By common agreement housing affordability has reached crisis point across Britain, whether for renting or buying. Successive governments have adopted a variety of tactical fixes such as help-to-buy and stamp duty amnesties. In the long term, these simply fed back into another spiral of house price inflation without ever addressing the root cause.
However, the lead mechanism for tackling unaffordability at a local level is the Standard Method. Introduced under the Conservatives in 2016 and retained by Labour, it suffers from being almost entirely misunderstood by local residents and even councillors. But the real problem is more fundamental than that – it doesn’t actually work.
The Standard Method compares local house prices to local wages to produce an “affordability ratio”. If you get a poor ratio, your targets are adjusted upwards. This was supposed to be an objective way to share targets fairly across the country. However, in practice, it has caused massive public opposition amid accusations of absurd numbers that bear no relation to local need and are literally undeliverable.
More seriously, it has also made no discernible difference to affordability. Labour’s approach is to do the same, but more so. Will it work?
The Standard Method relies on the traditional laws of supply and demand: build enough houses and prices will fall. But something else is happening in reality. In my constituency of Horsham the average price of new houses is higher than our existing stock. Therefore the more houses we build, the worse our affordability ratio gets – and the higher our target will be set next time around. It’s the exact reverse of what the policy is supposed to achieve!
The problem is the mistaken underlying assumption. Firstly, relying on a random mathematical ratio of local wages to local house prices is an inadequate proxy for affordability. It omits an understanding of actual local housing need. Secondly, simply concentrating on the raw number of units, without paying any attention to what kind of houses they are, is causing us to grant the wrong kind of permissions.
If generating permissions alone was the solution to our problems, the Standard Method would be it. But too many permissions are unbuildable in any useful timescale, because they only serve the top end of the market. This mismatch helps explain why we can contrive to have a chronic national housing shortage at the same time as having an estimated 1.4 million unbuilt permissions. If prices slacken, developers stop building. The intention of the policy is defeated by its own mechanism.
Instead of fixing our national housing shortage, the Standard Method is effectively slowing build out rates with the wrong permissions. In rural areas commercial logic favours greenfield sites around the edge of existing settlements, resulting in suburban sprawl and low housing densities – exactly the kind of houses which are likely to be less affordable. All we’re doing is increasing liquidity at the top end of the market, the section that needs it least. The system has become choked with hundreds of thousands of zombie permissions. Adding thousands more won’t help.
And that’s not the only drawback. Because councils are under constant pressure to meet arbitrary targets, their negotiating position with developers is fatally weakened. Developers have no incentive to make concessions on civic amenities or affordable housing demands because they know the council will have to accept almost anything, just to meet their target.
A prospective replacement for the Standard Method needs to achieve two things. Firstly, we need a genuine local needs calculation. This would focus on understanding what homes local people require to remain in their communities – including social housing, starter homes, and accommodation for elderly residents looking to downsize. It would account for homelessness figures, housing waiting lists, and projected population changes. For example, the Standard Method should include a fixed target for social housing provision.
Secondly, we should implement a strategic top-up to address broader national housing demands. This would support appropriate development in sustainable locations, including new towns where infrastructure can be properly planned from the outset. (Inexplicably, Labour’s plan for new towns is both separate from and in addition to targets under the Standard Method.)
The government also needs to recognise the role of Neighbourhood Plans, which don’t even warrant a mention in the Planning & Infrastructure Bill. If properly integrated, they can be an excellent way to bring local consent and knowledge into housing decisions.
Having experienced the planning system directly in my previous role on Horsham District Council, I have seen the challenges of providing affordable housing close up. Labour has revised the Standard Method again – but crucially, they haven’t changed the underlying principle. It didn’t work before, and I don’t believe it will now.
Is the Standard Method an effective way to solve our housing affordability crisis?
