Planning matters

From 28 June 2021, and subject to transitional arrangements, English national planning policy will include a home meeting the criteria of a First Home within the definition of ‘affordable housing’.

On 24 May a Written Ministerial Statement (WMS) was made setting out the policy, including the First Homes criteria and transitional arrangements, with further details in planning practice guidance published on the same day.

The same WMS also explains the replacement of the entry level exception sites policy with a ‘First Homes exception site policy and a new model for shared ownership. This blog focuses on what First Homes are, the new policy requirement and when First Homes will be introduced (they already have been). A blog by my colleagues looks at the policy and its potential impacts in more detail: First Homes – dicing with the discount.

From 28 June 2021, in England, national policy will say that at least 25% of all homes delivered through developer contributions should be sold as First Homes.

A First Home is:

• discounted in perpetuity by a minimum of 30% against the market value with plan-makers able to set 40% or 50% in perpetuity discounts where need is evidenced, and developers permitted to offer higher in perpetuity discounts
  
  
• after the discount has been applied, the first sale price of the home (my emphasis) must be no higher than £420,000 in Greater London or £250,000 elsewhere in England with plan-makers able to set lower price caps
  
  
• sold with a mortgage or home purchase plan for at least 50% of the discounted purchase value to a person meeting the First Homes eligibility criteria
  
  
• a primary residence, not used for investment or commercial gain, albeit it may be let for up to two years
  
  
• secured by a s106 agreement to ensure its delivery and the necessary restrictions on title[1] (a model s106 agreement for First Homes is being devised)

First Homes are to be “prioritised” for first time buyers (as defined in legislation already for the purpose of stamp duty relief). The local authority may set local eligibility criteria. The policy provides examples of criteria that might be applied, such as key workers, local connection, different income caps, but this is not an exhaustive list. Members of the Armed Forces and (subject to certain criteria) their partners and veterans would be exempt from a local connection test. So, if no local tests are set, the purchaser must be a first-time buyer purchasing borrowing at least 50% of the discounted purchase value. The purchaser (or purchasers) should not have a combined annual household income greater than £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase.

The planning practice guidance says that a s106 agreement may include provisions permitting open market sale of a First Home if it is marketed as a First Home for at least 6 months in total and “all reasonable steps have been taken to sell the property (including, where appropriate, reducing the asking price)”.

Where these provisions are included, the s106 agreement must require the seller to compensate the local authority for the loss of the First Home in the way set out in the planning practice guidance.

At least 25% of all affordable housing units secured through developer contributions should be First Homes. As with other affordable housing, the policy expectation is that this is provided on-site unless an alternative financial contribution or off-site provision is justified. A quarter of any financial contributions for affordable housing should be used to provide First Homes.

Having “secured the 25% requirement”, local authorities should prioritise social rent, in accordance with local policy and “where other affordable housing units can be secured, these tenure-types should be secured in the relative proportions set out in the development plan”.

Examples of the application of this approach are given in planning practice guidance:

The proposed development should also meet up-to-date policy requirements regarding cash in lieu contributions.

The local planning authority (LPA) is responsible for calculating the value of the elements of the new affordable housing mix to establish whether a planning application is policy compliant, because it seeks to capture the same amount of value as would be captured under the local authority’s up-to-date published policy.

Where the transitional arrangements do not apply, the LPA is responsible for making clear how existing policies should be interpreted in the light of First Homes requirements “using the most appropriate tool available to them”.

Regarding the application of First Homes policy locally, consideration of the impact of First Homes policy on existing local policies and the “tools available” to the LPA, the planning practice guidance says:

Not necessarily.

The development plan remains the starting point for the determination of planning applications.

The First Homes policy will be a material consideration – indeed it already is, together with proposals for other forms of affordable housing defined in the National Planning Policy Framework, notwithstanding the transitional arrangements.

A reminder of the difficulties that arise when Government introduces a swift change to national policy on affordable housing provision is the judgment in Secretary of State for Communities and Local Government (SoS) v (1) West Berkshire District Council (2) Reading Borough Council (2016) (our overview is here).

In that case the SoS appealed against the Councils’ successful challenge (in 2015) of national policy introduced in 2014 for a ‘vacant building credit’ and which outlined the circumstances in which contributions for affordable housing and tariff-style planning obligations should not be sought from small scale and self-build development. The judgement led, effectively, to both sides claiming a victory: the Government won the case, but the case makes it clear that there is no ‘blanket approach’ to the application of government policy to decision-taking, or plan-making.

