National Audit Office report on Planning for new homes

The government’s planning system is underperforming and cannot demonstrate that it is meeting housing demand effectively, according to today’s report by the National Audit Office.

The Ministry of Housing, Communities & Local Government (the Department)’s aims to support the delivery of 300,000 new homes per year from the mid-2020s. To increase supply, it has implemented reforms to the planning system to help local authorities in England determine how many, where and what type of new homes should be built. 

Between 2005-06 and 2017-18, 177,000 new homes per year have been built on average and the number has never exceeded 224,000. To meet its ambition, the Department will need to oversee a 69% increase in the average number of new homes built since 2005-06. The number of new homes has increased every year since 2012-13, with 222,000 new homes built in 2017-18.

In 2017, the Department developed a standard method for local authorities to assess the number of new homes needed in their area. The method has weaknesses and the Department intends to revise it to be consistent with ensuring that 300,000 homes are delivered each year by the mid-2020s¹. Compared with the need assessed previously by local authorities, the standard method reduces the need for new homes in five out of nine regions, which could hamper local authorities’ plans to regenerate². The standard method sharply increases the need in London – 31,723 homes were built in 2017-18 but this will need to more than double to meet what the Department thinks is necessary.  

As of December 2018, only 44% of local authorities had an up-to-date local plan setting out their strategies for meeting the need for new homes, despite it being a legislative requirement³. If a local authority can’t show it has a five-year supply of land for housing, developers have greater freedoms to build where they want, risking ill-suited developments. As of November 2018, the Department had only challenged 15 local authorities that do not have an up-to-date plan⁴.

To create new homes and places for people to live, infrastructure such as transport, healthcare, schools and utilities must be in place, but this is difficult as government departments are not required to tie their investment strategies with local authorities’ infrastructure plans, creating uncertainty about how some infrastructure will be funded. The Department has only done a rough estimate of the infrastructure funding required for new homes, so future costs are uncertain.

The systems to get developers to contribute to infrastructure costs are not working effectively, with developers successfully renegotiating initially agreed contributions on the basis they will be unable to maintain profit margins. Contributions agreed with developers slightly decreased between 2011-12 and 2016-17, despite house prices in England increasing by 31% and profit margins of top developers increasing. If developers do not contribute, either less infrastructure is built or local authorities or central government must pay more. The Department is introducing reforms in this area, but some will not take effect for several years.

The Department reports that local authorities are increasingly processing planning applications within target timescales, but this might reflect a greater use of time extensions rather than increased efficiency. The Planning Inspectorate is slow to determine appeals from developers whose applications have been refused and acknowledges its performance is unacceptable. The time it took to determine an appeal increased from 30 weeks to 38 weeks between 2013-14 and 2017-18.

Total spending by local authorities on planning functions, such as processing planning applications, fell 15% in real terms between 2010-11 and 2017-18. The Department has attempted to deal with a shortage of planning staff in local authorities, for example by funding a bursary scheme, but it does not know the extent of the skills gap as it lacks comprehensive data. The Planning Inspectorate has struggled to recruit, experiencing a 13% fall in staff between 2010 and 2018. 

The Department’s National Planning Policy Framework, published in July 2018, is an important step in planning policy but it is too early to tell whether the changes it introduces will be effective. Alongside this framework, the Department needs to regularly monitor the gap between its ambition for 300,000 new homes and what is being planned. It needs to work with local authorities and other government departments to ensure that infrastructure is delivered more effectively, and work with industry bodies to conduct research into the skills gaps in local authorities’ planning teams.

Amyas Morse, the head of the NAO, said today: 

“For many years, the supply of new homes has failed to meet demand. From the flawed method for assessing the number of homes required, to the failure to ensure developers contribute fairly for infrastructure, it is clear the planning system is not working well. The government needs to take this much more seriously and ensure its new planning policies bring about the change that is needed.”

Key facts

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Notes for Editors

1. The standard method is simple but has weaknesses. It gives local authorities limited flexibility to reflect local circumstances. While it adjusts for affordability, the method uses household projections, which are based on past trends. The Department has advised local authorities to use the previously published 2014-based household projections as the baseline, which calculates that 265,000 new homes per year are needed. The Department intends to revise the standard method, so it is consistent with its ambition to deliver 300,000 new homes per year.
2. Local authorities in the East of England, South West and South East will need to support the delivery of 15%, 6% and 5% more new homes respectively. The North West, Yorkshire and the Humber, the North East, West Midlands and East Midlands need 24%, 23%, 19%, 11% and 3% fewer new homes than local authorities had previously assessed.
3. There are 338 local authorities who could be covered by a local plan.  This is made up of 326 Local Planning Authorities, 10 National Parks and 2 Mayoral Development Corporations. As of December 2018, 149 (44.1%) local authorities had an adopted local plan which is less than 5 years old, 143 (42.3%) local authorities had an adopted local plan which is five years or older and 46 (13.6%) local authorities do not have an adopted local plan (this includes any plan adopted before the Planning Act 2004).  
4. In March 2018, the Secretary of State considered that three of the 15 local authorities had made insufficient progress in producing a local plan and were still under threat of intervention. In January 2019, the Secretary of State intervened to direct that two of three should appoint a lead councillor and lead official to progress the preparation of a local plan, and in one case, produce an action plan. He decided not to prepare their local plans directly at this time.