Local Housing Need Assessment Reform

Andrew George Excerpts

Tuesday 13th May 2025 Westminster Hall

[John Milne (Horsham) (LD)]

I beg to move,

That this House has considered reform of the standard method for assessing local housing need.

It is a pleasure to serve under your chairship, Mrs Hobhouse.

Everyone agrees that across much of the country, homes have become far too expensive either to rent or to buy. There is less consensus on the best way to get things back under control. I will argue that throughout the history of the standard method for assessing local housing need, that method has been part of the problem, not the solution.

For a long time, the free market ideology we followed was to build houses randomly until the price came down. Ever since the days of Margaret Thatcher, who single-handedly killed off the public sector contribution, we have never got anywhere near to keeping up with demand. In recent years, the strategy has been to set stiff compulsory building targets and, to that end, the Government introduced the standard method.

We were told that the method would produce clear, objectively determined house building targets for every local authority. We were assured that they would be equally and fairly distributed in line with genuine local need. We can now confidently say that that failed. Many authorities got nowhere near their number. Sometimes that was through dragging their heels, but often it was because their individual targets were outright bizarre and unachievable.

Meanwhile, the system has kicked up terrific public anger and opposition, which in itself gets in the way of success. At times, the Government have resorted to wielding a bigger stick or they have backed off in the face of Back-Bench pressure. Under the present Government, we are heading back towards the big-stick approach. There is almost no attempt to win consent.

I will argue not only that the standard method failed to do what it says on the tin, but that the failure was inherent from the first. It never stood a chance. Far from solving the affordability crisis, the method has significantly contributed to making that crisis worse, and it will continue to do so even under the remodelled version announced before Christmas, because it is based on a false premise.

To be absolutely clear, this is not about national targets. Whether we aim nationally for 200,000, 300,000 or 400,000 homes a year is a separate debate, and I hope we will not get sidetracked by that today. It is easy to tweak the standard method to meet whatever national target we want it to meet, but in practice, national targets have been not much better than slogans, such as Boris Johnson’s 40 new hospitals, which never existed in reality. Instead, it is the local target as applied to individual planning authorities that matters.

Broadly speaking, the standard method compares local house prices to local wages to estimate an affordability ratio, and it adjusts targets upwards if that shows prices to be unaffordable. The sums have been fiddled with many times since the method was introduced, and I do not doubt that such a process will continue. That is where the first big failure comes in: the standard method is supposed to provide an objective assessment of local housing need but, if we were honest, we would acknowledge that it is actually designed to reflect national need.

For example, in my constituency, the growth target based on existing households should now be 527 a year, but our poor affordability ratio takes us all the way up to 1,329 a year, and that is before we add on more for our neighbours. That is a whopping uplift by any stretch of the imagination. The face of Horsham district is changing at breakneck pace. Villages such as Billingshurst and Southwater are on the way to doubling in size in less than a decade. That is not because Horsham is experiencing some kind of spectacularly large birth rate; it is just an arbitrary calculation.

Once again, to be clear, I wholly accept that this is a national problem and that we need national solutions. Every area, including Horsham, has its role to play, but it is insulting people’s intelligence to describe that as a local need, when we plainly have nowhere near enough locals to go around, and they mostly cannot afford the new homes anyway. If we keep telling obvious lies to people, how will we ever win public consent? This brings me to the next big failure of the standard method, which is that there is no meaningful public scrutiny. Most local councillors do not understand how it works, sadly, let alone the general public. The standard method is never an election issue, yet it has a massive impact on our communities. In this case, ignorance is not bliss. It is a big reason why Conservative councillors have, election after election, proclaimed their commitment to allocating brownfield sites over greenfield yet somehow ended up doing the exact opposite. They cannot do anything to stop the logic of their own inflexible system. The standard method is a kind of mathematical bulldozer, sweeping aside our open spaces.

The single worst failing of the standard method is that it fails in the very purpose that it was supposed to be designed for. In Horsham, as in many areas, the average price of a new house is higher than that of our existing stock. Ironically, the more houses we build, the worse our affordability ratio gets, and the higher our target will be next time around. The standard method does the exact opposite of what it is supposed to do. The more housing that is built, the more the method asks to be built, with no obvious mathematical limit.

I stress again that I completely agree that building many more houses than we have over the last 40 years is an essential step on the path to affordability. However an obsession with one arbitrary number, without thinking what goes into it, does not work. It is actually getting in the way of success. We have to focus attention on the type of housing we are permitting, not simply the raw total. The standard method is based on a false premise, because many things affect prices besides the house building rate.

[Andrew George (St Ives) (LD)]

I am very grateful to my hon. Friend for giving way and sorry I missed the first minute of his speech. I warmly congratulate him on the point that he is making. I agree that what he describing is a false premise, in the same way that the targets themselves are based on a delusion. The delusion is that private developers would be prepared to collude with Government to drive down the price of their final products in order to deliver affordable homes. That clearly is not the case. The combination of these two things is working against what the Government are trying to achieve, which is to meet housing need.

[John Milne]

I thank my hon. Friend, who makes a very good point. The system is working almost to the reverse of what was intended.

In my constituency of Horsham many people either work for London businesses or perhaps have traded down from a more expensive London property. From their point of view, Horsham represents excellent value. The official affordability ratio does not reflect real working conditions in Horsham for locals, and therefore overstates local targets.