Hence the Government expecting local planning authorities to use the most appropriate method available to them to set out how the First Homes requirements impact on their current affordable housing tenure mix policies and affect the interpretation of policies (see above).

The requirements will not apply to:

• local plans and neighbourhood plans submitted for Examination before 28 June 2021, or that have reached publication stage by 28 June 2021, as long as they are submitted for Examination before 28 December 2021 (and subsequently not to planning applications submitted in areas to which they relate); or
  
  
• sites with full or outline planning permissions already in place or determined (or where a right to appeal against non-determination has arisen) before 28 December 2021 (or 28 March 2022 if there has been significant pre-application engagement).

However, the Government says “local authorities should allow developers to introduce First Homes to the tenure mix if they wish to do so”. “They” could mean developers or local authorities.

The transitional arrangements for plan-making are therefore more of a line in the sand than those for decision-making, given the above statement and that the First Homes product is a form of discount market sale housing in any event.

The written ministerial statement notes “The Government will continue to monitor the effectiveness of these transitional arrangements in light of emerging economic circumstances”.

No.

Discount market sales housing is already a form of affordable housing, defined in the glossary to the National Planning Policy Framework. According to that definition of discount market housing:

There are already developments with planning permission that will provide First Homes affordable housing. For example, the Dylon 2 scheme at Lower Sydenham, granted on appeal on Metropolitan Open Land, which will provide 49 First Homes. The Inspector said:

The Government’s Equality Impact Assessment for the First Homes policy says First Homes will be a reform of the discounted homes programme and acknowledges:

The National Planning Policy Framework already allows local plans to include ‘discounted market sales housing’ that is sold with a discount of at least 20% over market prices. […] delivery remains relatively small scale and we want to substantially increase the build-out of these homes.

Sub-category d within the definition of affordable housing in the National Planning Policy Framework is “Other affordable routes to home ownership”.  This includes shared ownership and “other low cost homes for sale (at a price equivalent to at least 20% below local market value)”. This definition does not refer to the eligibility criteria or discount for owners of the home. The scope to provide low cost market homes for sale that are not First Homes as a form of affordable housing will be squeezed by the policy requirement to provide First Homes. Shared ownership products will also be squeezed in the future, but in the short term up-to-date tenure mix policies may encourage them.

First Homes are a form of affordable housing. Mandatory social housing relief from the Community Infrastructure Levy has been available for certain discount market home products since November 2020.

To be eligible for mandatory social housing relief in this category, a planning obligation must be entered into prior to the first sale of the dwelling designed to ensure that any subsequent sale of the dwelling is for no more than 70% of its market value. 

The existence of mandatory social housing relief for this form of affordable housing further demonstrates that First Homes can already be brought forward now. However, mandatory social housing relief from the Community Infrastructure Levy is not available for affordable housing products offering a discount of less than 30%.

In October 2020, MHCLG Permanent Secretary Jeremy Pocklington said to the Public Accounts Committee’s inquiry into Starter Homes that implementation of the First Homes policy will not be quick and referred to the transitional arrangements:

This acknowledgement of the time it will take to introduce First Homes policy into development plans is reflected in Figure 1 of the Equalities Impact Assessment for First Homes, which says full implementation will be in 2027/2028:

Summary… and a blog on potential unintended consequences 

Low cost homes for sale are not a new form of affordable housing, but the specific criteria and requirements of First Homes are new. Having said that, there are already examples of planning permissions that include First Homes as a type of affordable housing; the Government’s policy intentions have been clear for some time and the introduction of mandatory CIL relief for First Homes or similar products has been around since last year.

Therefore, while the First Homes policy requirement will take some time to filter through to development plans, where developers seek to include First Homes as an affordable housing contribution, there is scope to make the case for this immediately, rather than waiting for the transitional period to end.

A blog by my colleagues ‘First Homes – dicing with the discount’ looks at some potential inherent tensions within the First Homes policy and considers whether the one-size-fits-all approach might have unintended consequences.

 

 

The idea of delivering discounted new homes to buy is not new. Six years ago, Starter Homes were making the headlines, but after being plagued with practical difficulties MHCLG’s Starter Homes guidance was shelved last year. Enter First Homes.

