The latest housing affordability data has highlighted the limited effectiveness of the Standard Method in ensuring we build enough homes in England. Out-of-date household projections also contribute to a situation that means we are at risk of continuing to undershoot on housing delivery. Together, these two factors demonstrate how important it is that local planning authorities (LPAs) use the Standard Method as an advisory starting point for setting their housing targets, not as the final answer. 

Improving affordability?

England needs to build 291,000 homes each year, according to figures from the 2024 standard method local housing need calculation*. This is a fall of 1.8% from the figure of 296,000 homes produced by the calculation in 2023.

The driver behind this fall has been the improvement in house price to earnings ratios over the last year. All regions across England have recorded strong wage growth, outpacing the rate of house price growth according to ONS data.

At a national level, earnings figures used to inform the affordability ratios have increased by 5.5% over the course of the year to £35,106. At the same time, median house prices across the country have risen by just 4.3% to £287,000. Because of this shift, house price to earnings ratios across the country have fallen, with the national figure falling from 8.26 to 8.18 between 2022 and 2023.

The affordability ratios themselves are somewhat of a blunt instrument, ignoring changes to the cost of debt over the last two years which have resulted in spikes in monthly mortgage payments. So despite an improvement in house price to earnings ratios, affordability for mortgaged homeowners has actually deteriorated. Average monthly payments have risen from 20.4% of income at the end of 2021 to 30.6% in Q4 2023. 

The impact on standard method calculations

The improvement in affordability ratios has resulted in the standard method calculation producing a lower housing need figure in all regions. The most significant falls have been in the South East and East of England, where housing need fell by over 2.5% over the course of the year, for a combined loss of 2,000 homes. But housing affordability remains constrained, with a ratio of house prices to earnings of 9.65 in the East of England and 10.39 in the South East.

London remains the region with the highest housing need figure under the Standard Method, with 84,000 homes per annum needed under the 2024 calculation, including the 35% urban uplift. This figure is a fall of 1.1% against the 2023 calculation, but still is significantly higher than the current London Plan target of 49,000 homes per year.

Do we really need to be building fewer homes?

The standard method calculation is quite simple and doesn’t fully reflect the complexity of housing need across the country. Firstly, the calculation fails to address historic shortfall in delivery against housing need. In the three years to March 2023, 686,600 homes were delivered in England, representing a shortfall of approximately 22% against housing need. This shortfall is not accounted for within the Standard Method. 

Secondly, the assumptions around underlying population growth, and therefore household growth, used in the standard method calculation have become increasingly unrealistic. Recent population data from the ONS, including the 2021 Census, provides a more accurate reflection of population change across England. Most notably, a shift in net migration has driven significant population growth between 2021 and 2022. The latest mid-year population estimates show net migration of 499,610 people in 2021-22. The 2014-based population projection assumes annual net migration of only 170,000 per year.

Despite the release of several updated population and household projections, the Department for Levelling Up, Housing and Communities (DLUHC) continues to use the 2014-based projections for the housing need calculation. These projections are now 10 years out of date, and fail to take into account significant demographic shifts since their inception. Unless these weaknesses in the methodology are accounted for, there is a risk that we will continue to fail to build the number of homes England needs.

*The standard method for calculating housing need uses 2014-based household projections as a starting point for each local authority, and applies an affordability based uplift using the following formula: (local affordability ratio – 4)/4 x 0.25

Further information

Contact Hamish Simmie