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Real consequences? The impact of affordability on housing need in the South of England
Much has been made of the latest affordability ratios published by ONS recently, with the ratio of house prices to local earnings up by as much as 25% or more in the last year alone across some parts of the country. With fast house price growth and near flat wages, average house prices nationally are now 9.1 times earnings; up from 7.9 last year and higher than any historical level. In planning, the use of affordability ratios in the standard method for assessing local housing needs has meant that the publication of new affordability ratios each year in April has garnered attention (our tables here provide an overview of the new local housing need figures by local authority). But the question of whether these new affordability ratios - and any increase in housing need they may yield - have any real impact ‘on the ground’ depends on a number of other factors, including: How old is the current local plan in the district? If less than five years old, the plan requirement will continue to be the basis for assessing five year land supply, so any increase in the housing need figure (due to an increase in the affordability ratio) will not have an effect. By the time a local plan review is needed, the data for assessing local housing need (household projections and affordability) may have changed again; Does the standard method yield more homes than the current plan requirement? If not, authorities are likely to be planning for more homes than the standard method suggests already, and any increase in housing need due to affordability ratios is unlikely to put any significant pressure on housing supply; To what degree has the updated affordability ratios increased the standard method figure? If only minor, authorities are likely to have a sufficient buffer – at least 5% - in their housing land supply to respond to this; and In the places that were already the least affordable, whether the ratio simply increases the level of need above the 40% uplift cap and thus has no impact on the minimum number of homes needed. Our analysis has found 64 authorities (one-fifth) where affordability worsened but where the local housing need figure was shielded to some degree by the uplift cap. In this context, whilst many areas may have seen substantial changes to affordability over the last year, there may be limited to no effect from a planning perspective in many areas. We have therefore looked at authority areas where the local plan is more than five years old (or soon will be), where the standard method yields a greater housing need annually than the current plan requirement and where housing need has increased by more than 5% as a result of the new affordability ratios. This is the first of two blogs, and explores the authorities in the south of England which may be affected; a second blog looks at the potential impacts across the midlands and north. Plan-making With plans needing to look over at least a 15-year horizon, even relatively small increases in housing need can create significant increases in overall plan requirements, putting authorities which are preparing new plans under pressure to find additional housing sites. Almost all of the authorities in our analysis were already facing an increase in plan requirements before the new affordability ratios were published (shown in blue in Figure 1), for example with Horsham needing to find an additional c.1,400 homes over 15 years compared with its current plan requirement. But worsening affordability in these areas has led to even more pressure – for example, in the case of Horsham, the updated affordability ratios equate to a further 800 homes over a 15 year period (2,200 in total, over and above its current plan requirement). Cornwall has seen the greatest absolute increase; already needing to find c.2,700 homes over 15 years compared with its current plan requirement, with the new affordability ratios it needs to find a further c.3,300 homes – so nearly 6,000 in total. Of course, there is speculation that the current standard method will be revised or replaced entirely in the near future[1], which has seen many authorities nationally – including some of those shown in Figure 1 - pause plan-making whilst they await more certainty on the amount of housing for which they will be asked to plan. Increases in local housing need due to the new affordability ratios is likely to further delay the preparation of new plans in these areas especially, simply because there is now a political expectation that a new approach for assessing local housing need could reduce numbers in these areas (alongside a change in how need is addressed in plan making). Figure 1 Additional homes needed over 15 years as a result of changes to local housing need. Source: Lichfields analysis of ONS. *Bristol not shown to scale Decision-taking Changes to the standard method can have a more immediate impact in authorities where local plans are more than five years old because it forms the basis for assessing five-year land supply. Relatively unconstrained areas which previously had a position only just above five years might now find themselves below – and therefore subject to the presumption in favour of sustainable development - in light of their increased housing need. But looking at where these authorities already stood in terms of housing land supply, shows that there are only a few authorities where the increases to local housing need will tip them over. Of the 15 authorities shown in Figure 1:  Four – Gravesham, Bristol, Hastings and Bath & North East Somerset - are almost entirely land constrained. Any change to the housing land supply position as a result of changes to local housing need