The problems faced by first-time buyers getting onto the property ladder is well documented, and no more so than in the past year post lockdown 1.0. The Stamp Duty holiday has pushed sales and house prices to record highs fuelled, as always, by demand far outstripping supply. On paper, First Homes could hold at least some of the answers; strictly only on offer to first-time buyers (helping see off competition from buy-to-let landlords and existing homeowners), they also come with a hefty discount on full market value (30+%) and, unlike other intermediate products like shared ownership, they don’t come with the burden of paying fees, maintenance costs and ground rents to a registered provider or other ‘landlord’. From a buyer’s perspective, it’s almost too good to be true. But what about from a planning perspective? Is it an answer to fixing the broken housing market? What might be the practical issues with its implementation?

Our previous blog sets out the nuts and bolts of what a First Home is and how it should be planned for and delivered. The key criteria are:

• That the first sale price no higher than £250,000 (or £420,000 in Greater London), after a minimum discount of 30% has been applied;
  
  
• That homes reflect the needs of first-time buyers in the local area (for example, they reflect the size of dwelling needed); and
• That First Homes are physically indistinguishable in quality and size from equivalent market homes (inter alia, that they reflect minimum space standards)

As is so often the case in planning, a one-size-fits-all approach usually has unintended consequences. There are likely to be some areas where all three criteria can be easily satisfied, assuming that these First Homes also do not undermine the overall viability of a scheme. But it is vital to recognise that the criteria are inter-related; if homes must meet the local needs of first-time buyers in the local area, then they need to be sold at a price which reflects local household incomes (which is also no more than £250,000) and be of a size which reflects needs (i.e. demographic  characteristics of first-time buyers, such as whether they are couples or families). But price and size are not independent variables. Prevailing market values (£/sqft) will dictate the size of home that can be delivered for a given price, and vice versa, as shown in Figure 1. At the outset, it is important to recognise that the need to meet all three criteria is likely to create tensions in some areas, with one criteria needing to bend to the other two.

Housing affordability varies hugely across the country meaning First Homes are likely to have a variety of different impacts on first-time buyers and housing markets, depending on the local characteristics. To try and understand the issues different areas might face, we have looked at house prices and affordability in the entry-level[1] second-hand market across England and compared this with what affordability could be in those areas with First Homes, based on the price of entry-level new-build homes being discounted by at least 30%. For the purposes of this blog we have assumed first-time buyer households are couples (i.e. dual earner)[2], and that they can afford housing where prices equate to no more than 4.5x their joint income[3].

This has led us to five broad outcome typologies as summarised below.

First Homes have the potential to have the greatest impact in areas where first-time buyers are currently priced out of the open market (at the entry-level) but where First Homes would be within reach, when the minimum 30% discount is applied. We estimate this represents around one in five authorities in England – around 63 in total.

There are a significant number of authorities where first-time buyers are currently priced out of the local second-hand market and where First Homes – with the 30% minimum discount applied – would still be out of reach. We estimate this represents just under one-third of authorities in England – 90 in total.

In some areas the severity of affordability issues may lead to tension between the need to deliver homes that are locally affordable, whilst also being of an appropriate size to meet needs. This could leave authorities needing to; a) deliver homes which are smaller than local first-time buyers need in order to achieve a final sale price below the cap; or b) enforce an even greater discount to bring the price of those homes below the cap (which would require evidence and bring further questions around viability).

If size needs to flex, this draws into question whether the demand will be there for such small units. The average age of first-time buyers is now 32 (and higher in London)[4]; at an age where the buyer may have (or be wanting) a family, would the desire to get on the property ladder be so strong that a potentially very small unit would do? And is there a risk that, in such areas, we could see First Homes built which are ultimately unable to be sold, and which ultimately end up reverting to open market housing?

Alternatively, if size is fixed, and discounts of such significance need to be applied to ensure First Homes are affordable and below the £250,000 cap, this could impact the viability of the scheme more widely. A common point of negotiation concerning viability is the overall quantum of affordable housing provision, and this could see situations where the discounts required to deliver First Homes undermine the overall provision of affordable housing, most notably affordable rent[5].

Our research found that a total of 160 authorities have entry-level homes in the second-hand market which are at or below 4.5x earnings (for a dual-earner household). In these areas, it raises the question that if the second-hand market already provides a suitable solution to most first-time buyer needs, then First Homes might not be the best way of meeting overall housing needs, especially if they are displacing other tenures which might be desperately needed, such as affordable rent.

