2021 Affordability Ratios – Impact on the Standard Method.

At a time when the cost of living is front page news, it is clear from the latest release of affordability data in relation to house prices that the cost of owning your own home is not getting any cheaper. The latest median house price to work-place earnings ratio is now at 9.05, which represents a significant increase of 32.7% compared to 2011, placing further pressure on new households. In addition, every region in England and Wales saw its affordability ratio increase between 2020 and 2021.

On the one hand, this increase does help to increase the number of new homes targeted to local authorities, up from 292,046 per annum to 298,855 p.a. compared to last year but this is still below the Government’s overall objective of delivering 300,000 per annum in England. However, the affordability ratios are going up because the housing targets are consistently not being delivered. If you look at the most recent data on the number of net additional dwellings delivered in England, for example, in 2020-21 the figure was 216,489 and in 2019-20 it was 242,702.

Like many forms of trajectory, we strongly believe local authorities need to be aiming above the target to actually hit it. Unforeseen events will always unfold when it comes to delivering specific sites which cause delay and, in some instances, no delivery at all. With the standard method still providing a target below 300,000, it is inevitable that we will continue to see a shortfall in national housing delivery on the ground. We believe this is because not enough flexibility in land supply is being provided through emerging local plans. We have to plan for the fact that not every allocated housing site will be delivered and therefore we have to overprovide in relation to the identification of housing land in local plans to provide any chance of delivering the required numbers and capping further increases in the cost of owning your own home.

Other key points to note from a regional perspective with the new affordability ratios are:

• Regionally, London continues to have the highest affordability ratio at 12.97. Since 2011, it has increased by 52.2% (from 8.52 to 12.97). Between 2020 and 2021 the affordability ratio in London increased by 9.6%, or +1.14.
• The North East has the lowest affordability ratio of 5.45, however it still saw an increase between 2020 and 2021 of 6.4% (+0.33).

Pegasus Group has compared the 2020 and 2021 affordability ratios to look at how the new ratios impact on the standard method housing figures. It should be noted that this is initial analysis and may be subject to change.

Impact on the Standard Method

The map below presents the capped standard method figures (with applicable urban uplifts) based on Pegasus Group’s initial analysis of the data. It shows the annual minimum local housing need based on the Government’s standard method calculation between 2022 and 2032 based on the ONS 2014-based household projections and the ONS 2021 median workplace-based house price to income ratio data.

Clicking on each local authority on the map also presents the annual standard method figure over the previous ten-year timeframe of 2021-31 using the 2020 affordability ratio data, as well as the total change and percentage change between the two figures.

Key points to note from the standard method calculations are:

• Using the 2020 affordability data, the total standard method figure for housing in England was 292,046 per annum between 2021 and 2031. When the 2021 affordability ratios are used in the calculation for the period 2022-32, this increases by just over 6,800 (a rise of 2.3%) dwellings per annum (dpa) – to 298,855.
• Looking at individual local authorities, West Somerset sees the biggest percentage increase in its standard method target between the two affordability ratio datasets, with an increase of 38.7%, which equates to 33 additional dwellings per annum (from 85 dpa to 117 dpa). The local authority with the second highest percentage increase is Melton at 14.9% (an increase of 30 dpa – from 201 dpa to 231 dpa). Copeland saw the largest percentage decrease between the two affordability ratio datasets at 51.2%% (a decrease of 4 dpa – from 8 dpa to 4 dpa) followed by Richmondshire with a decrease of 37%. This represents a decline of 4 dpa – from 10 dpa to 6 dpa.
• In absolute terms, Birmingham sees the largest increase in dwellings between the two sets of calculations with the dpa figure increasing from 6,750 using the 2020 affordability ratio data to 7,136 when the 2021 ratio is used (a 5.7% increase – 386 dpa). Birmingham is followed by Bristol with an increase of 222 dpa (7% dpa) between the two datasets. At the opposite end of the spectrum, Newham sees the largest absolute decrease in dwellings per annum according to the standard method with the figure declining by 162 dpa (3.4%).