school of the built environment sub-regional household growth, housing supply and the economy: some...

School of the Built Environment

Sub-regional household growth, housing supply and the economy: some problems associated with the use of conventional household projections in

planning

Glen Bramley(Heriot-Watt University, Edinburgh, UK

Contact: [email protected] ; +44 (0)131 451 4605)

June 2015

Workshop on UK Population Change and Housing Across the Life Course


Background

• Migration & household formation are central to sub-national demographic forecasts and important for physical & service planning and especially for housing

• Traditional approach reliant on extrapolative projections remains popular

• There has been an economic critique of this, arguing that labour and housing markets influence these trends

• Speculate about reasons for reluctance to incorporate these in projections – unfamiliarity with econometrics – predicting the predictors – ‘need’ vs demand – taint of uncertainty

• Problems which can result – ‘circularity’ and underprovision - out of phase with cycles - persistent discrepancies households vs dwellings- lack of realism about adjustment mechanisms in market – inappropriate planning between related geographical areas


Household Projections and Planning

• Household projections have played significant role in strategic planning since at least 1970s

• They also feature in national debates about (in)adequacy of housing supply

• Controversies about projections grew in 1990s, and there were attempts to inject more ‘economics’ into process in late 90s and again following Barker (2004)

• However, these have failed to dent popularity of HH Proj’s, which seem to play an ever-stronger role

• Focus has shifted down from regional to sub-regional /local levels, yet problems greater at this level

• In England, planning is localised and NPPG specifies tests of plan adequacy which HH Proj’s play key role in

• In Scotland, HNDA framework treats HHProj as central


Dominance of recent trends

• Household projections are built on population projections, both of which are fundamentally extrapolative in character

• Within that framework, many judgements revolve around the balance between long term trends and recent conditions

• ONS population projections emphasise trend data from last 5 years (e.g. migration)

• How does one decide whether recent conditions represent an emergent long term trend vs a cyclical disturbance?

• The analysis focuses on demographic variables rather than socio-economic drivers

• Census should provide authoritative database down to local level, but in practice there are many data problems afflicting current attempts to update English projections, and much of input (e.g. LFS) is not geographically disaggregated


Sources of Evidence

• Literature on economic influences on household formation• Recent literature on impacts of market crises• Implications of household-dwelling identity• Recent trends from national surveys (LFS, EHS)• Own modelling results on household formation and

migration• Subregional model simulations of supply-household growth

feedback


Literature Review

• Bramley, Munro & Lancaster (1997) reviewed economic influences on household formation for DOE -drew on range of earlier studies, esp US work

• Late 1990s DETR model (Peterson) & other work (esp Ermisch)

• ODPM/CLG ‘Affordability Model’ developed by Meen, Andrew & others, + spinoffs (e.g. Scottish model Leishman et al)

• Other work by Bramley et al (2006) & 2010 Estimating Housing Need

• Other recent US work on effects of recession, sub-prime crisis, decline of owner occupation; also US & UK work on ethnicity effects


Identity Relationship

• There is an identity relationship between households and dwellings (sometimes called the ‘Holmans identity’)

• In change form, this states thatΔHH ≡ ΔDWG - ΔVAC - ΔSEC + ΔXSHR [the change in households is identically equal to the change in dwellings (‘net additions’) minus the change in vacancies minus the change in second homes plus the change in ‘excess sharing households’]

• This helps to explain recent events in household numbers game• If the supply of dwellings is dramatically reduced, and vacancies

cannot go much lower, and second homes don’t change very much, and sharing is pretty rare, then…household growth will inevitably fall, mainly through mechanism of new household formation, mainly affecting younger adults (age related dissolutions unaffected)

• This shows that household growth will be strongly influenced by dwelling supply, particularly in a ‘tight’ situation- in a looser market you may see more change in vacancies and demolitions


Headship declining in south of England

.0000

.0500

.1000

.1500

.2000

.2500

.3000

.3500

.4000

1990 1995 2000 2005 2010 2015

He

ads

hip

Year

Headship Rates for 20-29 Year Olds, Selected English Regions 1992-2013

NE2029

EM2029

SE2029

GL2029

Headship rates for younger adults have fallen significantly since 1990s in South East and London, but not in NE and E Midlands, probably due to housing market conditions.

Upward blip in 2010 probably due to Buy to Let boom. Source: LFS


Flows of new households by tenure

Tenure 2002-06 avg

2007 2008 2009 2010 2011 2012

Own 118 131 72 40 55 75 72

S oc ial rent 92 76 44 48 71 48 65P rivate rent 190 183 229 208 268 259 249

Total 400 390 345 296 394 381 386S ource: S urvey of E nglis h Hous ing and E nglis h Hous ing S urvey R eports . 368Note: years refer to financ ial years 2007/08 etc .

