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Getting right back to where we started from: what do the latest record-high ONS projections suggest about housing need?
ONS’s latest population projections represent the fifth set of projections published since the 2014-based projections (which currently underpin the standard method for assessing housing need) were produced in 2016. After a progressively declining picture of population growth nationally, these latest figures suggest a return to higher levels of population growth anticipated in the 2014-based projections. In this blog, we look at how projections have influenced planning for housing in the last decade, what these latest projections are showing (and why), and what they could mean for housing need and plan-making more widely.

How did we get here?

For those professionals involved in planning for housing, the last decade has been somewhat of a rollercoaster. With ONS producing population projections on a two-yearly basis (although this has been even more frequently, in recent years) and with DLUHC (and subsequently ONS) producing accompanying household projections on a similar – but slightly delayed – cycle, planners had been on a continuous hamster wheel in attempting to ensure that housing needs assessment and local plan requirements are based on up-to-date evidence. Of course, the cycle of plan-making moves at a much slower pace than projections are updated, which has led to assessments of housing need being updating repeatedly during the plan-making process, or even in some cases, becoming out-of-date almost immediately upon adoption.
The introduction of the ‘standard method’ for assessing local housing need in 2018 was in direct response to recommendations of the Local Plan Expert Group (LPEG) which noted that debates around housing need were often the most time consuming and costly element of the local plan examination process, and recommended a more simplified, transparent and standardised approach to this. The ‘standard method’ is a simple formula which is based on the 2014-based household projections, plus a percentage uplift for affordability; the worse the affordability ratio is, the greater the uplift.
Just months after it was introduced however, ONS published updated household projections (2016-based) which suggested much lower household growth nationally, leading to debate around the suitability of the 2014-based projections for assessing housing need, particularly by local authorities. In response, in October 2018 Government consulted on whether the standard method should continue to rely on the 2014-based projections, ultimately concluding for a variety of reasons that it should. Importantly, the 2014-based projections were broadly consistent with achieving the target of 300,000 homes a year by the mid-2020s.
Subsequent household projections (2018-based) have continued to suggest lower growth more in line with the 2016-based figures, although there were no changes to national guidance which has continued to direct authorities to continue using the 2014-based figures in the standard method.
Further, interim, national population projections were published in January 2022 (2020-based interim projections), although these pre-dated the first findings of the 2021 Census which were published in June 2022. Commentators at the time highlighted that these projections suggested even lower growth than any of its predecessors (see Figure 1), but with no accompanying sub-national population projections or household projections, and with the Census findings being released just months later, these projections largely fell by the wayside in the planning sphere.

What are the latest projections showing?

In January 2024, ONS published the 2021-based interim national population projections; the first to post-date the 2021 Census and the first to reflect the stark increases in international migration seen since the pandemic – a factor we return to later in this blog. In contrast to the previous sets of projections, these are almost exactly in line with the 2014-based projections upon which the standard method is based, with England’s population projected to reach just over 63.5m by 2040. Over the next ten years, annual population growth is expected to be higher than any of the previous sets of projections, at 361,000 per year (Table 1).
Figure 1 Projected population – England – to 2040

Source: Various ONS Projections. Refers to principal projection.

 

Table 1 Projected population – England – to 2040

Source: Various ONS Projections. Refers to principal projection. Figures rounded. Life expectancy is average of males/females.

 

Clearly changes in international migration have had a significant impact, with the long-term assumption for migration now at 315,000 per year; nearly double that in the lowest projection (2016-based) and 70% higher than that in the 2014-based projections, even though the population projection for 2040 is the same in the latest projection as in its 2014-based predecessor. This shift – with more growth being driven by migration (rather than natural change – i.e. births and deaths - within the UK) - could also have implications for the types of housing needed, even if the overall number of homes remains the same.
Migration rose steadily from around 200,000 per year to 300,000 per year in the mid-2010s, and then fell steadily in the aftermath of the EU referendum (in 2016) and the onset of the pandemic (in 2020), as shown in Figure 2. But since then there has been a complete reversal of this trend, with news outlets even commenting on how migration was at record hights[1] towards the end of 2023, reaching around 750,000 in 2022 and almost entirely driven by migration from outside the EU.
So, although ONS’s long-term projection of migration of 315,000 per year seems high in the context of previous projections, it still represents a fall of around half of current levels to a level broadly in line with what was seen in the mid-2010s immediately prior to the EU Referendum. Although forecasting long-term migration trends is somewhat of a ‘crystal-ball-gazing’ exercise, a fall to 165,000 per year from mid-2022 (which was expected in the 2016-based projections – the lowest in terms of migration) surely now seems highly unrealistic.

Figure 2 Net migration (UK) – June 2012-present

Source: Adapted from ONS here

 

What does this mean for housing need?

Of course, we will need to await ONS’s next set of sub-national and household projections. But based on these interim projections outputs, we can still make some important observations on the direction of travel.
Perhaps most obviously, the latest projections place a renewed emphasis on the importance of planning for the standard method in line with the 2014-based projections, in order to support the aspiration of delivering 300,000 homes a year. At the national level, they are likely to suggest there are fewer (if any) circumstances in which authorities can suggest they have ‘exceptional circumstances’ which justify adopting a lower assessment of housing need.
They also highlight the importance of being able respond to changing circumstances in the plan-making context, particularly when it comes to housing needs. Projections of future population growth can evidently change rapidly in a short space of time, reflecting changes in current national trends particularly around migration, and it is vital that plans are equipped to deal with this.
Plan-makers will also need to keep an eye on how these projections affect economic growth forecasts, particularly forecasts where demographic change is an input. Whilst the 2014-based and 2021-based population projections have similar overall levels of population growth, the latter projections are far more driven by international migration than by natural change within the UK population (i.e. births and deaths). Growth driven more by migration is likely to yield an overall younger population, with growth in the labour force, in turn suggesting higher job growth. Plan-makers will need to ensure that enough homes are provided in the right places to support sustainable economic growth, reflecting these latest projections. Similarly, plan-makers will need to ensure that the changing age profile is reflected in assessments of housing mix, to ensure that the right types and tenures of housing (particularly those catering to working adults and families) are delivered.

 

[1] See BBC news here

[2] ONS’s release calendar suggests that it will next be producing a set of full 2022-based national population projections in Winter 2024, with associated 2022-based sub-national population and household projections to follow in Spring/Summer 2025.

 

 

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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:
  1. 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;

  2. 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;

  3. 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

  4. 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;
  1. 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
     
  2. 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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