The country has faced a persistent housing crisis for decades. Despite repeated policy reforms aimed at significantly increasing the national housing supply, chronic under-supply persists, and the crisis is worsening.

The 2004 Barker Review argued that building around 250,000 homes per year—4.75 million between 2004 and 2023—was necessary to prevent spiralling house prices. However, only 3.71 million homes were built in that period, over a million short of the recommended target. As a result, house prices have soared, and more households are unable to access the housing they need.
The latest affordability ratios show that households now need to spend 8.26 times the average income to buy a home in England, up from 6.76 times a decade ago. Since mortgage providers typically lend only 4 to 4.5 times a household’s income, housing has become increasingly inaccessible, especially for younger people.
However, significant regional variation exists, as shown in the following map. In the North East, a household needs to spend 4.97 times the average income. In contrast, in London, the figure rises to 11.95 times.

 

Despite these regional differences, households in all parts of England must spend more than mortgage providers will typically lend to access an average home. Over the past decade, housing affordability has worsened significantly in every region except the North East, where it has remained broadly unchanged.
Given this context, it is unsurprising that solutions to the housing crisis will feature prominently in the forthcoming elections. Voters are increasingly concerned about the difficulty prospective households face in getting a foot on the property ladder.
The chronic under-delivery of housing not only affects households’ ability to access the housing market but also increases homelessness and unsuitable accommodation, thereby increasing the need for affordable housing. There is therefore a simple choice: the country can be proactive and significantly boost housing supply to enable more households to access the market, which in turn will reduce the number needing affordable housing; or, if this is not achieved, a greater proportion of households will fall into affordable housing need, and the country will need to be reactive by significantly boosting the supply of affordable housing.
The question, however, remains as to what can be done to deliver the significant boost to housing supply the country desperately needs. With this in mind, Pegasus Group has analysed the relationship between the number of homes needed, the number planned for through the plan-led system and the number delivered in each region, and across England. It is important to note that the analysis may not reflect the positions of individual authorities, but it provides some insight into the issues that need to be addressed.

The plan-led system

England operates a plan-led system, in which housing needs are considered and addressed within statutory Development Plans, which determine, amongst other things, where development will be acceptable.
Pegasus Group has analysed the latest Development Plans across every authority and identified that, in aggregate, these seek to provide just over 232,000 homes per annum. This equates to only 77% of the national need for 300,000 homes per annum.
This planned under-provision of housing is not just a legacy issue. It remains evident in the recently adopted Development Plans. Indeed, Development Plans adopted since the introduction of the standard method have identified housing requirements totalling just over 128,000 homes per annum in response to the minimum need for almost 165,000 homes per annum in these authorities.
This explains an awful lot. It is immediately apparent that, notwithstanding the requirements of national policy to plan for housing needs, this is not being achieved by a significant margin. Without a plan to meet housing needs, it is unsurprising that far fewer homes are being delivered than are needed.
This planned under-provision of housing may at least in part arise owing to:
  • The absence of a requirement to address neighbouring authorities’ unmet housing needs means that the unmet housing needs of constrained authorities are not factored into planning. Particular examples include the recently adopted Worthing Local Plan, which meets only 26% of its housing need, with no plan-led solution to address the shortfall of over 10,000 homes over the period 2020-36, and the London Plan, which plans for 325,000 fewer homes than needed as a minimum according to the standard method over the period 2019-29.
  • The urban uplift of the standard method yields results that are often unattainable in administratively constrained urban areas.
  • Only 39% of authorities have either found that their Development Plans remain up to date or adopted them in the last five years. This leaves the remaining 61% with adopted Development Plans that do not even take account of current housing needs.
  • A number of authorities unilaterally conclude that their adopted Development Plans do not need updating, even where housing needs have increased significantly since adoption. This results in unaddressed increases in housing need. Particular examples include Reigate and Banstead, and Cotswold.
To address this, the government may wish to consider setting top-down housing requirements through sub-regional, regional, or national plans that add up to the national housing need. It may also wish to provide a mechanism for addressing unmet housing needs.
Additionally, whilst current national policy requires that Development Plans are updated or reviewed regularly, there may be merit in setting out a policy consequence if Development Plans are not reviewed or updated within five years, given that this has not been achieved.
The government may also wish to ensure that Regulation 10A reviews are subject to greater rigour. This could be achieved by requiring the Planning Inspectorate to consider the soundness of any such review on the basis of written representations.

Regional Variation

As with housing affordability, the extent to which Development Plans respond to housing needs varies significantly across regions. In aggregate, the Development Plans in the North East, Yorkshire and Humber, and the East Midlands plan for more homes than are needed as a minimum, according to the standard method. The opposite is true across the remainder of England, as illustrated in the following map.

