Planning for the future – Standard Method

In parallel with the publication of the White Paper, MHCLG has also published a consultation paper on the Standard Method, and their proposals to over-haul the system of calculating how many new homes need to be built across the country. An 8 week (rather than 12 week for the White Paper) consultation period has been set for the Standard Method paper with responses needing to be sent to MHCLG by 1 October.

Unlike when the Standard Method was first introduced the Government has not published a corresponding table showing what the change in approach would mean for each LPAs’ figures. This means that those wanting to respond to the consultation will first need to do their own number crunching to see whether the numbers in any particular area are to be reduced or increased.

It was clear from the outset that the current Standard Method has its limitations – it significantly pushed up the numbers of new homes needed in very expensive house price areas, such as Grenwich, but then greatly depressed housing numbers in other areas, particularly the North. The depression in housing targets in the North over recent years has done nothing to contribute to economic growth in the North generally, or the delivery of the Northern Powerhouse agenda.

With pressure on the Government growing to correct the in-balance between the target figures in the North and South, take steps to “level up” the country and over-all start to fix the housing crisis, an urgent review of the Standard Method was needed.

There has been much debate about how the Standard Method should be re-framed, and even if you can have a standard method at all that would work for all parts of the country. The aim of having a Standard Method to calculate housing targets was to end protracted debates at Local Plan Examinations about what each areas numbers should be.

However, we have seen that it is very difficult to have a “one size fits all” approach and the current system inevitably produced anomalies. The new system will inevitably also produce anomalies, the question will be if these are better or worse than the current system, and whether the changes can, in reality, drive up the numbers of new houses being delivered.

In broad terms the changes to the Standard Method calculation can be summarised as follows:

• The existing calculation is based on household projection numbers and the affordability of houses in an area (calculated by looking at house prices and average salaries in an area).
• The new system largely moves away from using the household projections but instead focuses on the existing amount of housing stock in an area. Anchoring the calculation in existing stock levels, rather than household projection figures, is a more stable and predictable approach as stock levels don’t change much over time whilst household projection figures are regularly updated.
• The Government is suggesting that the new calculation should be:
  • The baseline is 0.5% of the existing dwelling stock in an LPA’s area or, if higher, the 2018 household projection figures.
  • The figure is then adjusted to take into account local house prices and wages – “the affordability adjustment”. The method looks at house prices and wages, with the baseline being adjusted if the cost of servicing a mortgage in the local area would be more than four times a local person’s earnings. The point being that if an average worker cannot get a mortgage for an average home in the area without additional help then there are not enough homes in the area.
• The new approach gets us to a new housing target of 337,000 dwellings per year. It should also be noted that the cap on housing numbers included in the current method of assessment is also proposed to be scrapped.
• An important point to note in addition to how the new numbers will be calculated is who will do the calculating. Currently each local authority has the discretion to reduce it’s housing target number to reflect environmental and land constraints in its area. This will no longer be the case and it will be the Government who considers the impact of such constraints on delivery and then imposes legally binding housing targets on each area. The consultation paper is silent on what happens is LPAs fail to meet their new housing numbers. The White Paper states that Local Plans should include a minimum of 10 years’ worth of land for housing, and that the Housing Delivery Test will be kept. However, both papers are silent on what other carrots and sticks might be introduced to ensure that all areas meet their own needs for both market and affordable houses.
• Much more thought needs to be applied to this if we are to see a step change in the numbers of all types of houses being delivered (in all areas of the country) rather than just a re-arranging of the deck-chairs.