Notwithstanding this, these 160 authorities fell into three distinct categories:

The potential impact of First Homes, based on the five categories of housing market characteristics, are shown in Figure 3 below.

For first-time buyers currently priced out of their local market, First Homes may be seen as welcome. And undoubtedly, in some parts of the country, First Homes are likely to be able to be delivered at a price point which is affordable locally, within the price cap, at sizes/types which reflect the needs of local first-time buyers, all without undermining the wider viability of schemes.

But many areas, particularly those at the top end of the market, could face difficulties in balancing the need to deliver First Homes within the prescribed price cap, which are also affordable to local residents, whilst being of an appropriate size to meet local needs, all without undermining viability.

The lower end of the market is equally not immune from potential issues, particularly if First Homes undermine the local second-hand market, and authorities might need to consider an even lower price cap to ensure First Homes are not unnecessarily large or expensive.

Questions also remain as to whether mandating 25% of affordable homes as First Homes represents an appropriate target if it displaces other tenures in favour of simply increasing choice for first-time buyers.

The First Homes policy will undoubtedly bring new challenges for local authorities in the production of evidence for their local area, to not only assess needs, but also to set appropriate discounts triangulating price, need and size.  

Recent media reports have reignited the spectre of unimplemented permissions for housing and the prospect of a new ‘use it or lose it’ power.

Off the back of its annual speculation of how many unimplemented homes might exist[1], the LGA advocated on 8^th May 2021 that:

On the 14^th May 2021, the Times reported[2] that:

So, we can see two possible policy strands here:

1. A levy on homes unbuilt when a planning permission has expired (i.e. has not been started). 
   
   
2. Measures to drive the rate of build out of homes on a planning permission that has started but has not yet been completed, either through a levy on unbuilt homes or through a contractually-agreed timescale with CPO or a levy as a penalty.

In this blog, I consider each strand, drawing upon previous considerations of this type of policy by Dame Kate Barker (2006)[3], Sir Michael Lyons (2014)[4] and Rt Hon Sir Oliver Letwin (2018)[5]. The validity of the 1.1m unimplemented permissions claim we will leave for another time, but watch this space. 

Under this strand, a levy (such as Council Tax) would be imposed on homes unbuilt when the planning permission expired.

Planning permissions are granted subject to a condition that they must be implemented within a set period of time, usually three years from the date it is granted. For outline planning permission, reserved matters must be submitted for approval, which is normally within three years, and the works must be begun normally within two years of the final approval of the last reserved matter. Alternative time limit periods can be set – either shorter or longer – depending on the circumstances[6].

If there has been a meaningful start of lawful construction works on site (which also means pre-commencement conditions have been discharged) then the permission will remain ‘live’. This could mean beginning earthworks or putting in a new highway access. If no construction works start on site, the permission expires.

How big a problem are expired permissions? Work by MHCLG in 2015 suggested around 10-20% of permissions ‘lapse’ or ‘drop out’ without being implemented, but that the number of permissions “on hold” had reduced from 23% in October 2013 to just 10% in 2015. Research in 1995 for the RTPI and DoE by Roger Tym and Partners found a 10% rate of non-implementation (and this is often used as a ready-reckoner for five year land supply purposes). Local evidence for the South Worcestershire Development Plan found a 5% non-delivery discount was appropriate[7]. 

All of this suggests the number of permissions targeted by this measure is going to be relatively small.

This aspect of a ‘use it or lose it’ policy was looked at in the Lyons Review[8]. Lyons favoured such a measure, and also proposed requiring greater substantive progress to be demonstrated that works represent formal commencement. However, he suggested a five-year time limit for implementation, and suggest it be optional for the LPA. He also recognised the complications of such a power:

A series of industry reviews have concluded that there is no commercial incentive for allowing permissions to expire[9]. Applicants can re-apply but there is a risk of more onerous conditions or obligations being imposed, and – if the wider planning context has changed – a refusal is possible. Some permissions are not implemented because the applicant redesigns the scheme to increase the number of homes it produces. 

