Briefing Note: Method for assessing local housing need
Short and long-term changes to the standard method for assessing housing need
The current Standard Method
The standard method for assessing housing need (The Standard Method) first came into force in 2018 via the amended National Planning Policy Framework (NPPF) and was established in order to enhance the process of assessing the minimum number of houses required in an area via an easier, cheaper and more transparent manner, whereby figures are less contested at the examination stage with data publicly available. The current Standard Method, as outlined by the NPPF, utilises a formula which takes into account a baseline of projected household growth, affordability and previous under-supply; household projections (based on 2014 household figures) are configured to reflect affordability and are capped at 40% to restrict the increase based on the current stage of a Local Planning Authority’s (LPA) strategic policies for housing. The Standard Method currently establishes the starting point for planning for housing yet does not distinguish the definite housing requirement figure. The Standard Method is to be undertaken at the rudimental stages of preparing a Local Plan and should be re-evaluated as appropriate. LPAs have to decipher whether localised circumstances mean that the actual need surpasses the minimum figure of the Standard Method, owing to planned strategic infrastructure or higher growth predictions. Sufficient land must then be released over at least the next 15 years. Currently, policy then encourages LPAs to determine how such a figure of housing could be facilitated: through intensification and densification of brownfield land, regeneration, or new-settlements and urban expansions.
There are, however, recognised shortcomings with using the Standard Method. The use of current household projections alone is widely regarded as problematic; the 2014 figures are inconsistent, being too low in certain areas and thus not providing a true reflection. Of note, it is not currently mandatory for LPAs to follow the Standard Method owing to exceptional circumstances which are subsequently evaluated at examination; Paragraph 11 of the NPPF enables LPAs not to have to fulfil their own housing need if they are affected by policy constraints such as Green Belt. In some instances, this allowance has, arguably, been manipulated, partially leading to the current inertia. Thus, although housing delivery has increased in certain years, with a 30-year high last year, the Standard Method has been blamed for perpetuating the national housing crisis as local plans are not currently able to deliver the quantum of housing that the country needs. Indeed, reference was made within 2019 updates to national policy and guidance that the procedure would be reviewed in an attempt to add further clarity, simplicity and transparency for local communities. Consequently, MHCLG has issued distinct short-term and longer-term amendments to the Standard Method that represent a radical realignment of the process. This article will discuss each in turn.
The short-term proposals
The ‘Changes to the Current Planning System’ consultation paper seeks to replace the 2018 Standard Method to improve the immediate effectiveness of the current system, thereby aiding the Government’s ambitions of delivering 300,000 homes per annum, with 1 million to be completed over the Government term. The alterations would change Planning Practice Guidance (PPG) which, in turn, would then influence the fundamental reforms outlined within the White Paper.
A key element of these reforms is the introduction of the percentage of existing housing stock levels into the Standard Method calculations; the baseline for the method would be established by using whichever is the higher of either 0.5% of the existing housing stock or the latest projections of average annual household growth over a 10-year period. That the latest ONS figures on national household growth projections are to be used marks an definite improvement from the 2014 household figures. The incorporation of stock levels is intended to make the method more stable and concentrate development in existing urban areas; locations with higher future projections, and lower stock levels can plan for more than the previous method. It is acknowledged that this amendment will inevitably lower the baseline figure; however the second alteration within these reforms is designed to mitigate this via attention to market signals.
The second adjustment accounts for market signals by using the current affordability ratio alongside the change in affordability over the last 10 years. This change to the baseline concerning affordability is two-pronged. Part 1 involves using the workplace-based median house price to median earnings ratio, to help where affordability is especially poor. For each 1% the ratio is above 4 the baseline is increased by a quarter of a percent (4 being the threshold as 4x times a salary is usually the maximum amount that can be borrowed for a mortgage). A consideration of downwards adjustments is also included: for each 1% the ratio is below 4, the baseline is decreased by a quarter of a percent. The introduction of an affordability adjustment which considers variations is to increase the method’s reflection of changing local circumstances. The second aspect of the emphasis on affordability pertains to utilising the absolute difference between the latest affordability ratio and the affordability ratio 10 years ago; the difference calculated is multiplied by a factor of 0.25. The 10-year figure will reveal the trend, thereby monitoring whether affordability has improved and enabling LPAs to respond accordingly. Adjustments part 1 and 2 are added together to formulate a total affordability factor which is then applied to the baseline. To this end, affordability becomes more central in the overall calculations, which is significant given the fact that the affordability of homes is the best evidence that supply is not relative to demand.
