New Household Projections Out this Week – Simon Coop Explains why you should Interpret them with Care

NLP

Expected Outcomes

The 2012-based SNHP will provide estimates of the number of households in each local authority in England between 2012 and 2037. They are based on past trends of population change and household composition and assume that the demographic and household formation trends that were experienced between 2007 and 2012 will continue.

As everyone knows, the period between 2007 and 2012 was dominated by the most severe recession since the 1930s. A significant impact of the recession is known to have been a reduction in the rates of household formation and an increase in the number of “concealed” households. Reasons for this reduction in household formation rates and the consequential increase in the number of larger households have included:

  1. Reduced availability of credit, making it difficult for people to access mortgages, particularly first-time buyers;
  2. Higher levels of unemployment, wage freezes, and uncertainty regarding the property market, thereby reducing the ability for people to form new households; and,
  3. Lower levels of house building as a result of a weaker market and increased viability challenges for developers; resulting in,
  4. A greater number of people living with family or friends, rather than forming their own households.

The impact of the recession was evident in the interim 2011-based SNHP, which projected forwards the trend between 2006 and 2011 and showed a substantial slow-down in household formation, when compared with previous sets of projections which had been based upon the trends experienced in non-recession periods. This can be illustrated by way of a substantially reduced rate of reduction in average household sizes across England.

Figure 1: Change over time in average household size in England

Source: ONS Household Projections

Because the period covered by the 2012-based SNHP (2007-2012) was even more heavily influenced by the recession, it is expected that the new data will highlight a further reduction in household projections.

The Risks

The economy has improved substantially since the end of the recession. As a result, household formation is increasing and the property market is starting to move again. There is a considerable body of evidence to show that household formation rates are expected to improve as the economy recovers[1]. However, it is not anticipated that the 2012-based SNHP will take any account of these recent changes. As a result, it is expected that it will show a much lower level of household growth than is likely in the future economic climate. Basing housing requirements solely on these projections would result in a shortage of homes for those who need them.

Too few dwellings being made available through the planning system will result in increased competition and higher prices. This will undermine affordability and, as a result, may jeopardise economic stability.

A failure to provide an adequate supply of housing would also have adverse consequences for affordable housing delivery:

  1. Given the reliance on s106 as the primary delivery mechanism for affordable housing, it would reduce the supply of affordable housing; and,
  2. Greater affordability pressures will reduce the ability of people to purchase homes on the open market. This would then increase the need for affordable housing and exacerbate the current shortfall in affordable housing.

Repeating past trends of low rates of household formation would perpetuate issues of “concealment”, which would then be used to inform subsequent household projection calculations. The implication of this would be a reduced availability of housing for future generations. This is why it is important to make sure housing requirements reflect current and expected trends, particularly those which may not necessarily have been experienced during the previous five years.

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