Based on historical data and questionable calculations, the HDT is no fit way to drive up housing supply

Paul Smith BW 2018

Last month, the government published the first ever set of results for the Housing Delivery Test (HDT) – introduced in the revised National Planning Policy Framework (NPPF) last year, the HDT was one of the new measures the government hoped would drive the number of housing completions towards its target of 300,000 new homes per year.

Yet the HDT is built on shaky foundations.

The HDT works by comparing the number of homes that have been built in each local authority area over the previous three years with the number that were actually required. If delivery falls below the requirement, the test is failed, with a range of consequences depending on the severity of the shortfall. For the smallest transgressions that might simply mean preparing an action plan to address the under-delivery, but penalties also include adding larger buffers on five-year housing land supply assessments and triggering the presumption in favour of sustainable development, giving developers greater freedom over where they can build new homes.

Although many local authorities believe the test is unfair since they don’t build the homes themselves, a performance monitoring function – and rapid response when delivery is failing – is vitally important if we are to achieve and sustain higher levels of house buildings.

A performance monitoring function – and rapid response when delivery is failing – is vitally important if we are to achieve and sustain higher levels of house buildings

Local authorities are the gatekeepers of housing supply, having a significant say on what and how much can be built, and where. In the last 15 years, five reviews and an Office of Fair Trading investigation into housebuilding have all concluded that developers build homes on sites with planning permission at a reasonable rate. Build rates are not the issue – the supply of sites is.

There is ample evidence available to councils to allow them to make realistic assumptions about the housing delivery rates that can actually be achieved. That evidence should be used to underpin the local plan process to ensure enough new development sites are identified in the first place. Where councils have done that, they have few problems with delivery.

Problem solved?

Despite objections to the HDT from local authorities, the inaugural results suggest that, for England as a whole, we delivered 114% of housing need over the last three years – which would mean that the housing crisis is over. That couldn’t be further from the truth.

The results reveal that 680,000 homes were built over the last three years – an average of around 227,000 per year. That is a long way short of the 300,000 homes the government wants to see delivered to begin to address the housing crisis.

This highlights the key flaw in the process – the HDT only works if housing targets are right in the first place.

The HDT only works if housing targets are right in the first place

Firstly, that means having an up-to-date local plan. Recent research revealed that some 56% of local plans are more than five years old – with a staggering 44% of councils working from a plan which actually pre-dates the NPPF!

For the purposes of carrying out the HDT, if a local plan is more than five years old, the calculation is carried out against household projections produced by the Office for National Statistics, plus an adjustment for unmet need.

The shortcomings of the household projections are well known. By rolling forward past trends, they effectively “bake in” the housing crisis and assume we’ll continue to under-deliver homes. They don’t make any adjustment for the fact that household sizes in England have started to increase for the first time in over a century.

Every other country in the European Union saw household sizes fall over the last decade – only in the UK was the pattern different.

Even the government recognises those flaws. The same projections are used in the NPPF’s new standard method for calculating housing targets and are the root cause of the much-needed review of that formula, which was announced within months of its introduction.

While the HDT continues to use those housing projections as the benchmark, we’ll never break the cycle – under-delivery of new homes will restrict the number of new households that can actually form and reduce future household projections as a result.

Breaking the cycle

The HDT is a great idea in theory. Before now the main “stick” for ensuring councils delivered enough homes was the requirement to maintain a five-year supply of deliverable housing land. That has been effective in stimulating the delivery of new homes in many areas with out-of-date – or absent – local plans. However, five-year supply is based on estimates of what will happen in the future. It is, almost by definition, a subjective measure of delivery.

In contrast, the HDT is based on what has actually happened. The answer is undeniable and will be unchanged for the 12-month period until the next review. That will provide more certainty for developers and councils alike.

But until we have a sensible way of calculating housing targets, the HDT won’t work. We’ll fail to break the cycle and the housing crisis will continue to deepen. Homes for the 20- and 30-somethings still living at home with their parents or renting a shared house will remain a distant dream.

Paul Smith is managing director of Strategic Land Group