Housing: How is need assessed? 

Insight

Published Thursday, 01 October, 2020

• Insight
• Housing and planning
• Local government
• Planning

• Cassie Barton

This Insight explores proposed changes to the formula used by Local Planning Authorities (LPAs) to use to assess housing need.

How much housing should local authorities plan to build? In August, the Government proposed changes to the formula it asks Local Planning Authorities (LPAs) to use to assess housing need.

This Insight explains what the current and proposed methods of assessment are, and explores the effect on individual local authorities. You can also find data for your local authority below.

What’s the existing method for assessing housing need?

Local Planning Authorities (LPAs) are strongly encouraged by the Government to prepare a ‘Local Plan’. This sets out planning policies for their area, including an assessment of how much new housing will be needed to accommodate growth.

The Government first introduced a standard method for calculating housing need, to be used by all LPAs, in a July 2018 update to the National Planning Policy Framework

This method calculates housing need using three main steps:

1. Projected household growth. The formula starts with the projected growth in the number of households per year in the area.
2. Affordability adjustment. This annual growth figure is then adjusted based on how affordable it is to buy a house in the area, by looking at the area’s ‘affordability ratio’. If the average house price is more than four times the average earnings of someone who works in the area, then the figure is adjusted upwards – the more unaffordable the area, the bigger the need adjustment.
3. Capping the increase. A cap may be applied to limit the increase in housing need that a LPA might face. Whether and how this cap is applied depends on the strategic housing policies the LPA has already adopted.

See the gov.uk page on the standard method for a more detailed explanation.

What are the proposed changes?

The Government published a White Paper, Planning for the Future, in August 2020, which includes changes to the standard method among other planning reforms. A consultation on these changes closes on October 20.

The Government suggests:

1. Changing the baseline. Rather than only using household projections as the baseline, LPAs should use whichever is higher; the latest household projections or an increase of 0.5% of the area’s current housing stock.
2. Changing the affordability adjustment. An updated affordability adjustment formula would account for change in the area’s affordability ratio over the last ten years, on top of the current adjustment. Areas that have become less affordable over time will have a higher housing need figure. The new formula also allows the baseline to be adjusted downwards if house prices are less than four times higher than earnings. This wasn’t possible before.
3. No cap will be applied to the housing need figure, regardless of LPAs’ policies, although there would be transition provisions for any plans close to completion.

A more detailed explanation of the changes is outlined in pages 8-17 of the consultation document.

Why make these changes?

The Government has an ambition to be delivering 300,000 new homes per year by the mid-2020s. However, LPAs’ existing housing targets have historically been lower than this number when aggregated to the national level.

The current standard method also wouldn’t result in a high enough number of homes if applied to current data. By contrast, the proposed changes to the standard method result in a national total of 337,000 new homes per year, if implemented with the latest data.

As with the current standard method, the Government considers that the resulting housing need figure for an LPA should be “the starting point for planning and not the final housing requirement”. The consultation document acknowledges that “not all homes that are planned for are built” and the 337,000 total is designed to “account for the drop-off rate between permissions and completions”.

The Government also hopes that the new method will provide more stability. Household projections are based on past trends in population growth and household formation, which means they can change as new trends emerge or if methodology changes.

Housing stock figures don’t change as much, so incorporating them into the baseline is intended to create estimates that are steadier over time and ensure a minimum level of development. Household projections are still included, with the aim of allowing LPAs experiencing new growth to plan for future changes.

The removal of the cap means some LPAs would see a considerable increase in their housing need figures, but the consultation argues that this is necessary to achieve a “step change” in delivery.

Data for your local authority

The planning consultancy Lichfields has published analysis of the proposed new standard method using the latest data for each local authority. This data is reproduced in the dashboard below. Select a local authority to see its level of housing need under the current and proposed new standard methods.

Lichfields’ data also provides comparator figures, showing the housing need figure agreed in each area’s current adopted Local Plan and average delivery of new homes over the last three years. Local Plan data is not available for all local authorities.

Open a printable version
Download all data in Excel

Source: Lichfields, How many homes? The new standard method

Note that LPAs don’t always have the same boundaries as local authorities. The data above and analysis below uses local authority boundaries because the necessary data is not published for all LPAs.

What types of areas would need to build the most?

The Government’s consultation document notes that the proposed changes will affect some local authorities more than others, with 141 local authorities having a change of over 25% compared with their current Local Plan or the current standard method.

The new method does not radically change the regional distribution of housing need. The Northern regions would account for 15% of homes needed per year; the East Midlands and West Midlands for 17%, and the rest of the country for the remaining 69%.

If the current standard method is applied to the same data, the proportions are similar: 17%, 16% and 67% respectively. London accounts for 28% of growth under the proposed method and 22% under the current one.

The charts below explore the regional distribution in detail.

Urban areas have higher housing need under the proposed new method, as they do in the old method. The charts below group local authorities using a system for classifying areas by settlement size The system assigns local authorities to one of six categories based on the type of settlement that the biggest proportion of the area’s population lives in.

Local authorities in England’s ‘core cities’ collectively have the highest housing need under the proposed method, both in total (around 111,000 homes per year across all of them) and relative to their population. Much of the high rate in the ‘core cities’ group is driven by high rates in London rather than other economic centres.

Further reading

• Planning for the Future: planning policy changes in England in 2020 and future reforms, House of Commons Library.
• Tackling the under-supply of housing in England, House of Commons Library.
• How many homes? The new standard method, Lichfields

About the author: Cassie Barton is a statistician at the House of Commons Library, specialising in housing, planning and demography.