The government is conducting a consultation entitled “Changes to The Current Planning System”, which include proposed changes to the formula for calculation of housing numbers.
When applied to 2020 this formula requires 1532 houses a year, whereas the previous formula required 760 houses.
Summary of our concerns
- The absence of parallel policies to limit the significant increase in GHG emissions goes against the UK’s Paris commitments on Climate Change
- Extrapolating historic growth to predict future demand is unsustainable, unrealistic and unnecessary
- Undue weight is given to workplace affordability now and 10 years ago
- The Workplace Affordability Criteria proposed is likely to build houses in the wrong places and increase commuter miles
- Workplace affordability does not take into account the major projected growth which is in pensioner households.
- The assumption that house prices are simply determined by supply/demand is misguided
- Imposing significant government targets to the housing market without safeguards or limits is likely to exacerbate boom/bust cycles
- A rushed consultation for a policy change with significant impact on some local communities
What is the formula
The formula is calculated from:
- The ONS projection of household numbers for the next 10 years
- Workplace affordability now and 10 years ago.
An annual baseline is set by dividing the growth in household numbers over 10 years by 10.
This baseline is multiplied by an adjustment derived from workplace affordability and the difference between workplace affordability now and 10 years earlier.
The formula is designed to add at least 300,000 new houses per year in England.
Full details of the formula and a worked example are given in our detailed paper.
Growth in household numbers
ONS project a 7,920 growth in Teignbridge household numbers between 2020 and 2030. The chart on the right shows that the majority of these will be pensioners. Of those who are of working age it is likely that a significant proportion will be commuters.
Growth of 7920 over 10 years gives an annual baseline of 792 houses.
Workplace affordability
Workplace affordability is median house prices divided by median workplace earnings. So is a measure of the relationship of house prices in Teignbridge to pay in Teignbridge. The following chart shows the workplace affordability now and 10 years ago over the last few years:
Both now and 10 years ago affordability has been falling, which means that houses are becoming more affordable. 10 years ago we were recovering from a financial crisis and in 2010 after the general election the housing market stalled, causing a low in house prices and so affordability.
The government’s stated purpose in to have a formula which is reactive to deterioration in affordability in areas that are growing, such as areas of the Northern Powerhouse. Comparison with 10 years ago in this case fails because slight changes now are dwarfed by big changes 10 years ago.
The adjustments calculated using affordability over the last few years are shown below:
The adjustment varies considerably from year to year and does not have to have a relationship to recent changes in availability.
As many worker commute out of the district and the majority of household growth is in the older non-working population, we don’t think that workplace affordability is an appropriate measure.
Age based affordability
We have calculated affordability for pensioners aged under 75, and those aged 75 and over, based on median gross incomes for England. Currently pensioner incomes in the South West are higher that nationally:
This suggests that affordability for older pensioners is about the same as for the working population, but affordability is substantially lower for younger pensioners. This only considers earnings, it does not consider the larger capital resources that pensioners can have in housing, pensions and other investments.
Residential Affordability
Residential earnings are the earnings of residents of a district.
Residential affordability is median house price divided by median residential earnings.
ONS also publish median residential earnings for each financial year, so we can compare median residential and workplace earnings.
Residential earnings for Teignbridge are consistently higher that workplace earnings.
Comparison with Exeter
We have also considered the relationship of residential and workplace earnings in Exeter, and see an opposite relationship:
Here residential earnings are lower than workplace earnings, though recently the two have converged.
The effect of using residential earnings, rather than workplace earnings would be to make affordability lower in Teignbridge, and in earlier years higher in Exeter. This would result in more houses in Exeter and fewer in Teignbridge.
This would mean that more people who worked in Exeter lived in Exeter, so there would be less commuting, which would be likely to be by car.
What has this to do with climate change?
