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Cause for concern? What does the new Standard Method mean for the North East?

Cause for concern? What does the new Standard Method mean for the North East?

Dominic Crowley, Fiona Braithwaite & Michael Hepburn 04 Sep 2020
The current Standard Method for calculating housing need was introduced in 2018 and was intended to significantly simplify the process of establishing local housing requirements and improve the efficiency of the plan-making process. It was a step in the right direction but fell significantly short of the mark on a number of key points including reliance on authorities choosing to set a far higher requirement than their minimum figure to achieve the national 300,000 dwellings per annum (dpa) target and driving need into London and the South East whilst doing the opposite in the North – a point which is certainly at odds with the Government’s agenda to ‘level up’ the economic and social disparities between many northern and southern authorities. On the 6th August, the Government announced proposals in its Changes to the Current Planning System document which seek to remedy the shortfalls of the current Standard Method; setting a much higher bar for many Local Authorities and resulting in an uplift to the national housing requirement of 35% against the current Standard Method - from 250,550 to 337,307dpa. The recent blog published by my colleague Bethan Haynes explores the national implications of the Standard Method however, for the purposes of this blog, we consider what the new Standard Method means for the North East. An Improvement on the Current Standard Method Taken at face-value, the revised Standard Method has a positive outcome for the region – seeking to address some of the previous concerns raised about the impact of assumptions within the calculation on the North. Almost all authorities across the North East see an uplift against the current method (aside from Stockton-on-Tees, County Durham and Newcastle upon Tyne which see a 6%, 10% and 25% reduction respectively) resulting in an overall increase of 1,026dpa (from 6,262dpa to 7,288dpa) from the current Standard Method in the region - an uplift of around 16%. In theory this is a positive step and may see additional opportunities for land promotion in authorities where there is an uplift against the current Standard Method as Local Plans progress and/or are reviewed. Contribution to the National Target Delve a little deeper into the figures however and it becomes apparent that some of the issues with the previous Standard Method remain. First and foremost is proportionality of distribution; whilst the North East sees a 16% increase from the current to revised method this still falls well below the 35% national average uplift that the revised calculation brings and is in fact the third lowest proportional increase nationally (with only Yorkshire and the Humber at 9% and the East at 15% holding smaller proportions of the uplift).This shift also results in a reduction in the contribution that the region makes to the national total from the already inadequate 2.5% under the current method down to only around 2.2% - significantly below the region’s existing national household contribution of around 5%[1]. This is particularly concerning when measured against some southern regions such as London which will see a staggering 67% increase from the current method and which would constitute over 25% of the national total housing requirement alone under the revised method. Restraining the Market The revised method also still provides significantly fewer homes than recent delivery in the region – a clear spatial disparity for northern authorities compared with central and southern regions where the Method sets a need figure that is often far in excess of that which the market has been able to achieve. For the North East, the shortfall between the proposed new method and recent delivery is around 2,800 dwellings per annum – over 25% of the average supply delivered across the region in the last 3 years. Whilst it must be acknowledged that this is an improvement against the current standard method position (which sees a shortfall of around 3,800dpa) it still falls far short of the numbers currently being delivered in the region and would effectively restrain the North East housing development industry. At a Local Authority level only two of the 12 authorities see an uplift against average recent delivery (Gateshead and South Tyneside) with some others falling well below the mark – most notably, Newcastle upon Tyne would see a 66% reduction against recent delivery. Why does the Standard Method have these Impacts? The new Standard Method is more complex than the original, moving away from the Government’s intention to make the process simple, transparent and understandable for non-experts. Whilst we are still analysing its mechanisms, it is clear that   Step 1 of the proposed Method still results in a low starting point upon which Step 2 is applied. It has been widely acknowledged (including by the Government) that an over-reliance on population projections provides an inadequate basis for calculating housing need due to the