 new homes each year. The most we've built in any given year over that period is the 243,000 homes added in 2019/20. That's quite a long way short of the government's target. Those figures, which are from government data, are summarised in the table below.
Those figures are for net new homes, so they take account of demolitions (of which there have been about 5,000 each year recently) and include new homes delivered through changes of use and conversions (which have accounted for around 30,000 new homes per annum over the last 5 years).
The planning system is a big part of the reason why delivery has been so low. Between them, all the Local Plans in England are only planning to deliver about 216,000 new homes each year. Virtually every new home needs planning permission before it can be built, so it should be no surprise that we're struggling to get close to the government's target. If we're not planning to deliver homes, we won't build them - they can't just be wished into existence.
This is also a good example of how bad our data about housing delivery is. We only know that figure because somebody at planning consultancy Lichfields looked up the housing target in every single Local Plan. There is no central source for that information.
Now we know where we are, but where should we be? How many new homes should we be building?
There are plenty of different ways of estimating that number.
The Office for National Statistics (ONS) periodically produces estimates of how many new households they expect to form, known as Household Projections. Their most recent set of projections suggest we'll see 164,000 new households forming annually in the coming years.
That figure is often cited as evidence that we're building enough new homes already. However, there's a problem with using it for that purpose.
A household is defined simply as the number of people living in a house. If we build too few homes, the number of people in each house is higher than it would otherwise be, inflating the average household size. The ONS projections assume that those trends will continue, which reduces their estimate of how many households there will be in the future.
Put another way, if a shortage of homes constrains the number of households that form, ONS projections assume that constraint will continue. The number of households will always grow more slowly than the number of homes. It has to, by definition
That's why the ONS themselves make clear that: "Household projections are not a prediction or forecast of how many houses should be built in the future. Instead, they show how many additional households would form if assumptions based on previous demographic trends in population growth and household formation were to be realised."
This highlights the issue of "concealed households" - those people who would like to form their own household, but can't because of a shortage of houses. The English Housing Survey tells us that there are about 1.6 million concealed households.
Planning consultancy Lichfields looked at how many extra homes we would need to house those concealed households, also taking into account all the extra households that are expected to form in the coming years. To address that backlog by 2030, they estimated we'll need to build 389,000 homes each year.
Housing charity Crisis carried out a similar analysis in 2018 using a slightly broader definition of "backlog." They estimated that England had a shortfall of around 4 million homes. To meet that need over 15 years, they concluded we should be building 340,000 new homes a year.
Another approach is to consider how many homes we built in the past. Some recent research by Centre for Cities has calculated building rates for England all the way back to the 1850s.
If we were to grow our housing stock at the same rate we managed in the 1960s, we would be building about 315,000 new homes each year. Matching the growth rate we achieved in the Inter-War period would mean 605,000 new homes each year. Their figures also show how dramatically our building rates have declined in recent decades.
We could also look to our European neighbours and other OECD countries as a comparison.
We have far fewer homes per capita than most of them. Catching up with France would mean building about 6,000,000 more new homes - about 750,000 a year if we were to do so by the end of the decade. Even just achieving the European Union average number of homes per capita by then would mean building 500,000 homes each year.
Whichever approach you prefer, all the indications are that we need to be building far more new homes that the government's current target. That's new homes of all types, sizes and tenures in every part of the country.
Unfortunately, we're heading in the wrong direction. Analysis by Lichfields suggests that the proposed changes to national planning policy will significantly reduce housing delivery - to around 156,000 new homes a year. The planning system, remember, is the gatekeeper of housing supply.
At between a half and a quarter of the number of homes we actually need to be building, that's not good news for housing affordability - or for the 2 million adults living in one of those concealed households.
