Housing targets: Can we predict future need?

When the Office for National Statistics (ONS) announced new projections for the number of future households last week, there were concerns about what this means for house-building targets. In this Insight, we explore what the projections mean for housing targets locally and nationally.

 

How do local authorities determine housing need?

The National Planning Policy Framework (NPPF) provides English local authorities with a framework for producing plans for housing and other development, which in turn inform decisions on planning applications. Local planning authorities need a robust assessment of local housing need to help them plan.

The Government has not until fairly recently prescribed how to assess that need but, in a speech in July 2017, the then Housing Secretary, Sajid Javid, argued that some councils had not been honest about housing need in their area.  A consultation on a standard method for assessing housing need was launched in September 2017.  In another speech in March 2018, Mr Javid suggested that ambitious councils might want to go beyond the standard method’s minimum number of homes and plan for more.

The Government won only limited support for the standard method during its consultation. Nevertheless, it announced its intention to go ahead with it, arguing that the method met its three tests of being simple, realistic and based on publicly-available data. The updated NPPF, published in July 2018, includes a three-step standard method: it assesses the baseline level of need, adjusts for affordability and caps the level of increase.

 

What do household projections have to do with this?

The new standard method uses household projections as a baseline for determining how much new housing a local authority needs.

Household projections are published by the ONS. They’re a way of describing how many households there might be in future, based on current trends in population growth and household formation.

When the NPPF 2018 was published, the most recent set of household projections was published by the Ministry of Housing, Communities and Local Government rather than the ONS. These were used during the consultation on the new NPPF to produce a set of indicative housing targets for local authorities based on the standard method (Excel file here) – in some cases, these were substantially different from local authorities’ existing estimates of housing need.

But the ONS, now responsible for producing household projections, has now released a new set of projections. These latest projections use a different methodology and are lower than the previous set. They estimate that there will be an average of 159,000 new households per year, compared to 210,000 in the previous projections.

 

What do the new lower projections mean for local authorities?

The lower national household projections mean the baseline used to set housing targets has gone down for many local authorities. The change doesn’t affect all local authorities equally – as the chart below shows, a small number of local authorities actually have higher projections than before.

 

Council household targets

 

Under the current standard method, household projections are the first step in the calculation. The next step is to adjust for affordability. The target rises in line with the house-price-to-earnings ratio for each local authority, which compares the area’s house price with the average salary of someone who works full-time in the local authority.

The target may then be capped, depending on what existing policies the local authority has in place for housebuilding. Authorities that adopted a plan in the last five years, for example, will have a final target no more than 40% higher than their existing identified level of housing requirement.

The maps below show how the first two steps turn out for local authorities using the new baseline projections (hypothetically, if each local authority set a new target this year, and if a cap wasn’t applied).

Numbers are lowest in areas that are not forecast to grow: this includes authorities that have been shrinking long-term, like Barrow-in-Furness, but also Cambridge, which has grown historically and is often cited as an example of the ‘housing crisis’.

Large local authorities like Birmingham and Cornwall have high targets, as do some in central London. When looking at targets as a percentage of existing stock, a more familiar picture emerges: local authorities in London and the south are expected to grow more.

 

England household projections

 

However, the current standard method might not be in place for long. During the consultation on the NPPF 2018, the Government acknowledged that household projections were likely to go down but stated its intention to stick to its target of building 300,000 homes per year. At the same time, it stated it would consider changing the standard method following the release of the September 2018 projections.

 

Why have household projections fallen? Does it mean we need less housing?

There’s a line of argument that the drop in household projections is evidence that need for new housing supply has been overstated. It’s worth looking at where household projections come from to understand why they’ve changed and how much they can tell us about future housing needs.

The ONS make household projections by combining their population projections with assumptions about trends in household formation. The population projections are themselves based on assumptions about births, deaths and migration.

The new household projections were lower for two main reasons. Firstly, the latest population projections are lower than the previous set – this is because the ONS now assumes there will be less immigration, fewer births, and less improvement in life expectancy.

Secondly, the ONS now use shorter-term trends in household formation to inform their assumptions, for a range of reasons relating to data quality. While the average household size declined between 1971 and 2001, it remained fairly stable between 2001 and 2011 (and there’s evidence that it is now growing). The old projections were informed by trends from 1971-2011, while the new set only look at trends from 2001-2011. They therefore assume less new household formation than the previous set.

New household formation is itself affected by the available supply of suitable, affordable housing to move into – without it, people will continue to live in larger households even when the members might prefer to strike out on their own. So it’s certainly possible that housing supply issues over the last few decades have impacted the projections for the future.

 

Can we predict how much housing should be built?

Ultimately – as the ONS stresses – household projections aren’t trying to forecast the future. They’re based on past trends, and don’t attempt to account for economic and political changes that might happen further down the line.

For example, international migration patterns will have a big effect both on the size of the population and the size of households (we know that recent immigrants tend to live in larger households). But the ONS’s projections don’t account for the effect of leaving the EU on migration, because the impact is difficult to predict.

The household projections are a starting point. But decisions about how much housing should be built end up taking in broader considerations – like how well new supply can tackle affordability issues, how best to help households in unsuitable and overcrowded conditions, and expected additional demand for second homes and more space.

 

Further reading

Implementation of the Housing and Planning Act 2016, House of Commons Library.

Tackling the under-supply of housing in England, House of Commons Library.

Planning for Housing, House of Commons Library.

Planning Reform Proposals, House of Commons Library.

 

Cassie Barton is a Senior Library Clerk at the House of Commons Library, specialising in housing and planning. Gabrielle Garton Grimwood is a Senior Library Clerk, specialising in planning.