way in which they continue patterns of historic undersupply in the region. Whilst the new Standard Method includes an alternative increase based on the size of the existing stock (if that is higher than the population projection), for most North Eastern authorities this isn’t enough (a 0.5% increase is used despite the Government acknowledging that annual growth is typically 1%) to overcome the constraints imposed by the baseline starting point for the Standard Method. The Government’s intention to use the Standard Method to address affordability problems means that, when considered nationally, the North East’s affordability problems appear relatively less significant. This means that the part of the equation that boosts supply based on unaffordability is heavily skewed towards the acute problems with this issue in some southern authorities. It therefore doesn’t lift the North Eastern authority’s figures high enough to recover from the baseline starting position earlier in the equation. In fact, housing need is based on a wide variety of factors, often with complex interactions. For example, the Government’s own consultation document refers to regeneration and stock mismatch due to insufficient homes of the right size, type and tenure at paragraph 19. However, the Standard Method largely disregards these factors and focuses solely on affordability, meaning North Eastern authorities’ ability to transform their areas, meet local housing needs and drive economic growth is constrained. Whilst each authority can choose to enhance its Standard Method figure, previous research by Lichfields has confirmed that in reality this does not occur sufficiently.       Conclusions There is therefore huge cause for concern; whilst the overall increase in housing need figures will bring opportunities in some areas, the revised Standard Method would actually lead to harmful impacts for the North East. The disparity with previous delivery and the reduction in proportional distribution (particularly at a national level) are key areas of concern and risk restricting growth across the region to a level well below that which the market has delivered in recent years. Far from ‘levelling up’ the country, the new Standard Method could actually exacerbate the problem. Opportunities however still exist - unless a dramatic increase can be achieved and sustained from the recent peak in delivery of c.40,000dpa the housing requirement set for London is likely to underdeliver by at least 50,000 units per annum . This alone would mean 300,000dpa nationally is not achievable without other regions delivering significantly more homes than the current and revised methods make provision for. The North East may hold part of the solution to this – if the revised standard method could ensure a more proportional distribution of the housing requirement across the country and seek to set much more ambitious minimum figures in authorities which have demonstrated they can deliver well in excess of the current and proposed methods (as many in the North East have) this would offer multiple benefits by reducing the over-reliance on London to achieve the 300,000dpa target and driving more clearly towards the Government’s ambition to ‘level up’ the country with all of the associated economic and social benefits that would bring for the North. Changes to the Standard Method to achieve this could involve tweaks and adjustments to the Government’s equation (a greater increase based on the existing housing stock or an adjustment to the affordability multiplier for example). However, the solution may lie in recognising that it simply isn’t possible to standardise such a complicated matter, which becomes many times more complex when the huge variations in conditions across the country are taken into account. A more nuanced and subtle approach is required linked to the specific circumstances of each authority. That could mean returning to the pre-Standard Method approach and introducing a lesser degree of standardisation but still allowing for the crucial adjustments needed to reflect local circumstances such as historic growth, economic growth and spatial strategies. Whilst that won’t be a (relatively) simple equation, it should produce far more appropriate outcomes for more authorities and prevent the extreme positive and negative results generated by the Standard Method. We are currently undertaking more research for various organisations to understand why the equation produces such negative results for the North East and how this can be rectified. The Government’s consultation on the proposed revised Standard Method closes at 11:45pm on 1 October 2020. Please get in touch if you are interested in making representations. For implications of what the New Standard Method means for other regions, see below perspectives: London   |   North West   |   Thames Valley   |   South West   |   West Midlands   |  Yorkshire and The Humber [1] ONS 2018-based household projections for local authorities and higher administrative areas within England, Table 406  

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Keeping up with the numbers: what does the proposed standard method mean in the Thames Valley?