Therefore, for the small number of permissions that do lapse and are not re-planned, it is more likely than not this is because of problems with the site[10], for example: land ownership, viability problems (perhaps due to previously unknown site constraints), a developer not being able to secure finance or meet the terms of an option, supply chain or labour problems, or there not being sufficient demand for the product. Self-evidently, many of these issues are more likely to occur on more complex, brownfield sites. And smaller housebuilders - with less resilient finances, shorter land pipelines and fragile supply chains - may experience more problems than larger builders[11].

In this context, questions that would need to be answered in designing this type of policy include:

1. How big should the levy be? And over what period should it be applied?
   
   
2. Would it be mandatory or optional for LPAs? If optional, what would be the extent of take-up?
   
   
3. How would any appeals system be administered?
   
   
4. How many ‘lapsed’ permissions are there in reality, and what would be the housing additionality? Would otherwise lapsed permissions simply displace alternative schemes that would have come forward via applications due to a lack of five year land supply?
   
   
5. Would the levy have unintended consequences? For example, how could we be confident it would not simply reduce the appetite of developers (especially SMEs) to promote more challenging sites or projects that are at greatest risk of stalling? What effect would it have on the prospect of developers revisiting permissions to see if they can increase the housing delivered on sites?
   
   

The second strand of a possible ‘use it or lose it’ policy is to drive an increased rate of build out on sites that have started. This relates to a much greater number of sites with permission than the first strand, because a significant number of permissions have been issued (in outline or full) for schemes of 500+ homes that typically build out over a number of years. The build-out rate debate is typically encapsulated by the concept of market absorption and the process is clearly explained in the OFT report[12] and by Letwin[13]. The latter concluded that, under market conditions, increasing the rate of housebuilding on larger sites is more likely to come from increasing the number of different housebuilders (or flags) building on a site (including the mix of types of homes built as endorsed now by the NPPF 2018/19), rather than expecting an individual housebuilder to increase its volume from an outlet beyond the typical 50-60 dpa.

The NPPF (paras 72-73) requires local plans to have a trajectory illustrating the expected rate of housing delivery and to set out the anticipated rate of development for specific sites. The Planning Practice Guidance identifies the need to gather information on specific sites to assess the timescale within which each site is capable of development, including lead-in times and build-out rates[14]. The contribution an application site is expected to make to housing delivery in early years can be material to whether it is approved to address shortfalls in the five-year land supply. An LPA can consider how much large sites might deliver within a plan period in deciding which sites to allocate. However, this information is evidence and not a binding contract.

In recent years, Central Bedfordshire Council has sought to introduce a ‘housing delivery clause’[15] which it explains as follows:

This clause – which applies to the first five years only – is claimed by the Council to be a legitimate use of a s.106. However, its practical impact is uncertain. An Inspector on a s.78 appeal in the District[16] concluded that:

“I have concerns about the necessity of this type of obligation and how effective this obligation actually would be in the event of slippage in the programme. The Council was not able to provide any assurances on how the use of an injunction would be an effective remedy. The obligation is useful in so far as it is primarily an indication of what the developer considered to be deliverable when the obligation was executed. ... It is not necessarily or may not be sufficient assurance as to the timing and number of units completed over the time period.” (Para 116)

In practice, the clause lacks teeth which is presumably why some developers have been content to sign-up to its provisions.

Large housing development sites are not homogenous. Their rate of build out will be impacted by a number of factors[17], including underlying levels of housing demand, housing mix and variety (including tenure), the physical characteristics and composition of the site and the phased delivery of infrastructure, particularly highway improvements. The delivery model for sites (for example, is the site led by a master developer, a consortium of builders, or a single housebuilder?) will also play a role. Rates of build out vary significantly between different sites[18], and crucially, they also change over the lifetime of the development with some sites seeing peaks 2-3 times the average rate as circumstances change over the life of the development for example linked to economic cycles[19].

The report in the Times flags two policy models being considered for this issue:

1. a levy on all unbuilt homes following the grant of permission, with the aim of providing a financial incentive to build out more quickly.
   
   
2. a penalty system linked to progress against an agreed trajectory (essentially, the Central Bedfordshire approach, but with teeth)
   
   

Both Barker and Letwin identified challenges with these approaches and whilst seeing a superficial attraction, ultimately rejected them.

The Barker Review Final Report said:

• Housebuilders rely on phasing sites to ensure adequate cash flow, so that profits from previous sales fund future development. Reducing cash flow could prevent development.
  