 

However, Pegasus Group considers that this is likely to be accounted for at least in part by the standard method drastically under-estimating need in some regions, especially in the north, including because it does not factor in the need and appetite to support economic growth, take account of the past detrimental consequences of population decline, or capture the positive consequences of significant regeneration to key northern cities over the last decade and the high demand for homes it continues to spur. In short, the minimum standard method figures for some regions, especially in the north, are considered far too low.
This is highlighted by the fact that in the three northern regions of England, 75% of authorities have planned for more housing growth than the minimum expectation of national policy.
Conversely, owing to the planned significant under-delivery across the remainder of the country, it is clear that far too few homes are being planned for at a national level. This is to the detriment of the whole country, our economy and the well-being of the population.
The government is committed to ‘levelling-up’, with a greater proportion of growth directed away from London and the South East, and to regions with a demonstrable appetite for growth. Levelling-up could therefore make a positive contribution towards significantly boosting the supply of housing. However, this is not necessarily the case. Authorities in the North East may consider that they are already contributing to levelling up by planning for 23% more housing than needed and therefore may not plan for more homes, whilst authorities in London and the South East may rely upon authorities elsewhere, including the North East, to pick up a greater proportion of the national need and thereby plan for fewer homes. This would depress the national housing supply. Accordingly, the way levelling-up is achieved will need to be carefully considered to ensure that it distributes economic prosperity across the country whilst significantly boosting the supply of housing nationally.

Delivering homes

An average of almost 237,000 homes have been built per annum over the previous five years in response to the need for 300,000 homes per annum. It therefore remains the case that far fewer homes are being delivered than are needed, notwithstanding the fact that more homes have been delivered than in recent decades.
This suggests that, notwithstanding the fact that national policy allows for developments that do not comply with Development Plans in certain situations, including through the ‘tilted balance’ of the presumption in favour of sustainable development or where the benefits of a development outweigh the conflict with the Development Plan, this has provided far fewer homes than are needed.
This is of particular concern given that national policy was revised in December 2023 to both limit the instances in which the ‘tilted balance’ applies and to leave it open to authorities constrained by the Green Belt to plan for fewer homes. This can only serve to reduce the number of homes delivered unless, of course, the requirement for authorities to plan to meet needs and address unmet needs is strengthened.
There is once again significant regional variation, as illustrated in the following map, with those regions with Development Plans that plan to meet housing needs delivering a sufficient number of homes to meet minimum housing needs, albeit that it is likely that this will have been assisted in some instances through the developments being allowed notwithstanding a conflict with the respective Development Plan.
Notwithstanding that the Development Plans in the North West fall slightly short of meeting the minimum local housing need identified by the standard method, the minimum local housing need has been exceeded by 37% over the last five years. This is likely to have occurred as a result of the fact that only 26% of Development Plans in this region have been updated or reviewed in the last five years, and as such, the ‘tilted balance’ is likely to have been engaged in the remainder, which has provided a much-needed alternative way to compensate for the failure of the plan-led system in this region.
In southern England, however, there has been a significant under-delivery of housing relative to needs, which will not have been assisted by the fact that the Development Plans do not plan for a sufficient number of homes, notwithstanding the fact that many of these Development Plans have been adopted comparatively recently and as such, the ‘tilted balance’ is unlikely to be engaged to remedy the planned shortfalls.

Concluding remarks

The preceding analysis indicates that the plan-led system is planning for far fewer homes than are needed nationally, and that the significant shortfall is not being addressed by allowing sufficient homes, notwithstanding a conflict with the Development Plan. To significantly boost housing supply and meet needs, the planning system must be reformed.
Pegasus Group believe that the focus of any such reform should be to ensure that Development Plans plan for a sufficient number of homes. This should be complemented by mechanisms which ensure that Development Plans are regularly updated to respond to the constantly changing needs, whilst also strengthening the presumption in favour of sustainable development to ensure that where Development Plans fall short of meeting needs or are not updated in a timely fashion, the delivery of housing is more responsive to housing needs.
Indeed, lessons can be learned from the North East, where the latest Development Plans aim to deliver 123% of the minimum local housing need, and in this context, 143% of the minimum local housing need has been met over the preceding five years. At least in part as a result, the affordability of housing has improved over the past decade in this region, albeit that housing remains unaffordable to a significant proportion of households, and there remains work to be done. If Development Plans were equally ambitious across the remainder of England, there is a real prospect that the long-proposed significant boost to housing supply could actually be achieved.

 

For more information contact Neil Tiley.