This blog is the latest in a series exploring the potential implications of the proposed standard method across England. See our other blogs on the South West, Yorkshire, North West, West Midlands and London. This blog is also an extended version of a blog originally published online in the Thames Tap. The last week or so has seen most of us planners really beginning to fully digest some of the proposals set out in the Planning Reform paper and thinking about what impact they could have on the system and our country as a whole. It’s no surprise that the issue of housing numbers remains at the forefront of the proposed changes and the Thames Valley highlights some of the possible difficulties which could be faced in planning for housing in such a high demand area which is subject to significant constraints. How did we get here? The current standard method first appeared in the 2019 NPPF and assesses household growth and affordability (the ratio of prices to incomes, as of now) to generate a figure of ‘local housing need’. However, a judgment was still needed at the local level as to whether this need could be met in full, under NPPF para 11b ([i] and [ii]). After less than 2 years of being in place, Government has now decided that a refresh of the standard method is needed (read more about the background to these changes here), with some significant changes; Firstly, it raises the bar – nationally. The current method yielded around 270,000 homes a year when it was published; now Government has set the bar higher (337,000, to be exact), hoping this will increase the likelihood that 300,000 will be delivered; Secondly, it seeks to ensure that the baseline figure for housing isn’t unduly low as a result of household projections by introducing a ‘floor’ of 0.5% of stock; Thirdly, Government has placed a renewed emphasis on affordability – a change which has had a significant impact on numbers in the Thames Valley. The idea that homes should be built in high demand areas, where people want to live (as indicated by a high affordability ratio) has been a longstanding view of Government. Although the current method does apply an uplift based on how unaffordable an area currently is, the new method goes even further. It now also includes an adjustment based on how much worse an area’s affordability has got in the last 10 years; Finally, the cap which was previously in place (40% above the projections or plan requirement, depending on the age of plan) has gone. This represents somewhat of a change of tune from Government; having previously said that a cap was needed to ensure numbers were “deliverable”, it’s now of the view that applying a cap is “not compatible” with the step-change which is needed to boost supply as quickly as possible. Coupled with the new enhanced affordability uplift, its easy to see why many parts of the Thames Valley have seen their number substantially increase. On top of all these changes, the standard method for assessing local housing need is now not the only step in the process. In due course, Government is set to publish housing requirements - a second stage where the numbers reflect not only housing demand (as indicated by the method for assessing local need set out in the proposals), but also land supply factors. But more on that later. What does this mean in the Thames Valley? These changes have led to some significant changes in housing numbers in the Thames Valley (see Figure 1 which compares the proposed method with the current method, and see the figures in full here). Figure 1 – Difference between proposed new standard method and current standard method for local authorities in Thames Valley Source: Lichfields analysis Worsening affordability - the primary driver of higher numbers in the Thames Valley With every single authority in the Thames Valley seeing their affordability ratio worsen in the last 10 years (by an average of 43%), the increased emphasis on affordability in the proposed method has had a huge impact – every authority has a greater affordability uplift under the proposed method than the current method (see Figure 2). Under the current method, many authorities have an uplift of around 30%, with an overall average of 46% (albeit this is before any caps are applied). Under the proposed method, the uplift exceeds 100% (i.e. a doubling of the baseline) in virtually all areas, with an average uplift of 130%. Bracknell Forest has seen the highest increase in the affordability ratio up from 5.6 in 2009 to 9.3 as of 2019, which means it’s housing number is now subject to a 128% uplift, compared with just 33% under the current method. Similarly, the ratio in Reading has gone up from 6.4 to 9.1, increasing its uplift from 32% to 99%. Figure 2 – Affordability Ratio (2019), uplift under current standard method and uplift under proposed standard method for local authorities in Thames Valley Source: Lichfields analysis based on ONS affordability data As well as more significant affordability uplifts, some authorities such as Cherwell, Vale of White Horse and Wokingham, have also seen their numbers increase because their baseline has increased. In Wokingham for example, the baseline in the proposed method is 672 (based on the 2018-based household projections) compared with 544 under the current method (2014-based). Under the current method, Wokingham’s figure of around 800 was not miles away from it’s current plan requirement of 662 (and still well below recent delivery which has been around 1,200 per year). Yet the current method still created something of a stir locally, with the Council seeking to argue ‘exceptional circumstances’ and put forward a number lower than the current method in its emerging plan[1]. With the proposed method doubling the number – from around 800 to over 1,600 – one can only imagine