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What do the new affordability ratios mean for housing numbers?

03 Mar 21

The release of this data means that housing numbers in some areas will have changed three times in as many months. A combination of the rebased household projections and our estimated 2020 affordability ratios means that 40% of local authorities will have a reduced housing need from their current LHN, 25% will see an increase and 35% will see no change

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With the release of the new affordability ratios just over three weeks away, we thought it was a good opportunity to get our crystal ball out and assess what this could mean for different local authorities.

The affordability ratios, specifically the median workplace-based affordability ratio, is a key component of the standard method calculation. Specifically, Step 2 of the standard method takes the average projected household growth for the next 10 years and adjusts this upwards based on the local affordability ratio.

Whilst the latest affordability ratios will not be published by the Office for National Statistics (ONS) until the 25th March, the data which feeds into these ratios is available now. We have looked at the median cost of housing in each area using the Land Registry’s Price Paid database and earnings data from the Annual Survey of Hours and Earnings (ASHE).

Our estimated ratios suggest that the areas with the largest changes in affordability ratio from last year are likely to be:

We have gone on to examine what impact the changes to the affordability ratios could have on local housing need. In some cases, the new data has no impact as either the affordability has not changed or, more likely, the local housing need number is already capped. In areas that have a relatively recent Local Plan, then their housing requirement does not change immediately.

However, in selected areas, where there is no Local Plan in place or it is older than five years, the new ratios will have a direct impact on the number of homes the local authority should be planning for and how housing land supply calculations are undertaken. In calculating the housing need for each local authority, we have also rebased the household projections to the ten-year period from 2021 to 2031.

The local authorities where we expect to see the largest changes in local housing need are shown in the table below:

The release of this data means that housing numbers in some areas will have changed three times in as many months. A combination of the rebased household projections and our estimated 2020 affordability ratios means that 40% of local authorities will have a reduced housing need, 25% will see an increase and 35% will see no change. Despite these reductions the overall total is just over 310,000 dwellings per annum across England therefore surpassing the government’s target. A full list of our estimated Local Housing Need figures for different areas can be found here.

For more information, please get in touch with Iceni’s Economics team.

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Paul McColgan Director,Economics

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