You break it, you OAN it

It’s almost as if someone in DCLG was reading my blog. No sooner had I written on how the government made planning significantly more complicated by “simplifying” the regulations and guidance on objectively assessed housing need (OAN), do they turn around and announce they are proposing to change the way housing need is calculated.

There are effectively two problems I am going to look at in this post. The first is societal- not enough homes being built, in the places where people want to live in them, for a price they can afford to buy, or in many cases even rent. One of the positive things to have happened in politics in the last couple of years (and this is through significant campaigning from organisations and journalists) is that this is no longer any serious political disagreement on this point.

The second problem, as I mentioned in my previous post, is that the assessment of housing need is currently mired in ambiguity and complexity and can lead to bitter and acrimonious disputes lasting years and taking millions of pounds of public money to resolve, and then only temporarily.

I’m going to argue that resolving the second problem is a step in the right direction, but without other significant changes it will not go far enough to relieve the real-world problems caused by a lack of housing supply.

To properly understand this issue, we need to understand what roles councils currently play in creating new housing. Sometimes media reporting on this issue suggests that councils are going to be “forced to build more homes”. For Local Authorities demanding to be given the powers to actually build a decent amount of council homes that’s a pretty hackle raising misunderstanding!

Local planning authorities (for the most part local authorities, but there are some National Parks and the Council of the Isles of Scilly thrown in for good measure) have, as part of the local plan process, to objectively assess the amount of housing need required in their area. As I’ve already spoken about, they weren’t given clear direction on how to do this, so many went off and did the best they could with limited information from central government. What they were given was a thorough inspection by the independent Planning Inspectorate and then the Secretary of State at the end of the process. Councils who had picked a number out of the air or used a dodgy methodology were sent away to have another go, at considerable expense.

This open ended process meant that any Thomas, Richard or Harold could, with the help of the back of an envelope, come up with what they believed to be a convincing methodology and assessment of need. On the other hand, many community groups go to significant lengths to come out with something just as detailed and intricate as the local authorities, just with a different end result. The housebuilders, unsurprisingly, often had their own ideas about how many homes were needed in an area and the resources to employ both demographers and legal representation at the Inspection. Inspectors were therefore having to consider, reflect upon and decide whether the Local Authorities version was sound, or whether someone else had come up with something better.

The system (or lack thereof) didn’t work, it created acrimony wherever it went. A large number of authorities, particularly in rural areas, simply played for time to avoid getting round to making a decision.

Councils also had to make sure that there was enough land available (effectively set aside for housing) to build the proposed new homes. But this wasn’t just their own land and indeed there are lots of landowners who would be happy to see a significant increase in the price of their land if it was designated for housing. Community groups were, by and large, less happy with development in their area and generally wanted development limited to only the most obvious places, such as brownfield land.

But planning decisions haven’t been on hold through this period and developers, as is in line with their economic interest, have been using the uncertainty and disagreements to push forward on planning permissions for sites that aren’t currently designated for housing. In actual fact, the ambiguity in methodologies and vulnerability of authorities when they don’t have a plan means precisely that developers have had more power than they would have otherwise. I’ll leave a question here for later- if that’s the case why doesn’t that mean more homes are being built?

The new proposals replace the process of each planning authority setting its own methodology with one unified way of setting the objectively assessed need. It’s still complex, but you need GCSE level algebra to understand it, rather than the highly specific postgraduate education required to understand some of the methodologies under the old scheme. It only requires statistical information that is publicly available, so anyone can double check a council’s working out.

It matters that the government have used affordability (the ratio between house prices and average full time earnings) in the area as one of the key determinators of the new numbers. In all honesty, I don’t think this is a methodology that would have passed muster with the inspectors under the current scheme. It is very definitely a very different calculation and comparisons between these and the current figures aren’t really possible. This means it’s not that the old figures were “wrong” and these are “right”, they have just been calculated differently.

The government’s proposal flat out states that this is to boost overall homebuilding across England to over 266,000 new homes a year. They’ve worked backwards from this, using household growth statistics and the affordability ratio to come to the figures they have announced. They’ve effectively distributed the 226,000 around the country based on household creation and a proxy for housing affordability.

What this way of doing it means is that the government can publish (and indeed have published) their own estimations of what this means for each local authority. It makes for interesting reading.

(I’ve had a little play with some of the information. There is a little bit of complexity with the data in that some of the authorities current needs are ranges. In these cases I have taken the higher amount, as I somewhat cynically believe this is what developers would be arguing for at appeal.)

