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Savills Review the Standard Housing Need Formula

Savills Review the Standard Housing Need Formula

Last month, Savills released their most recent review of the Standard Method Housing need formula and proposed a new method of assessment.

 

The Standard Method

The Standard Method was introduced in 2017 as part of the Housing White Paper, and gave an approach for calculating the level of future housing need. However, since then it has become apparent that the demographic projections the formula was based upon have changed too quickly, and that there are now weaknesses in the Standard method. A revised method was proposed but is now overdue. A White Paper was expected to be released in 2020, yet current events mean that this may now also be delayed.

In the interim, Savills have published an independent study, which presents an alternative formula.

 

The Weaknesses of the Standard Method

In 2014, the population was expected to grow by almost 370, 000 people each year according to ONS projections and this figure was used to guide the Standard Method. However, by 2018, the projection had fallen to just 250,000. This is due to changes in the long-term projections, including the UK’s falling birth rate and small decreases in life expectancies. According to Savills, the Standard Method therefore over-estimates the level of housing required.

 

At the same time, the Savills paper states that the Standard Method does not address legacy housing shortage, which in turn is generating housing affordability issues. The paper states that “In a 2018 report for Crisis and the National Housing Federation,

Professor Glen Bramley concluded that 340,000 additional homes would be needed each year to address issues of affordability, poverty and homelessness. Delivery at this level for 15 years was expected to clear the backlog of undersupply”.

The third weakness is that the Standard Method purportedly does not attend to regional differences or changes in geographical focus of development. Where London’s growth has slowed since 2016, knocking it from 1st place to 5th, the Midlands is growing. Savills also point out that more recent studies and emerging policy show projections for the encouragement of rural growth and the slowing of urban centre development as those areas become over-heated in the market. The Savills paper also points to Outer London as a slow moving area, with projected falls in population and increasing unaffordability.

The last issue is that there are flaws in the ONS base data which were not dealt with by the update to the Standard Method in the PPG. This means that updating the formula from a 2014 base to a 2018 base is difficult – ONS have changed how the base data is calculated. Savills say this would therefore result in the formula underestimating housing need, and would not address the issue of affordability in key areas.

 

Changes Proposed

The changes proposed by Savills are fairly straightforward:

  • Tighten the connection between ONS methodology and housing need calculation;
  • Household projections are too variable and generate ‘feedback loops’ in some regions; whilst this data should inform the calculation, it should not dictate it;
  • And therefore, the formula should include “a factor based on the amount of existing housing and the affordability of housing in a local authority”.

Savills say that these changes would reduce fluctuation in the formula as new data is relased and directly address issues of affordability as well as housing demand. The paper concludes that even with these changes, no formula can fully answer the housing shortage and that a more important driver may be found in examining the type and quality of housing available, or level of employment growth.

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