  
• Some sites would not get developed, as the costs of development would be increased. This may be particularly true on complicated brownfield sites where land assembly and construction are typically more difficult to achieve. It could also impact on higher density development, particularly high-rise.
  
  
• Furthermore, housebuilders may become more risk averse under such a policy, as they will face higher penalties for getting a housing development decision ‘wrong’ and thus finding that it is necessary to build a site out more slowly or to postpone development. Increased risk aversion would lead, overall, to a drop off in development, as marginal projects become unviable.

The Letwin Review said:

Were such measures to be introduced, for developers there would need to be a triangulation between: the cost of the levy on unbuilt homes; the value of homes built on a site (with a faster sales pace or alternative tenure likely being associated with a reduced valuation); and the practical construction and phasing challenges of each site (including planning obligations). The impact of the levy would have to be priced into the development appraisal[20]. The intention of recent planning system reform has been to ‘up-stream’ viability considerations to the local plan process, so there are practical considerations:

• The residual land value approach means that, theoretically, the ‘cost’ of the levy or threat of CPO (however incurred[21]) would come off the land value. However, if the appraisal showed the residual land value below the Benchmark Land Value[22], the Local Plan process would see the planning obligations (e.g. for affordable housing) reduced and some developments (especially on sites with heavy infrastructure burdens or abnormal costs) might not be viable[23].
• Subject to scale of the levy, it could act as a disincentive for promotion of large sites, and developers might just scale down the developments they put forward, to reduce the number of homes subject to the levy[24], perhaps then re-planning in phases to drive up the numbers.
• If the levy was too punitive, it might simply see land not being put forward at all, as landowners sit out the policy (the bane of land value capture throughout history).
• Arriving at a trajectory for build out to form the basis of a contract with financial implications would be time-consuming and add to the length and complexity of the planning process (perhaps akin to bolting on PFI-style contract arrangements to the planning system).
• It might require an approach (as suggested by the Lyons Review), in which the levy or penalty was applied only to the unbuilt homes in individual phases:

The LGA also proposes increased powers for use of CPO. CPO is already available as a tool for bringing forward stalled sites. For developments that are progressing, but are considered to be building out too slowly, would this really be a proportionate use of Council resources? What value would be paid for the unimplemented portion of the site? As a threat it would only work if developers believed it to be real, and given the difficulties many LPAs have in resourcing even basic planning functions, this seems unlikely. Not mentioned by the LGA is the use of completion notices (reform of which was proposed in the Housing White Paper). 

If press reports are to be believed, ‘use it or lose it’ is on the political agenda. Scrutiny of such an approach (however formulated) is required, including looking at the reasons it was rejected by Barker and Letwin, and grappling with the practical complexities identified by Lyons. And stepping back for the moment, two things are clear:

1. The number of homes with permission that expire is small (10% or less) and on most occasions this will be for a good reason. A policy that penalises those who bring forward sites at greatest risk of failure may simply reduce the number of more difficult sites that come forward in the first place. Is this compatible with the brownfield agenda?
2. To address the country’s housing crisis, the ambition for 300,000 homes per annum needs to be sustained over a long period[25]. Planning involves thinking long term, and some areas are now looking forward to 2050[26]. Even the very largest sites – including the Government’s Garden Communities – will build out in full by that time[27]. The strategic challenge is how needs are met over that long period; the ‘use it or lose it’ debate is arguably more about sequencing, whilst not changing the amount of land that ultimately needs to be allocated[28].

The 'use it or lose it' policy brand will sound attractive to many. But looked at strategically, the size of the prize is unclear and its practicalities yet to be worked through. Policy makers will need to be confident such a policy could be a more positive way of boosting housing delivery than requiring LPAs to formulate effective land supply strategies, and that its theoretical policy gains outweigh the real world risks identified by previous reviews.

With Scotland’s standard methodology – Housing Needs and Demand Assessment – well established there has been little requirement to put forward alternative ways to objectively assess local housing needs.

But, with Scotland’s Local Development Plans moving to a 10 year cycle and a new National Planning Framework that will form part of the Development Plan and set housing targets it is time to scrutinise. It is time to question whether or not the approach being taken on target setting will ensure that enough new homes are planned to support Scotland’s continued growth.