Because of the way the government have compiled the statistics, local authority areas that have relatively low house prices and/or higher relative incomes end up needing to provide fewer houses than they may have thought. This is particularly clear where authorities have previously used employment growth as part of their methodology, as it plays no part in the new proposed calculations. Big decreases in compared to the previous plans are seen in the outer London Boroughs of Hillingdon  (2,846 a year lower) and Croydon (1,036 a year lower). Large towns and cities with growing economies and people commuting in such as Birmingham (Council- not the whole city, 837 a year lower), Oxford (854 a year lower, halving their housing need) and Leeds (1,011 lower a year) also have big reductions as employment growth is no longer a direct consideration.

The areas with major increases are mostly in London and the South East. The top 11 authorities for increases are in London, from Brent (an extra 1,029 homes a year) to Greenwich (a whopping 2,967 more homes required a year). As you’d expect, high house prices and mixed incomes seems to be the order of the day as you look at the areas with large extra allowance. It’s a quirk of the methodology that Croydon is in the areas with the biggest reductions, but neighbouring Bromley has one of the highest gains.

It’s also worth stating that there are a fair few authorities that don’t see a significant change. Around 130 authorities (out of the just over 300 that are countable) have a change that is less than a hundred homes per year, either as an increase or decrease.

Overall, there’s a mixed picture, with approaching half of the authorities actually seeing a decrease. More Northern areas are seeing an decrease and those in the South East particularly are looking at an increase. This isn’t hard and fast, but it is noticeable enough when you look through the list. So we have to ask if trying to push more and more homes into a limited space in the South is a sound policy, especially when compared to working harder to rebalance the economy so demand is more spread through the country.

But what does this mean for housebuilding? Well, local authorities will still have to allocate sites to meet this new housing need. This is still going to lead to upset amongst local communities and it may fracture joint working between community groups. Under the proposals there would be no way they could work together to claim the OAN is wrong. It’ll be a case of which land should be allocated. The residents of Petertown and nearby Paulville will be in competition to avoid housebuilding in their patch, not working together.

But even then, if land allocations and planning permissions go through the roof, does that mean we’ll see new housing?

My short answer is no. Planning permission in England is a right, not a responsibility. Buying a book doesn’t mean you have to read it. Gaining planning permission doesn’t mean you’ll build homes immediately on a site. Other countries do it differently and I wonder if we should be more willing to look at what has evolved elsewhere, rather than tinkering at the edges of our own system.

Back in the bookshop, you might find there’s an offer on and buy quite a few of the larger tomes. You won’t worry that you can’t read them all at once, they can sit on the shelf until a time of your choosing. Similarly, get the principle of development agreed for a site and you can sit on it for as long as you like, until one day, when the time is right, you can cash it in.

Indeed, there’s plenty of reasons housebuilders don’t build at the rate the country needs. Some of them are wholly justified- land remediation, skills shortages, capacity of the individual company and whole sector.  Anyone looking to develop the site would have these issues.

Some of the reasons are totally logical and rational from the point of view of the company- they want to maximise their profits, they want a long term pipeline of developments so they can plan ahead, they bought when there was a sale to be had and will build when the price is right.

To put it another way, land supply is a factor of housing supply, but it isn’t the only one. With relatively few very large housebuilders the housing market looks nothing like the “perfect” competition found only in economics textbooks. This means an increase in a factor of production won’t necessarily mean anything to the amount of new homes actually brought to market. Housebuilders control the supply and housebuilders have a significant incentive to keep prices high in order to maximise their profits. What about this change is going to affect that?

What’s more, because house prices are part of the proposed calculation, by building slowly and keeping prices high they will be able to keep the floodgates of planning permission open. I’m not saying this will make a massive difference, but this change tips the balance even further towards the developers.

The need to actually build homes discussed, at length, in the government’s White Paper from earlier this year.  The White Paper sketched some minimal ways of trying to do something about the issue, including using applicant’s track record on similar sites to make a decision and some compulsory purchase powers for councils to use when sites are stalled. These ideas, as minimal as they are, are not included in the current consultation and it will be interesting to see if they think they can bring them forward at the current time. The consultation does ask for ideas for what they can do to achieve this, so feel free to tell them!

These are still proposals and up and down the country there are going to be some elected members, community groups and individuals, many of them Conservatives who won’t be happy about it. Pressure, both formally through the consultation process and informally at constituency meetings and in Westminster will add up. How likely you think this is actually going to happen depends on how likely you think the current government can push through changes that alienate their own base. If it falls and we are back to square one, we are back with the messy, frustrating and endlessly complex system of competing methodologies. It seems to be risking a lot on a low chance of success.

So, for me, it’s the sound of one hand clapping. Sorting out objectively assessed need is important and it is right for the government to resolve this. But trying to link it directly with new housebuilding is making the same old mistake of linking land supply and housing supply. It isn’t that simple and no-one should think it is.

It looks like they have been simultaneously too ambitious for what can be achieved by amending the OAN and not ambitious enough when it comes to other measures to actually build the homes we need. I’ll be happy if they prove me wrong.

 

5 thoughts on “You break it, you OAN it

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s