is unlikely to have any effect on decision-taking because the presumption in favour of sustainable development would not apply in most parts of these areas anyway, as per NPPF11(d)(i); Four – Stroud, Winchester, Cornwall and Fenland – currently have a comfortable surplus (6+ years) based on their latest published five-year land supply. Whilst increases in local housing need, due to the new affordability ratios, may slightly worsen the position it’s unlikely to drop below the 5 years which would trigger th presumption in favour of sustainable development; Two – Isle of Wight and Forest of Dean – currently do not have a recently published five-year land supply position. Were one to assume they therefore do not have a five-year land supply – and therefore the presumption is already triggered - increases in local housing need would only worsen this position; Three – Torbay, Maldon and Horsham – currently report positions already well below five years. Again, whilst increases to local housing need may worsen the position, the presumption was already engaged; and Two – East Hampshire and North Norfolk – had recently reported positions which were somewhere between 5 and 6 years. It is possible that in these areas, increases in local housing need, as a result of the recently published affordability ratios, could result in the position tipping from above 5 years to below 5 years, potentially triggering the presumption in favour of sustainable development for the purposes of decision-taking. Of course, this will not be known until these authorities undertake a full update, but from an initial review these two areas appear to be most ‘at risk’ from a real change in their five year land supply position as a result of increases in local housing need.   Concluding thoughts With affordability in 2021 worsening at a faster rate than any year in the last two decades, and with it forming an integral part of the current standard method for assessing local housing need, one might initially expect it to have a direct impact on many areas. However, when we look in more detail at the areas which might be affected, it is far from clear that there will be any immediate, or even long-term, consequences: Whilst increases in local housing need could add hundreds – or potentially thousands – to plan requirements in some areas, there is already widespread evidence, especially across the south of England, of plan-making being paused in anticipation of a revised or entirely new approach to housing need and how it is addressed. Where Councils expect their local housing need to reduce due to this reform, it is unlikely they will progress plans on the basis of these higher numbers; Many authorities already cannot demonstrate a five year housing land supply, thus the presumption is already engaged in those authorities, before the new affordability ratios were published. Increases to housing need may worsen this, but are unlikely to fundamentally change the position (from one of above to below five years). Some authorities are able to report a comfortable surplus with enough of a buffer to balance this increase in local housing need; and  On published data, there are only two potential areas where the currently five year land supply position is more marginal, and where increases to local housing need may tip the position from one of surplus to shortfall – East Hampshire and North Norfolk. [1] See this Planning Magazine article here (£)  

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If we want a better future, we need to plan for … infrastructure, housing, the environment and the needs of businesses and universities at the same time…. Local councils cannot do this on their own …. Government needs to play a supporting role to bring together a strategic approach at the Arc level to support better planning and ultimately better outcomes for the economy, environment and communities. A mere 12 months ago, Government could not have been clearer on why it was so important for Government to have a role in a Spatial Framework for the OxCam Arc. This was founded on years of evidence gathering, research, reports and policy recommendations from organisations including the National Infrastructure Commission and culminated in the publication of a draft Spatial Framework in summer last year; the first of three. It was abundantly clear that any strategy to maximise the Arc’s potential as a world-leading knowledge cluster needed to be driven by a long-term and co-ordinated strategy, which supported the infrastructure, economic and housing that the Arc needs. The Government’s first Spatial Framework consultation had faced some criticism; there were concerns expressed that important topics, including housing and the environment, had not been given proper consideration. But similar criticisms can be made of most policy consultations and most people expected Government to continue with a proposal it had already invested so much in. The warning signs first came when the OxCam Arc was omitted from the Levelling Up White Paper[1] published in February 2022 (all 332 pages of it), including specific profiles on the East and South East regions. Later in February, a report to elected Members of South Cambridgeshire District Council[2] concluded that: it became clear that the government does not wish to see the Ox Cam Arc as a project driven by central government…. discussions with DLUCH officials have indicated that ministers believe that while they support the continuation of the project, it should be locally led, focusing on things that local leaders believe are priorities. Although a formal Government response to the first Spatial Framework is awaited, the future of a spatial framework for the Arc is clearly uncertain. The Financial Times referred to the OxCam Arc as having been “shelved”[3]     