When a traditionally built house is constructed there are about 60tonnes of Carbon Dioxide equivalent (t CO2e) of Green House Gas (GHG) emissions. Building 1532 additional houses would cause embedded emissions of 93kT CO2e which is about half Teignbridge’s domestic emissions of 182kT CO2e (for 2018). On this basis the previous formula’s 760 houses would have emitted 46kT CO2e.
We have also demonstrated that using residential earnings would lead to more homes being built in areas with high earnings, which would lead to less commuting.
In 2018 road transport emissions for Teignbridge were 402 ktCO2e of which 329.8 ktCO2e were on A roads and motorways. These roads account for 45% of all emissions produced in Teignbridge.
The following map shows these emissions allocated according to traffic flows in the road network in Teignbridge.
An interactive version of this map can be found here.
Are 300,000 houses per year needed
ONS project that between 2020 and 2030 1.6 million households will be formed in England, nowhere near 3 million.
The consultation says: “The Government has based the proposed new approach on a number of principles for reform. These include ensuring that the new standard method delivers a number nationally that is consistent with the commitment to plan for the delivery of 300,000 new homes a year, a focus on achieving a more appropriate distribution of homes, and on targeting more homes into areas where they are least affordable.”
So the new standard method for calculating housing numbers takes into account existing housing stock, as well as projected household growth. It also puts more emphasis on affordability by taking into account changes over time, and it inflates the final number by removing the 40% cap that currently applies.
Building 300,000 houses a year, rather than 160,000 means that 140,000 extra houses will be built. Using 60t per house, embedded emissions from these additional houses will be 8.4Mt , UK GHG emissions in 2019 were 351.5Mt, so this is unnecessary housebuilding could add 2.4% to UK emissions each year.
It would be better to reduce new housing numbers, and divert building trades resources to retro-fitting existing buildings so that these are as energy efficient as possible.
Research by the UK Collaborative Centre for Housing Evidence provides an alternative, and in our view more plausible explanation of the causes. Housing evidence has calculated that there were 1.12million surplus houses by March 2018, and that taking this into account net additions to housing stock exceed household formations.
In Teignbridge, since compatible records began in 2001, 497 houses have been completed than households formed. In addition there have been changes of use, conversions and retrofits that have effectively increased the housing stock, that are not counted in new build housing numbers.
In Teignbridge it is doubtful that building more houses will have much effect on affordability, because the majority of new housing that is built is out of reach for people on Teignbridge median earnings, and will mainly be bought by people whose income comes from outside the district. If house prices were to drop such that development was unprofitable, developers would just stop building and wait for the situation to correct.
We agree that tackling some of the other causes would be more effective:
- Privatisation of council housing
- Relaxation of restrictions on buy to let mortgages
- Low median incomes
- The lack of income progression recently in early careers.
- Difficulty of accessing mortgage finance.
- Competition with buy-to-let landlords.
- Speculative purchase of housing as an investment asset, particularly by foreign buyers.
Unfortunately the government is intent on building 300,000 houses a year, so the consultation doesn’t offer much opportunity to comment on that.
Timetable for Teignbridge Local Plan
The consultation gives a tight timetable for submission of part 2 plans in order to be exempt from these requirements.
The current timetable for the Teignbridge local plan can be found here https://www.teignbridge.gov.uk/planning/local-plans-and-policy/local-development-scheme/
This starts development of part 2 of the plan in January 2021, and consults on sites in the period leading to September 2021. This plan is then submitted for inspection in April 2023. If the new formula is adopted by the end of 2020, then in order to be exempt from the new requirements, the council will have until September 2021 to submit a plan to the inspector. This sounds like an extremely challenging contraction of the planning process.
It is therefore likely that TDC will be obliged to comply with this formula, and so will need to identify additional sites, which will extend the plan timetable further.
Detailed Analysis
Our in depth analysis can be found here
Responding to the consultation
You can respond online to the consultation here.
The deadline for responses is 11:45pm on 1st October 2020.
Our response to the housing numbers part of the consultation is available here , and has been submitted online.