Hon. Vice Presidents

Household Projections and Objectively Assessed Need

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t is familiar that England has a plan-led system in theory, but a shortage of plans in practice. In March 2017, according to estimates from Savills, only 38% of English local authorities had a National Planning Policy Framework (NPPF) compliant plan. Concerns over the ability of developers to bring forward contentious housing sites where local authorities cannot demonstrate sufficient land supply suggest it would be far preferable to have well thought-out local plans in place. Hence the Government set up the Local Plans Expert Group (LPEG). Their report in March 2016 identified debates over housing targets as a key reason for delay in plan production and proposed a simpler methodology for reaching these numbers. DCLG has announced that the new methodology will be introduced from March 2018, subject to changes made after taking account of the consultation on the Housing White Paper. Planning authorities will thereafter need good reason for adopting a different methodology. The LPEG approach can be criticised. The reliance on past demographic trends (the basis of the Office for National Statistics (ONS) sub-national population projections from which the DCLG household projections are then derived) is a weakness; an area which with low population growth in the recent past has that projected into the future. High growth areas in the South-East by contrast remain high growth. It’s also worth recalling that the relevant ONS press release states: ‘The sub-national population projections are not forecasts, and do not attempt to predict the impact that future government Cambridge University Land Society

or local policies, changing economic circumstances or other factors might have on demographic behaviour’. Past ONS population projections for the UK as a whole have often been wide of the mark, particularly over longer periods, and at present future net migration trends represent a significant source of uncertainty. Successive editions of these projections often show significant variation at the local level. The last two decades have seen a persistent tendency for the projections to foresee a decline in household size which has not then occurred. It is arguable that it has not occurred because the homes have not been built, but since the financial crisis weak income growth in many parts of England will have dampened effective demand for housing – young people out of work cannot afford to leave home. The use of trend projections implicitly plans for this to continue . The proposed LPEG methodology also incorporates adjustments based on affordability factors. It is very welcome to have market signals recognised. However (I plead guilty here, having used this indicator in the past) median house prices to median incomes may not be the right choice. It would be better, especially as there is a separate measure included related to rents, to have proposed an estimate of mortgage costs/income. At some time surely interest rates will rise, and this will affect house prices (though a slow pace of rate increase may mean prices are flat in nominal terms, rather than falling). This would improve house price/incomes measures but leave true affordability little changed. A different reason for hesitation over this part of

the methodology is that all modelling of the English housing market concludes that, while new supply has an impact on house prices, this is small in any one year, though significant over longer periods (ten years plus). When demand fluctuations in small areas are taken into account, along with the possible spillover effects from development rates in neighbouring authorities, it is optimistic to think that even quite significant shifts in the rate of supply in one local authority will have a discernible impact on house prices over a five year period. Despite these reservations, the LPEG approach would be an improvement on the present situation, in which consultants too often produce lengthy analyses of a highly uncertain future. A simple approach which allows for the possibility of strong demand is more appropriate. And critics of this approach would have to produce something better. Most countries have some form of housebuilding target in their planning systems, and without some broad view of how population may change in an area it is hard to see how local authorities can plan for and seek to facilitate provision of the appropriate infrastructure. We can also think about housing delivery in relation to developer behaviour and incentives. The incentive to build in a high demand area is strong – and conversely weak where there is weak demand. Development usually has no difficulty in adjusting down if there is little demand – house price declines swiftly prompt lower construction. So there is a case for setting housing targets as a range, with the top of the range intended to allow for unexpectedly 12

Dame Kate Barker CBE Non-Executive Director, Taylor Wimpey.

strong demand, a more robust version of the buffers in land supply. Problems with this proposal include a fear that it would result in allowing too much undeveloped land into plans which would be built out rather than more difficult brownfield sites. However, it ought to be possible to handle this through evidencebased local targets on the proportion of permissions in any period between the different kinds of land. The second problem is that infrastructure provision would need to be adjusted as the plan period proceeds – but frankly that is no different from today’s reality. Adapting the LPEG proposal’s definition of affordability, and moving to a range for the housing target would give this new approach more ‘bite’ as well as avoiding time and money being wasted on spurious accuracy about an unknowable future. ‘Objectively assessed need’ is the planners’ phrase, an economist would prefer ‘Best estimates of future demand’. This discussion does indeed reflect the economist’s view. The small ‘p’ politics really matters. The higher rate of population growth in the UK over the past couple of decades has strengthened many people’s desire to explain why their locality is unsuitable for more development. Unfortunately, a simple approach to housing targets will not render specific developments any less contentious. 2017