Written by Nikki O’Hagan, 23rd January 2025

Housing remains a hot topic in the UK following publication of the Labour government’s revised National Planning Policy Framework (NPPF) in December 2024. This article aims to provide you with a plain English guide to housing need, supply and delivery under the new Labour government. It includes explanations of important technical terms such as Housing Delivery Test, the Standard Method for Assessing Local Housing Need, Five-year Housing Land Supply and the Presumption in Favour of Sustainable Development. It also identifies some of the key policy changes made by Labour and explores the main implications for both landowners and developers.

Assessing local housing need

From December 2024, a new method for assessing local housing need will apply. This is significant as local housing targets and delivery rates are both closely linked to housing need figures. Housing need is calculated over a five-year period. Once a Local Authority has calculated its minimum housing need for the next five years, it is expected to deliver a housing land supply large enough to meet or exceed that need. If a Local Authority has a supply large enough to meet its five-year housing requirement, it is said to possess a five-year housing land supply.

The new Standard Method for Assessing Local Housing Need

Previously, local housing need was calculated based on “household growth projections” published by the ONS in 2014. This approach was frequently criticised as being outdated and inaccurate. In addition, the old method did not take existing local contexts or house numbers into account meaning some large urban settlements had relatively small targets, whereas some smaller rural communities were expected to almost double their housing stock.

Labour’s new method has abandoned the 2014 ONS projections. The formula used from December 2024 now incorporates a baseline of local housing stock. In other words, the calculation of local housing need is based on how many houses an area already has. This means housing growth should now occur in proportion to the size of each local area. Local areas with lots of houses – generally cities and large urban settlements – will have bigger housing targets whilst areas with fewer houses and smaller populations – typically rural places – will have smaller targets.

The new method also takes account of local house prices in an effort to make houses more affordable to the general population. This means local areas with the least affordable house prices will see their baseline housing need uplifted.

Worked examples

Under the new method, a local area with an existing stock of 62,500 houses will have a baseline target of 500 new homes. Assuming there is no affordability uplift, this means the Local Authority will be expected to demonstrate a five-year housing land supply of 500 homes*.

By comparison, a local area with an existing stock of 120,000 houses will have a baseline target of 960 new homes over the same five-year period.

*plus a 5% or 20% buffer – more on this later.

How is affordability calculated?

The new method makes use of existing ONS data on housing affordability. Without getting too technical, the ONS dataset compares average house prices in a local area to average yearly earnings. The resultant affordability ratio of the local area is a measure of the extent to which house prices exceed earnings.

The affordability uplift will be applied in areas where local house prices are more than four times higher than earnings – an affordability ratio of 4:1.

Buffer

We’ve explained above how Labour’s new method will be used to calculate the housing needs of Local Authorities in England. There is, however, one additional step in the calculation of local housing need which is the inclusion of a buffer. The buffer is a specific percentage of the housing need figure – calculated using the standard method – that is added on top. It ranges from a relatively small 5% to a rather massive 20%.

5% or 20% buffer?

Whether an Authority has to apply a 5% or a 20% buffer depends on how well they have performed against their housing targets in the previous three years. Performance is monitored and the results are published annually in the Housing Delivery Test. If the Housing Delivery Test indicates that a Local Authority has delivered less than 85% of its local housing need across the previous three years, then the 20% buffer will apply. Otherwise, the smaller 5% buffer will apply. Having been dropped by the previous government, the 5% buffer was reinstated by the Labour government in December 2024.

The effect of the national buffer policy is that Local Authorities that repeatedly fail to meet their housing targets will be expected to deliver more homes in future years.

Worked examples

Using the new standard method, a Local Authority is found to have a five-year housing need of 500 homes. The Housing Delivery Test indicates that the Local Authority has delivered at least 85% of its local housing target across the previous three years meaning the 5% buffer applies. Consequently, the total housing requirement for this area over the next five-year period will be 525 houses.

Another Local Authority is also calculated to have a five-year housing need of 500 homes. However, the Housing Delivery Test indicates that this Local Authority has met less than 85% of its housing need across the previous three financial years meaning the 20% buffer applies. Consequently, the total housing requirement for this area over the next five-year period will be 600 houses.

How does a Local Authority “supply” housing land?

