The circular logic still distorting housing targets

My last column featured a report I wrote on planning policy for housing in 1999 and, in particular, a finding that less than half of new homes were being built on land that had actually been allocated. This column is a sequel because the other issue raised by that 1999 report, that civil servants felt to be equally ‘unhelpful’, was housing targets.

Earlier this year I was in a meeting with planners in Dudley who were scrambling to get their local plan over the line before their new housing target came into force. If they missed the deadline they would have to find land for another 900 homes a year.

The officers bemoaned the fact that Birmingham, that booming city down the road, had seen its annual targets slashed by 2,200 homes. I checked because it didn’t seem right. The figures are that Dudley’s annual housing target has increased from 657 to 1,594 while Birmingham’s has fallen from 7,174 to 4,974.

There is something very wrong with a housing target that changes that dramatically. It is almost an admission that one of the figures is wrong because circumstances certainly haven’t changed that much on the ground.

Back in 1999 our ‘unhelpful’ observation on housing targets was that they included a circular equation. If your population was growing you got allocated more housing to accommodate the extra people. Except that there are only two ways that that population can grow - you can either have larger households or you can have more of them.

Given that household size was falling then, as it is now, population growth was the result of there being more houses. Housing targets based on population growth led to more housebuilding and to… population growth. Growing places grew more, and declining places stagnated.

Since then there have been changes to the system. John Prescott was the minister responsible at the time and he tried to move away from ‘predict and provide’ to ‘plan, monitor and manage’. Rather than just allocate homes in places with a growing population, we should have a strategy, decide where population growth should take place and plan accordingly (while monitoring the results).

The 2004 Planning Act introduced Regional Spatial Strategies that took on the responsibility to do this and to set housing targets. This, of course, was far too sensible to survive long.

What the targets still do is focus housing growth on areas that are already growing and have high house prices

The Coalition government abolished Regional Spatial Strategies. Instead, each council was charged with preparing their Objectively Assessed Need (OAN), as if there was ever anything objective about housing targets.

If they were struggling to accommodate their need, they had a duty to cooperate with their neighbours to accommodate housing growth. Needless to say, this was a shitshow (to use the technical planning term).

Not only did authorities seek to manipulate their numbers, they also struggled to cooperate with their neighbouring authorities that they had always hated and were, in any case, controlled by their political opponents. The result was a steep increase in the number of local plans being thrown out by inspectors and a huge under-provision of new homes.

Then in 2018 the government reintroduced a ‘Standard Method’ to calculate housing targets. This has been tweaked a few times since, such as 2020’s 35% urban uplift for the cities, but is essentially still in use today.

At the core of the Standard Method is the same circularity, in that it is based on ONS population projections, but this is now adjusted based on house prices and subjected to a cap. Areas with high house prices see their housing targets increased, based on the logic that high prices are an indicator of constrained supply.

Some places are just expensive no matter how many homes you build

In 2023 there was a bit of a wobble following pressure from Conservative backbenchers. The ‘targets’ became ‘advisory starting points’ that could be challenged locally if it was all too difficult. Result: more uncertainty and rejected plans.

The new Labour government has reintroduced mandatory targets (which is welcome) and removed the urban uplift (which is less welcome and explains why Birmingham’s figures have dropped so much).

What the targets still do is focus housing growth on areas that are already growing and have high house prices (and vote Tory, although that obviously has nothing to do with it). However, economists have shown that housing supply has only an indirect impact on prices.

Some places are just expensive no matter how many homes you build, and may not be the best place to build all our new houses (the target for the London Borough of Kensington and Chelsea has risen from 236 homes a year to 5,107). Overwhelmingly the new housing formula loads housing growth in the South East at the expense of the North which, in my view, is not a good thing.

The question is, if we were to decide to build a lot more homes in, say, mid-size northern towns, would developers refuse to build them? Would they stand empty for lack of demand while people went homeless in the Shire Counties?

I’m not an economist so I don’t know for certain, but I suspect not. It is more likely that demand will follow supply, at least to an extent, and that housebuilding will stimulate economic development.

In other words, John Prescott was right!