Local councillors all strive to get the best for their communities, but the way we receive targets under the standard method destroys our negotiating position with developers. Developers are not stupid. They can work out as well as anyone else how many sites are needed to meet our targets. They have no need to concede on civil amenities or on affordable housing because they know that, at the end of the day, they have got the council over a barrel.

I have no issue with a private developer seeking to make a profit—what else do we expect them to do?—but do not rely on them to do social planning. In areas like Horsham, years of free market ideology have turned councils into mere editors of private developer proposals. We build on greenfield sites because they are the only ones that get presented. There is literally nothing else to choose from in Horsham. The free market approach to affordability does not work for the housing market. Competition has driven prices up, not down. In Horsham we would arguably be better off if we granted a monopoly to one single developer and let them push down local land prices.

To add insult to injury, we also have the standard method’s bullying friend, the housing delivery test. I am not sure whether there ever was a carrot in this process, but the HDT is definitely the stick. Failure to meet targets can ultimately result in losing local control over planning altogether. It is a Catch-22 situation: the developer controls the rate of delivery, but the council pays the price if targets slip. Heads they win, tails we lose.

In fact, the single biggest factor that influences prices has nothing to do with house building. It is availability of credit. If interest rates were to double tomorrow, the price of a mortgage would soar and we would see a house price crash, yet all that would happen without a single new home being built. A succession of policies under the Conservatives only served to make the problem worse, not better. Subsidies such as Help to Buy or stamp duty holidays simply inflated prices further, like a giant Ponzi scheme. The market adjusts, and the subsidy ends up in the pockets of developers until the next upward turn in the spiral.

Therefore, any analysis of UK house building must take into account the key role of finance. Since Thatcher, houses have come to be seen not simply as homes but as investments. In line with that, the explosion of the buy-to-let market in the 1990s correlates suspiciously closely with overall house price inflation. Older generations benefited from decades of property asset inflation, but today it is getting harder and harder to board that train. Putting all that together, it is clear that the standard method is getting its social sums all wrong.

--- Later in debate ---

[Andrew George (St Ives) (LD)]

It is a pleasure to serve under your chairmanship, Mrs Hobhouse. I congratulate my hon. Friend the Member for Horsham (John Milne) not only on securing the debate, but on the very erudite manner in which he took us through the issues and correctly analysed the weaknesses of the system. It is also a pleasure to follow my hon. Friend the Member for Chichester (Jess Brown-Fuller). I note that, before her, the omnipresent hon. Member for Strangford (Jim Shannon) referred to the importance of seeing this across the piece—not only in Scotland, England, Wales and Ireland—but he forgot to mention Cornwall. Well, I will forgive him for that.

My hon. Friend the Member for Horsham recognised the need for a needs assessment, as it is an essential building block to resolving the issues. It is the methodology currently used that is both flawed and inevitably inaccurate, and sometimes leads the process in the wrong direction. I do not think it is ill-conceived in itself; rather, the interrelationship between that and the target-setting process is flawed. The target-setting process ends up with house building targets—we have housing need and then we have the house building targets.

If we were to set targets to reduce need—rather than for developers’ greed, if one were to put it in pejorative terms—we would approach the matter in an entirely different way. Let us take Cornwall—I know it well and I live there. I have also worked there as a professional in the sector as a chief executive of a housing charity delivering affordable homes—during my nine-year sabbatical from this place—so I know how this market works. Over the last 60 years, the housing stock in Cornwall has almost trebled—it is one of the fastest-growing places in the United Kingdom—yet the housing problems of local people have got worse. We cannot necessarily deduce from that fact that building homes is therefore harmful to meeting local housing need; however, the build targets are not in themselves the answer. The answer ought to be setting targets to reduce need, and that can be done if one has a robust method to do it. Not only would that be better for planners, councillors and others who want to meet the local need in their communities, but it means that when applicants come forward with their planning applications, they would have to demonstrate not how many homes they can build towards a target, but how much need they can address by delivering their projects. Although the Government’s aims and policies are laudable, they need to look at the dynamics of how need and their build targets interrelate with each other.

In my intervention, I referred to the delusion—it is a belief adopted by successive Governments of all parties, including, I am sorry to say, our own—that developers will somehow collude with the Government to drive down the price of their final product. My hon. Friend the Member for Chichester referred to the unviability of schemes that cannot be delivered with enough affordable homes, but that is only because of the way in which the methodology is used to permit those developments to go ahead in the first place. Once planning permission is granted, not only does the setting of high targets often create hope value on every piece of land around every community—which starts to make them unaffordable before the planning process has even started—but once the planning process is established, the value of the land becomes so great that the scheme becomes unviable for delivering affordable homes. The whole system is built to fail.

I am afraid to say that we need to look at the methodology for delivery—that is, the building of a new lower rung on the affordable housing ladder of “in perpetuity” intermediate market homes, which needs to have a life of its own. We need to address the problems that a lot of social housing providers have in delivering homes, which is that they are prevented from delivering homes in low house price value areas, and low-income areas, because of the cost-to-value ratio. A lot of people probably do not understand that the places that need the homes most, where the incomes are lowest, are the most difficult to deliver on because of the cost-to-value ratio, which has to apply before providers can go forward with their schemes.

There is a whole set of other methods that could be used to address the issue, but I congratulate my hon. Friend the Member for Horsham on what he has achieved. I hope the Government are listening, because this is a constructive debate. We are not attacking the Government, but urging them to adjust their approach in order to achieve the outcomes we all want to see.