When we talk about the housing supply of a Local Authority, we don’t mean houses constructed by the council. For planning purposes, a Local Authority’s housing land supply is generally derived from two sources:

1. Planning permissions for new houses

This is typically the main source of housing land supply. It includes minor permissions such as 1 or 2 houses approved in the garden of a private homeowner. It also includes major developments such as new housing estates containing hundreds or even thousands of homes. The largest developments are generally brought forward by private housebuilders like Bloor Homes. Permissions to convert existing buildings – for example, converting a pub to a single family dwelling – also count towards an Authority’s housing land supply.

2. Site allocations

These are sites specifically designated for housing by a Local Authority following assessment and public consultation. Once a site is selected, it is formally allocated in the Local Plan. The site might be owned by the Local Authority or it might have a private owner. Sites will generally only be considered for allocation if the owner has expressed interest in developing the land. The Local Plan will usually contain some parameters that the developer must meet. This could include, for example, the total number of houses the site should provide. Site allocation policies also frequently set design expectations and dictate housing mixes. Developers can then apply for planning permission on the site in line with the requirements of the site allocation policy.

Deliverability

Local Authorities are only supposed to include permissions and allocations in their supply that have a genuine prospect of being delivered within a five-year period. If a housing development stalls or is abandoned by its developers, it should be removed from the supply until it gets back on track. Once a development has been constructed, it will also need to be removed from the supply.

This means that the housing land supplies of all Local Authorities are inherently unstable, subject to change and open to challenge. Challenges are frequently made by developers in the context of planning appeals and often succeed.

Demonstrating a five-year housing land supply

In short, a Local Authority must grant enough planning permissions and allocate enough sites to meet its rolling five-year housing need. If it fails to achieve this, there are real consequences. If that failure is sustained over a number of years, the consequences become more severe.

The need to demonstrate a five-year housing land supply is another national policy requirement that was relaxed by the previous government, only to be reinstated by Labour.

Will the new method increase housing targets?

Nationally

The new Method for Assessing Local Housing Need has increased the overall national housing target by more than 20%. Under the old method, the previous government aimed to deliver some 300,000 new homes per year. The new method has seen this annual target increase to 370,000. Previous governments have frequently fallen short of their housebuilding targets, however. In 2023, the delivery total was around 230,000 houses. Whether the current government will meet – or even exceed – its more ambitious target stands to be seen.

Regionally

With the notable exception of London, all regions in England have seen an increase in their overall housing targets.

Locally

The new method means that local housing targets will now be in proportion to a local area’s existing housing stock. All local areas will be expected to deliver the same percentage increase of their existing housing stock – 0.8% – over the five-year period. This should make housing targets fairer across the board, with every area taking its equal share. In areas where houses are particularly unaffordable, the housing target will also be increased according to the severity of the affordability issue.

The new method was introduced over a month ago and the reality is that many local areas have reported significant increases in their housing need. Local Authorities that have seen the largest increase in their housing targets include:

• Buckinghamshire
• Cornwall
• Kensington and Chelsea
• Westminster
• Somerset
• Wiltshire
• North Yorkshire.

These increased targets mean many local areas are no longer able to demonstrate a five-year housing land supply. Local Authorities that have already lost their five-year housing land supply as a result of the new methodology include:

• Maldon District Council in Essex whose supply has fallen from 6.35 to 2.7 years.
• Basingstoke and Deane Borough Council in Hampshire which now has a supply of 2.9 years.
• Sheffield City Council with a supply of 3.07 years.
• Newark and Sherwood District Council in Nottinghamshire whose supply has fallen to 3.43 years.
• Stockport Council in Greater Manchester which has a supply of only 1.7 years.
• Selby District Council in North Yorkshire whose supply has plummeted from 7.85 to 2.2 years.
• Wychavon District Council and Malvern Hills District Council in Worcestershire with supplies of 2.3 and 3.83 years, respectively.
• Lichfield District Council in the West Midlands whose supply has dropped from 9.9 to 3.65 years.

What are the consequences of a local under-supply of housing?

One of the most significant outcomes of Labour’s new standard method for calculating housing need is that many Local Authorities have lost their five-year housing land supply. It is likely that more Local Authorities will join them over the course of 2025 and in subsequent years. If a Local Authority has less then a five-year housing land supply, there are real consequences.

Increased pressure to approve planning applications

One of the main consequences is that the Local Authority will be under more pressure to approve planning applications for new houses. Planning permissions are, after all, the main source of its housing land supply.

If a Local Authority persistently fails to meet its housing targets, its target will be increased by 20%. For Authorities already struggling to meet their existing targets, this sanction can lead to chronic under-delivery. Furthermore, when a Local Authority does not have an adequate housing land supply, its ability to control housing development in its area – particularly in terms of the location of new housing sites – also diminishes.

