Housing Supply Could Drop by up to 122,000 Homes Annually
A new report by the Housing Builders Federation (HBF) ‘Planning for Economic Failure’ has warned that the housing supply could halve and fall to the lowest level since World War Two. Housing Industry Leaders explores the main findings from the report.

After a decade of growth in housing supply figures, the coming months and years are looking less positive for the housebuilding industry. The ‘Planning for Economic Failure’ report by HBF has revealed that the housing supply could drop by up to 122,000 homes per year.

It comes down to proposed changes to the National Planning Policy Framework (77,000 homes a year), nutrient neutrality requirements (37,000 to 41,000 homes a year), water neutrality (1,500 to 1,900 homes a year) and Recreational Impact Zones (1,200 to 2,100 homes a year).

However, the report outlines that the problem goes deeper than just housing supply, due to the losses that communities will feel due to the important social and economic contributions that the housebuilding industry provides.

The drop in housing supply will result in 370,000 fewer jobs being supported, including 4,000 graduate and apprenticeship positions, over £20 billion less economic activity being generated, and over £3 billion less investment in affordable housing.

Why Has Plan-making Slowed?

Since its introduction in 2012, the NPPF has helped to drive up the housing supply with a presumption in favour of development, measures to speed up decision making and encourage localism. It ensures that local authorities have in place an up-to-date development plan, or Local Plan, in their area.

Plan-making has been slowed down in the past few years and the report explains that this is down to policy uncertainty: “Policy uncertainty since 2020 has slowed plan-making and reduced permissions, a problem that has worsened since the publication of the NPPF consultation just before Christmas.”

HBF’s housing pipeline report, published in December 2022, backs this up by finding that quarterly planning approvals are 25 per cent below the levels seen in 2019 when the housing supply was at its peak. A general downward trend has started to appear over the last couple of years.

The report then expresses that the situation could worsen: “The proposed NPPF changes, particularly those to plan making and housing land supply, will make this situation worse.”

It follows an analysis from Lichfields produced for HBF, which found that changes have the potential to suppress annual housing delivery, with a 77,000 drop in supply as compared to the most recent statistics on net additions to the housing stock.

Around 12,000 Homes Are Being Held Up By Nutrient Neutrality

Nutrient neutrality problems are having a huge effect on our current housing stock because, since 2019, the building of an increasing number of homes has been delayed due to new rules.

Current advice in place is that local authorities should apply the ‘precautionary principle’, whereby it is necessary for all new development of any kind involving overnight stays (new housing and hotels) to be nutrient neutral.

The requirements to achieve nutrient neutrality are exceptionally difficult for home builders to achieve, and as a result, housebuilding has been halted in these areas. It is estimated that around 120,000 homes are currently held up in the planning system as a result.

Water neutrality is another problem, yet no strategic offsetting scheme has been created to address these issues. Instead, developers are required to create their own offsetting schemes to show local authorities that water usage in the water catchment area has been reduced by the relevant amount.

The affected catchments deliver an annual average of 2,100 new homes. On top of the 3,000 homes that are currently held up in the planning system, HBF has estimated that the water neutrality restrictions will see a further drop of up to 1,900 homes per annum.

How Might Mitigation Measures Be Needed?

Following a recent analysis undertaken by a consultant on behalf of Natural England, development has been halted around several national parks and other ecological areas. This is due to a concern that planned increases in housing in these areas will result in a marked increase in the use of sites and exacerbate recreational impacts.

The report explains that mitigation measures may be needed: “It is expected that mitigation measures will be required to resolve perceived issues presented by housing growth in the area, but this will require a ‘strategic, proportionate, and co-ordinated approach, (through) partnership working across a range of local authorities and stakeholders’.”

There is currently no long-term solution in place. While in some areas, developers are able to proceed if they make a financial contribution to the local authority, most affected areas have no mitigation approaches agreed upon. Therefore, there is no opportunity for the developments to proceed.

The affected local authorities provide over 21,000 homes annually and the ongoing restrictions still have the potential to further cut the housing supply by 10 per cent, around 2,100 homes a year.

While housing delivery has increased substantially with almost 1.2 million new homes built in the past five years, change is still needed if we are to tackle our current housing crisis.