These interim measures are designed to achieve as much short-term supply as possible. Indeed, the principle of the reforms pertain to: ensuring land supply is not a barrier to fulfilling housing provision, utilising more accurate data, delivering housing where it is the least affordable and reducing the volatility of the methodology. Crucially, the proposals abolish the cap previously applied to constrict the level of increase in housing need identified by individual LPAs. This is a radical step which is intended as a quicker way to address the housing crisis. Of significance, based on the aforementioned adjustments, MHCLG noted the revised figure of 337,000 homes per year as opposed to 270,000 from the present method. It is, however, recognised that LPAs will be impacted by these revisions differently. The revised method contorts current figures; the Government emphasises the need for a better distribution of homes where they are most needed yet the figures reduce numbers in the north, despite references to supporting the Northern Powerhouse. To this end, the revised approach may be deemed to be at odds with the confirmed commitment to reduce regional inequalities. Further, the continuation of green belt allowances casts doubt on the extent that the amendments will increase housing provision in constrained areas such as the Home Counties.
It is suggested that commencing from the publication date of this revised guidance, LPAs that are already at the second stage of plan making consultation process, Regulation 19, are given 6 months to submit their plan to PINS for examination. Plans already at the second stage publication are to be given 3 months to publish their Regulation 19 plan with an additional 6 months to submit to PINS. After consultation on the proposal document, which closed on 1st October, updates to PPG will be updated accordingly.
Long term reforms within the White Paper
Arguably the most contentious of all reforms set out within the ‘Planning for the Future’ White Paper is the radical new approach to the Standard Method as explained in Proposal 4 within Pillar 1: A New Approach to Plan-making. In essence, a nationally-determined binding housing requirement is advocated which LPAs would be responsible for delivering through their Local Plans. This new method would become a way in which to distribute the national housing target of 300,000 new homes per annum. This housing requirement would take into consideration land constraints and opportunities in order to more effectively use land, with an express intention of densification where appropriate.
Within the context of making the planning system fit for purpose, MHCLG relegate the current assessment of housing need as too complex and opaque and declare it incapable of ensuring the correct number of homes are built. Subsequently, the reforms seek to actively encourage greater land release and to concentrate delivery on areas where affordability pressures are the most acute. The amended approach would factor in land constraints and opportunities in the first instance; MHCLG have stated that when determining the binding figure for an area, consideration will be given to:
– The size of the existing urban settlement to ensure development is concentrated in areas that can absorb the level of housing proposed;
– The relative affordability of an area, to facilitate concentration in acute locations;
– The extent of land constraints such as environmental and heritage factors including Green Belt, National Parks, AONBs;
– Opportunities to further use brownfield land, e.g. through increased densification;
– Consideration of land required for other land uses;
– Incorporation of an appropriate buffer to counteract the disparity between permissions and completions, whilst also providing adequate selection for the market.
LPAs would retain authority as to how land is allotted in order to meet their stipulated housing figure. Further, it is suggested that the current Housing Delivery Test is maintained. Moreover, an alternative solution is referenced which involves retaining the current Standard Method but with greater emphasis on meeting current need with additional safeguards.
Implications
As with the other proposals within the recent Planning reforms, further clarification is required. It must be acknowledged that, ultimately, the extent of the potential long-term binding requirement will be determined by the success of the short-term measures.
Regarding the interim proposals, the greater stress on affordability has somewhat inevitably increased figures for the wider South East which is also where environmental and heritage limitations are prominent. How will this be resolved given the statement of continuation of green belt restrictions? Will growth remain focussed in London owing to low affordability? Under both the reforms to the short term and longer term, the flexibility to reduce numbers owing to constraints will still exist – therefore to what extent will numbers be increased?
The proposal within the White Paper have attracted widespread interest with concerns raised over the move towards top-down instruction on housing targets and how this will sit with local autonomy and local democracy. Both public and private sector representatives have warned against the potential removal of localised planning judgement. The removal of the Duty to Cooperate also raises the question of what would happen to LPAs that are severely constrained by Green Belt and would therefore be unable to negotiate joint arrangements with neighbouring authorities? It is as yet unclear as to what sanctions could be inflicted on LPAs who fail to accommodate the binding requirement. Central Government would be responsible for deciphering green belt release, yet it is not clear how the constraints to the nationally set figure will be incorporated? There is also concern that there could be more construction on greenfield land in the south as opposed to brownfield land in the north. Additionally, it is unclear how frequently Central Government figures would be distributed.
The development industry is undeniably at a critical cross-road concerning mitigating the mounting housing crisis. The results of both consultations will no doubt prove highly insightful.
Current PPG guidance on the Standard Method is accessed at: https://www.gov.uk/guidance/housing-and-economic-development-needs-assessments
The short term amendments can be accessed at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/907215/200805_Changes_to_the_current_planning_system_FINAL_version.pdf
Planning for the Future reforms are available at: https://www.gov.uk/government/consultations/planning-for-the-future