In order to avoid the 20% increase in its housing target and regain control of housing development, a Local Authority needs to regain its five-year housing land supply. To achieve that, it needs to approve more planning applications for new homes. This often results in Local Authorities approving planning applications that are not in full compliance with their planning policies. This can include applications that were previously recommended for refusal or for which permission was formally refused in the past.

Case study: Cherwell District Council

Cherwell District Council, for example, has very recently resolved to grant planning permission for 114 new houses on agricultural land in the open countryside. The same development was refused consent in 2023 due to its rural location being in substantial conflict with local housing policies. However, the introduction of the new Method for Assessing Local Housing Need in December 2024 has caused Cherwell District to lose its five-year housing land supply. Planning officers consequently recommended that the new application for 114 houses should be approved. Despite strong opposition to the proposal in 2023, the Planning Committee voted overwhelmingly in favour of the application on 16th January 2025. Formal consent for the 114-house development is expected to be issued shortly.

Presumption in Favour of Sustainable Development

Another very important consequence is that the “presumption in favour of sustainable development” is engaged in areas that lack a five-year housing land supply. Because the presumption weighs in favour of the applicant, it is sometimes referred to as the “tilted balance”. It is part of a longstanding national policy that was retained but quite significantly relaxed by the previous government. The current government has not only reversed those changes, it has actually strengthened the policy.

Out-of-date local housing policies

The first thing to understand about the “presumption” policy is that in areas without a five-year housing land supply, certain important local housing policies are considered to be out-of-date. Out-of-date local housing policies will typically include policies that:

• Set housing targets either for the whole area or for individual settlements or places such as the open countryside.
• Tell you where new houses are permitted and where they are restricted or prohibited. Policies like this will frequently make reference to “settlement boundaries” – these are lines drawn around the built-up areas of villages, towns and cities. Often, new housing is allowed inside settlement boundaries and either prohibited or restricted outside of them.

Out-of-date local housing policies are given significantly less weight in the decision-making process. This means that housing sites that would normally be refused planning permission because of their location are more likely to be approved.

How the presumption works

In areas without a five-year housing land supply, the “presumption” means that planning permission must be granted for new housing applications unless:

1. The development would conflict with national planning policies that seek to protect “areas or assets of particular importance”. The areas and assets protected by these national policies include –
   • Habitats Sites (legally defined)
   • Green Belt
   • Areas of Outstanding Natural Beauty (AONBs), now known as National Landscapes
   • National Parks
   • Conservation Areas, Listed Buildings, Scheduled Monuments and Registered Parks & Gardens
   • Flood Risk Areas.
2. The negative effects of granting planning permission would “significantly and demonstrably” outweigh the benefits, when assessed against all national planning policies but especially policies concerned with –
   • Directing development to sustainable locations
   • Making effective use of land
   • Design
   • Affordable houses.

The first part of this policy only applies in specific, special areas and most potential development sites are unaffected. The second part of the policy applies everywhere. In practice, engagement of the “presumption” means that:

• Applications will be assessed primarily against national planning policies. Local planning policies can still apply but are less important.
• Applications that conflict with planning policies or result in planning harms are far more likely to be approved. It is only when these negative factors “significantly and demonstrably” outweigh the benefits that permission should be refused. That’s a high test!

Common benefits

Where the “presumption” is engaged, applications for new housing are likely to deliver the following significant benefits:

• Contribution towards the Local Authority’s housing land supply. The bigger the contribution – in terms of the number of houses proposed – and the bigger the local housing deficit, the greater the weight this will attract.
• Economic benefits, both during the construction phase and following occupation of the development. This will attract more weight if the houses are located close to shops and services.
• Delivery of house types for which there is an established local need. This could include, for example, affordable housing, small houses (1 and 2 beds) and accessible homes (generally single-storey).
• In the case of major housing developments, the new houses are likely to be accompanied by infrastructure and facilities – such as new green spaces, shops, schools, bus stops and GP surgeries – that will deliver their own social, environmental and economic benefits.