So what? It is no secret that the Arc’s disconnected infrastructure and lack of affordable housing undermine its economic growth potential; without being able to attract and retain the right labour force, and without labour and businesses being able to move freely across the Arc, the area will not truly rival Silcon Valley as a globally-renowned hub of innovation. It may also lead to exacerbated problems of congestion and pollution as people are forced to live more distant from their jobs, with a whole host of knock-on economic and environmental impacts. But the current nature of planning means that jobs, infrastructure and housing are generally planned for at a local level, either by authorities on their own or, in a few cases, in joint working with their neighbours. Economic work prepared for the National Infrastructure Commission in 2016 by SQW and Cambridge Econometrics[4] made exactly these observations when it looked at case studies of other economic clusters in the UK and around the world (including Hong Kong and Europe) and concluded that: Scale and connectivity are important in developing specialist labour markets which support the growth of knowledge-intensive companies; The scale and quality of research and business activity in the OxCam Arc is ‘huge’ but the area is currently very disjointed compared with international comparators; Governance is critical in relation to the scale and pattern of growth; and "It would be folly to assume that long term economic growth can only be incremental (and therefore reasonably predictable) in both geography and composition." But the absence of a joined-up strategy has real, quantifiable impacts too. The SQW economic work assessed three scenarios for the Arc, forecasting economic growth to 2050 under baseline, incremental and transformational growth scenarios. The latter scenario assumed “The study area moves towards the vision of becoming a functional economic corridor and a globally competitive knowledge cluster”; similar to the Government’s vision for the Arc to be “one of the most prosperous, innovative and sustainable economic areas in the world”, as set out in its Spatial Framework consultation. Under a transformation scenario, the Arc was forecast to see nearly 3m jobs in 2050; depending on whether the region sees baseline[5] growth or incremental[6] growth this could mean around 385,000-769,000 jobs could be foregone due to the lack of a joined-up strategy. For economic output (GVA) the amount potentially ‘lost’ could be between £38bn and £78bn. Figure 1: Employment and GVA in the Arc in 2050 Source: Based on early definition of the ‘CaMKOx corridor’ which is slightly different to the current defined geography if the OxCam Arc. The lack of an OxCam Arc strategy is also likely to have implications for housing delivery – and especially affordable housing delivery. Analysis by Lichfields shows that, if current planned levels of housing continue, the Arc will see around 630,000 homes (of which an estimated 189,000 would be affordable) delivered by 2050. But to support incremental growth however the Arc will need 830,000 homes, and to support transformational growth it will need 1.15m. The difference amounts to around 60,000-156,000 affordable homes and 200,000-520,000 homes overall. As it stands, there can be little confidence that the current local planning system will embrace the strategic, Arc-wide, perspective necessary to ensure economic potential is properly planned for, or that the homes necessary are incorporated within emerging and future local plans.   Figure 2: Estimated difference in housing delivery under current plans and future economic scenarios Source: Lichfields analysis based on SQW/Cambridge Econometrics Interestingly, the major urban centres of the OxCam Arc all fall outside the 20 largest urban centres that are subject to the 35% ‘urban centres uplift’ in the Standard Method for local housing need, and, as we showed, are (with the exception of Peterborough) projected to lose ground in population terms compared to other urban areas.   What next? In the era of localism, a Government-led spatial framework for the region was never going to be straightforward, but the fundamental rational for having a strategy remains stronger than ever. Leaving it for individual Councils to take forward raises real doubts over how that could be achieved. Councils lack resources and some of the powers necessary to address genuinely strategic matters[7]. Voluntary strategic planning initiatives (such as those in Essex, Hertfordshire, and South Hampshire) have so far failed to deliver tangible strategies after several years. The duty to cooperate, with all its well-known limitations, is a mechanism more geared to addressing issues with immediate neighbours rather than a regional-scale growth corridor. An official response from Government is awaited, with the FT reporting it as saying that it would provide more information on last year’s consultation “in due course”. But there is clearly a lot at stake for the Arc and – given its global significance – for the economic success of the whole country.     [1] Available here[2] Available here. The OxCam Arc Update is Agenda Item 12 pp 301-302[3] Financial Times article is here (£)[4] Available here[5] Where current housing delivery continues and current transport projects are implemented, but no further strategic scale infrastructure is realised[6] Where housing delivery increases above current levels and some further transport and infrastructure investments are made beyond current commitments[7] The FT quotes the leader of South Cambridgeshire Council as saying: “The implication from Gove is that they want us local council leaders to take it forward — but we have no money or power”

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