what the Council’s reaction will be this time around. Oxfordshire As part of one of most important economic sub-regions in the UK – the Oxford-Cambridge Arc - housing growth in Oxfordshire is a key part of economic success of the area and indeed the country as a whole. Understandably then, planners and commentators are keen to understand what the proposals mean for the county. Oxfordshire is an interesting case; whilst the proposed method yields significant increases compared with the current method in every authority, the situation is perhaps not quite a severe as it seems. The Councils were already planning for an ambitious housing number, having agreed to deliver around 5,000 homes a year as part of the Oxfordshire Housing Deal (a figure also deemed necessary to support economic growth, as identified in the Oxfordshire SHMA[2]). At the moment, some 4,000 homes a year are planned for in Local Plans across the county, but we can expect this to increase after South Oxfordshire adopts its plan and others review theirs to include Oxford’s unmet need. The current standard method yielded a somewhat unambitious figure of just over 3,000 per year, but because of plan progress in the county (combined with the Housing Deal) these numbers were largely meaningless – they were unlikely to lead to any reduction in housing targets in plans in Oxfordshire. The proposed method however is up at around 4,800 per year – remarkably in line with housing delivery seen in recent years (c.4,700) and also similar to the figure of 5,000 per year which is considered to be needed to support economic growth. So, despite the sea of ‘red’ across Oxfordshire in Figure 1 above (indicative of the increase between the current and proposed methods), the figures under the proposed method might not be such a shock to the system in the Oxfordshire authorities as a first glance suggests. Slough Slough is the only authority to have seen a decrease, and this is because of the lower baseline (279, compared with 659 under the current method). This means that, even with its greater affordability uplift, the number is still down compared with the current method (597, compared with 863). Although recent delivery in Slough has been strong, with an average of c.600 homes a year completed in the last 3 years (well above the local plan requirement of c.300 per year), with a limited and finite supply of housing land, it is questionable whether Slough can sustain delivery at a level to meet this figure. What about the future? Despite all of this, its important to remember that the proposals for the new standard method set out in the Planning Reform proposals represent only the first part of [what will eventually be] a two-step process. The proposed method as set out in the proposals generates a figure for local housing need, reflective of stock, household projections and affordability. But, there is a second part, which seeks to address a multitude of other factors; the size of existing urban settlements, the extent of land constraints, brownfield opportunities and demand for other (non-residential) uses. This would give the housing requirements that local authorities would need to plan for. At the moment, it is for Councils to assess to what degree they can meet their need, as far as is consistent with the NPPF (para 11b). In effect, Government would take over the task of doing this, giving authorities a number which also reflects land supply and constraints. A simple task? Almost certainly not. There are clearly lots of factors to take into account (brownfield land supply, the extent of constraints, affordability pressures) which need to be carefully balanced against one other, and the circumstances in every single local authority in the country are different. The Thames Valley is the prime example of the difficulties in the balancing exercise; it contains some of the least affordable authorities in the country outside London, but yet many of these areas are almost entirely covered in areas the Government is seeking to ‘protect’ – Green Belt, AONB, etc. In Windsor and Maidenhead, for example, house prices are nearly 14 times local incomes, yet the authority is 84% constrained (based on Green Belt and NPPF footnote 6 constraints, rising to 99% if you once urban land is accounted for). Similarly, Oxford’s housing pressures are well documented and house prices are now 11.5 times local earnings, yet the authority is over 80% urban, and most of what’s left is constrained, meaning overall 98% of land is either constrained or already built on. There is certainly no ‘right’ answer to the question ‘how do we balance the demand for housing whilst also taking into account environmental, policy and physical constraints which exist’? At the moment we aren’t sure how exactly Government will go about this crucial balancing exercise; it seems unlikely that some of the relevant factors can simply be totted up in a spreadsheet and applied in a formula (as Government has done with the standard method to date). And how quickly can it implement all this; we must remember that Government wants every authority to have a plan in plan by December 2023. In short, it needs to come up with these housing requirements, and quick. Councils, planners and local residents in the Thames Valley will no doubt be eagerly awaiting more detail on this next – and arguably crucial - step in the planning process. For implications of what the New Standard Method means for other regions, see below perspectives: London   |   North West   |   South West   |   West Midlands   |   Yorkshire and The Humber [1] See https://www.wokingham.gov.uk/_resources/assets/attachment/full/0/508844.pdf[2] See http://www.southoxon.gov.uk/sites/default/files/2014-04-14_Final%20SHMA%20Report.pdf  

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