Common negative effects

Applications for new housing may have some negative effects. Where the “presumption” applies, these negative effects are far less likely to be fatal to the application. The outcome of the application will depend on the amount and severity of its negative effects but planning permission should only be refused if these negative effects “significantly and demonstrably” outweigh the benefits. Negative effects commonly associated with housing applications include:

• Unsustainable location. These are typically locations that lack public transport links and pavements or where essential services and facilities – like shops and schools – are too far to access by walking or cycling.
• Poor housing mix. If there is an acute local need for certain types of housing – such as affordable housing or small houses (1 and 2 beds) – and your application does not include any of these housing types, this could weigh against it.
• Poor design. This could include, for example, houses that are too small or that lack windows or private garden space.
• Harm to residential amenities. This is where proposed houses cause unacceptable harm to the living conditions of other existing or proposed houses. This could be due to a reduction in their privacy, or increased overshadowing or overlooking of their home or garden.
• Landscape or biodiversity harm. This is more likely to occur in undeveloped rural locations and on sites that contain lots of trees, shrubs, waterways or other natural green/blue features.

The Housing Delivery Test

The Housing Delivery Test is an annual, government document that measures the housing delivery rates of every Local Authority in England. The local delivery rate is measured (%) against the local housing requirement/need. The Test was introduced in the 2018 version of the NPPF and the first results were published by the government in 2019. The latest Housing Delivery Test was published in December 2024 and provides local delivery rates for 2023.

Results of the 2024 Housing Delivery Test

The 2024 Housing Delivery Test results indicates that 110 different Local Authorities failed to pass the test, meaning they failed to deliver at least 95% of their housing requirement over the previous three years. This equates to 35% of all Local Authorities which is an increase on the year before. Of those Local Authorities, 63 delivered less than 75% of their total housing need. All 110 of these Local Authorities will face sanctions.

Click the button below to access a copy of the most recent Housing Delivery Test.

Housing Delivery Test sanctions

There are three main and increasingly severe penalties associated with a Local Authority’s failure to pass the Housing Delivery Test. These are –

1. Action Plan

Local Authorities that have delivered less than 95% of their total housing requirement over the previous three years are required to prepare and publish an action plan. The action plan should assess the causes of under-delivery and identify actions to increase delivery in future.

110 different Local Authorities will be required to produce an action plan following publication of the 2024 Housing Delivery Test.

2. 20% Buffer

The results of the Housing Delivery Test dictate the buffer that must be added on top of a Local Authority’s housing need/target. For Local Authorities that have delivered at least 85% of their total housing requirement over the previous three years, the buffer is 5%. For Authorities that have delivered less than 85% of their housing need over the same period, the buffer is 20%.

92 different Local Authorities will be required to add a 20% buffer to their housing supply target following publication of the 2024 Housing Delivery Test.

3. Engagement of the Presumption in Favour of Sustainable Development

Where the Housing Delivery Test indicates that a Local Authority has delivered less than 75% of its housing requirement over the previous three years, the presumption in favour of sustainable development is engaged even if the Local Authority currently possesses a five-year housing land supply.

63 different Local Authorities will be compelled to apply the presumption in favour of sustainable development following publication of the 2024 Housing Delivery Test. Those Authorities include:

• Barking and Dagenham
• Basildon
• Bournemouth
• Camden
• Canterbury
• Cheltenham
• Epping Forest
• Gravesham
• Havering
• King’s Lynn and West Norfolk
• Kingston upon Thames
• Lambeth
• Leicester
• Lewisham
• Medway
• Portsmouth
• Redbridge
• Richmond upon Thames
• Seveoaks
• Sheffield
• Slough
• Southampton
• Southend-on-Sea
• St Albans
• Stevenage
• Three Rivers
• Thurrock
• Uttlesford
• Welwyn Hatfield.

Summing up

Labour’s far-reaching changes to national housing policy will significantly affect housing need, supply and delivery in England. Its specific effects – some of which are already being felt – are likely to include:

For Local Authorities and the country as a whole –

• An ambitious increase in the national housebuilding target and an associated increase in the overall number of houses constructed.
• A majority of Local Authorities will also see their individual housing targets increase.
• More Local Authorities will find themselves with an under-supply of housing and will face sanctions for this. Where sanctions are in place, speculative developments will be more likely to receive consent.
• More Local Authorities will fail the Housing Delivery Test and will face separate penalties for this. Where penalties are in place, speculative developments will be more likely to receive consent.

For developers and landowners –

• An overall increase in the number of planning permissions granted for housing development.
• Linked to the above, we expect there will be a noteworthy increase in the number of planning permissions granted for housing development that –
  • Conflicts with one or more national and/or local planning policies.
  • Has been refused planning permission in the past.
  • Is located in areas where housing development has previously been resisted, such as open countryside.

If you own land in England and would like to know more about the potential to develop that land for housing, contact us today. Our initial advice is always free of charge.