The country has remained in the midst of a housing crisis for decades. Despite repeated policy reforms setting out an aspiration to significantly boost the supply of housing nationally, there continues to be a chronic under-supply of housing and the housing crisis continues to deepen.
The Barker Review of 2004 suggested that in order to prevent spiralling house prices, around 250,000 homes per annum needed to be built which would equate to 4.75M in the period 2004-23. However, in this period a total of only 3.71M homes have been built, over a million less than it was suggested were needed, such that as predicted house prices have spiralled, and households are increasingly unable to access the housing they need.
The latest affordability ratios indicate that a household now needs to spend 8.26 times the average income to buy an average priced home in England as compared to 6.76 times the average income a decade ago. As mortgage providers typically only lend up to between 4 and 4.5 times a household’s income, housing has become increasingly inaccessible to a significant proportion of households and particularly younger households.
There is however significant regional variation as illustrated in the following map. At one end of the spectrum, a household would need to spend 4.97 times the average income in the North East and at the other, a household would need to spend 11.95 times the average income in London.
Notwithstanding this variation, in order to access an average home a household would need to spend more than mortgage providers will typically lend in all regions of England. Similarly, the affordability of housing has worsened significantly over the preceding decade in every region with the exception of the North East where it has remained broadly static with an improvement of just 1.0%.
In this context, it is perhaps unsurprising that solutions to the housing crisis will be a hot topic at the forthcoming elections, with voters increasingly expressing concern with the inability of prospective households to get a foot on the ladder.
The chronic under-delivery of housing not only has implications for the ability of households to access the housing market, but in turn it will also increase the prevalence of homelessness and households living in unsuitable accommodation and will thereby increase the need for affordable housing. There is therefore a simple choice, either the country needs to be proactive and significantly boost the supply of housing to enable a greater proportion of households to access the market which in turn will reduce the number of households needing affordable housing, or if this is not achieved a greater proportion of households will fall into affordable housing need and so the country will need to be reactive by significantly boosting the supply of housing which in turn will boost 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 of homes planned for through the plan-led system and the number of homes delivered in each region, and across England. It is important to note that the analysis may not be reflective of the positions in individual authorities, but hopefully provides some insight as to some of the issues which need to be addressed.
The plan-led system
England operates in a plan-led system, where housing needs are considered and responded to within statutory Development Plans which determine amongst other things where development will be acceptable.
Pegasus Group has analysed the latest Development Plans in every authority and has identified that in aggregate these seek to provide just over 232,000 homes per annum on average, which 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 but continues to be evident in 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 the unmet housing needs of neighbouring authorities, such that the unmet housing needs of constrained authorities are not planned for. 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 generating results which are often unachievable in administratively constrained urban areas.
- The fact that only 39% of authorities have either found that their Development Plans remain up-to-date or adopted their Development Plans in the last five years, such that in the remaining 61% of authorities the adopted Development Plans do not even take account of current housing needs.
- A number of authorities unilaterally concluding that their adopted Development Plans do not need updating even where the need for housing has increased significantly since adoption with the effect that increasing housing needs are not responded to. Particular examples include Reigate and Banstead, and Cotswold.
In order to address this, the government may wish to consider setting top-down housing requirements through sub-regional, regional or national plans that sum to the national housing need or providing a mechanism by which unmet housing needs are required to be addressed.
Additionally, whilst current national policy requires that Development Plans are updated or reviewed regularly, given that this has not been achieved, there may be merit in setting out a policy consequence if Development Plans are not reviewed or updated within five years.
The government may also wish to ensure that Regulation 10A reviews are subject to a greater degree of rigour, perhaps by requiring the Planning Inspectorate to consider the soundness of any such review on the basis of written representations.
Regional Variation
As with the affordability of housing, the extent to which Development Plans respond to housing needs varies significantly between regions. In aggregate, the Development Plans in the North East, Yorkshire and Humber and East Midlands plan for more homes than are needed as a minimum according to the standard method, whereas 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 as a result of the standard method drastically under-estimating the 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 the significant regeneration to key northern cities that has occurred over the last decade and continues to spur on a very high demand for homes. In short, the minimum standard method figures for some regions especially in the north are considered to be set 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, to the detriment of the whole country, our economy and the wellbeing of the population.
The government is committed to ‘levelling-up’, with a greater proportion of growth being directed away from London and the South East, and to regions including those in which there is demonstrably an 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, as 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 have the effect of depressing the supply of housing nationally. Accordingly, the way in which levelling-up is achieved will need to be carefully considered to ensure that this distributes economic prosperity across the country whilst at the same time 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, which 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 the fact that the Development Plans in the North West fall slightly short of planning for 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 through a sufficient number of homes being allowed notwithstanding a conflict with the Development Plan. In order to significantly boost the supply of housing to meet needs, it is therefore clear that the planning system needs to 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, in which the latest Development Plans plan 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.