In July 2010 Lichfields launched “Headroom” our toolkit for objectively assessing housing needs. This was to meet the requirement of the English National Planning Policy Framework that required Local Authorities to assess and set housing targets in their local plans, there wasn’t a standard methodology in place at that time. Since 2010 it has been used by developers in over 100 locations to support planning applications and appeals, to accompany representations on Local Plan housing targets and also by Councils, which gives it wider credibility as an independent and objective piece of evidence.

At the end of February 2021 Scottish Government issued a letter to all local authorities inviting their input into the establishment of National Planning Framework 4 (NPF4) housing land targets.

Using the HNDA toolkit Scottish Government have indicated an initial estimate of housing land requirement.

The housing land requirement should be generated by consideration of housing need and housing demand with generosity applied to ensure that actual targets for the provision of new homes can be met. It is generally accepted that housing ‘need’ is an indicator of existing deficit - the number of households that do not have access to accommodation that meets certain normative standards. Housing ‘demand’ is a market driven concept and relates to the type and number of houses that households will choose to occupy based on preference and ability to pay. It is important that the housing numbers contained in NPF4 address both the housing need and housing demand if Scotland is to successfully satisfy its housing requirement.

This initial indication provided by Scottish Government does not fully assess housing need and demand in Scotland. A very narrow definition of housing need is used which is that identified by the HNDA toolkit and which only considers homeless households in temporary accommodation and households which are both overcrowded and concealed.

There are many other factors that should be taken into consideration when identifying housing need, we have highlighted some below.

These statistics suggest that a far higher need than that that is identified needs to be planned for and that is before housing demand is considered.

Housing demand also needs to be considered in terms of economic growth and household choice.

This is a very narrow definition of housing need. It identifies 15,175 households in need over the next 10 years. This seems incredibly low when we consider the following factors that drive housing need.  The methodology utilises the 2018-based household projections which show significantly lower household growth than previous projections, and the combined minimum all-tenure housing land requirement it produces for Scotland is for c.14,200 homes per annum for 2022-32. 

This is considerably less than the housing completions that Scotland has enjoyed for past 20 plus years as shown by Scottish Governments very own statistics on all tenure new housing completions by Calendar Year 1997-2019. This can be viewed in full here.

In this period new build completions were over 20,000 per annum from 1997 to 2008 and were over 25,000 per annum from 2005-2007. The lowest completions dropped to was in 2012 when just over 15,000 were achieved but in the last 2 years completions of over 20,000 have been achieved again.

The target proposed (c14,200 per annum) is way off what is currently being achieved and given that this is a housing land requirement figure not a housing supply target figure the picture is even more off. As a Housing Land Requirement figure this is 125% of the actual housing supply target required in urban areas and 130% in rural areas which means a total housing completion target of 11,275 which is less than half of the actual all tenure new housing completions in 2019.

This figure has been derived, it would seem, without taking proper account of economic growth ambitions and hasn’t counted all hidden households – adult children living with parents for example who would rather have a home of their own.

Lichfields Headroom Framework looks at an array of factors that contribute to housing need. Primarily this is a consideration of not just housing factors but also economic and demographic factors. This is summarised in Figure 1.

Economic factors have a big impact on housing and rarely play a proper part in target setting in Scotland but this as a mistake and means that not enough homes will be planned for and this in turn will have an impact on economic growth. It is also important to consider the importance of attracting and retaining people to fill the jobs required to support the wider economic ambition in Scotland. Without the right amount and right type of homes being provided, there is a risk the population will age considerably impacting on the economic prosperity of Scotland.

In the run up to the Scottish Elections in May 2021 we have seen the main political parties setting out their stalls in terms of jobs growth with figures of up to 200,000 new jobs over the next 5 years promised.

Prior to this the 2020/2021 Programme for Government set out by the First Minister in September 2020 suggested in the order of 120,000 new jobs over the same period. This level of new jobs has an impact on housing need. We have used our Headroom toolkit to model housing needs based on a range of jobs growth over the next 5 years of 100,000 to 200,ooo to reflect the various ambitions set out recently. 

100,000 jobs over 5 years will require 21,200 new homes per annum to support this ambition

200,000 jobs over 5 years will require 41,500 new homes per annum

The implications of this are clear… targeting only 11,275 new homes per annum will seriously curtail the ability of Scotland to deliver economic growth.

If you want to discuss anything that is contained in this Blog please contact Nicola Woodward.