E s timated number of new hous eholds forming , by tenure of firs tdes tination 2002-2010 (000s )

Big decline in new households moving into owner occupation or social renting.Offset by rise in private renting, esp in 2010


Components of Household Change 2012-37 by selected locality

Population level Household formation Interaction termsB ath and North E as t S omers et UA 102% -7% 4%B ournemouth UA 90% 5% 4%B ris tol, C ity of UA 99% -2% 3%C ornwall UA 91% 4% 4%Is les of S c illy UA 101% -2% 0%North S omers et UA 96% 1% 3%P lymouth UA 83% 10% 7%P oole UA 94% 3% 4%S outh G louc es ters hire UA 97% -1% 4%S windon UA 93% 3% 3%T orbay UA 85% 10% 5%Wilts hire UA 93% 3% 4%E NG L AND 93% 4% 4%

Extract from 2012-based household projections, showing proportion of household growthattributable to population level and household formation.

This shows that in most areas population numbers completely dominate. By implication, household formation is assumed to have stalled.


Influences on Migration

• Structural effects – in-migration -> out-migration; size of area/popn; adjacent out-migrn -> in-migrn

• Geographical effects - sparsity & counter-urbanisation• Demographic effects – singles vs couples; younger (like

attracts like); ethnic effects• Socio-economic effects - employment -> mobility and

moving towards opportunity by younger groups; students• Income –ve? but poverty more -ve• Tenure - social renting -> less in-migrn• Housing market – relative house price -> -ve for in-migrn • Housing supply – strong +ve effects on in- & net migrn; but –

ve diversion effect of adjacent supply • Environmental effects, esp climate +ve


Influences on headship

• Range of expected age & household type background effects; partnering, childbirth events

• also migrant (+0.04), student (+0.12), Asian (-0.003) for younger group

• Previous concealed households +ve• House price: income ratio -0.43, -0.14, -0.38 for 3

ages• Poverty +ve esp young; unemployment marginal -ve• Tenure (previous): soc rent +ve, esp young• Social lettings supply +0.21 young • Vacancy rates – no consistent/significant effects

(but necessary to impose some feedback in simulation)


Illustrative Areas for Impact

• Certain groups of sub-regions chosen to illustrate scenario impacts

• Gloucestershire (3 HMAs)• West of England (2 HMAs)• ‘South East Growth Areas’(7 HMAs)• London (1 HMA, > GLA)


Incremental Net Additions and Household Growth for Selected Areas

Net Addn Hhd Grwth Ratio2011-31 2011-31

Gloucs 5,880 5,595 0.95WoE 8,737 4,461 0.51SEGAS 38,590 25,860 0.67London 97,646 64,525 0.66England 455,618 246,752 0.54

Sub-regional Housing Market Model Simulations, showing increased housing supplyand resulting increase in household growth.

‘WoE’ is West of England (Greater Bristol); ‘SEGAS’ is selected South East growth areasNote that WoE scenario entails increased supply in adjacent areas as well.


Implications of Simulation

• As expected (on basis of past research, theory, and ‘identity’), household formation responds to new build supply

• Response is lagged, takes time to build up; still quite low at yr 5 (10-20%)

• After 8-10 years, response level is high, 80-110%• After 18-20 yrs, response level fades somewhat (40-89%

downside; 50-200% upside)• Local variation in response rates, also depending on

contextual/adjacent supply changes – local responses strongly affected by migration & competing opportunities

• London particularly high• Building more social/affordable housing would have earlier

positive impact on household growth, but more moderate med term


Comments on Household Formation Share

• At national level, virtually all of difference between scenarios in household growth is attributable to net household formation, and none to migration (given fixed international migration & balanced internal migrn)

• At local level, this share is quite variable, and it also varies over time

• In long run, local household growth responses mainly dominated by migration

• London responses strongly dominated by migration


Uncertainties in Household Formation

• Migrant groups more important and have lower propensity to form hhds – maybe, but likely to converge on host population over time

• Maybe real incomes won’t recover & grow as in past (‘productivity puzzle’) - but more poverty could/likely increase hhd dissoln

• Welfare benefits esp HB/LHA will be cut more and poor won’t be able to live separately

• More HE students living at home/ young singles living with parents - yes but evidence it is 2nd best & they would prefer indep living (and buying)

• For these reasons, some part of downturn in headship may not be just cyclical impact of ‘crisis’, but implausible to claim all of it as permanent downshift

• We can quantify/forecast quite a lot of these effects


Household Projections and Demand Indicators for Selected City-Regions

• For a number of high growth potential southern cities, hh proj reduced by large amount

• For some of these, proj is now relatively low despite growth potential and market pressure

• Yet some others see increases

• London exceptionally high/unrealistic

• Northern cities also down but prob more realistic

HouseholdHousehold

HouseJob

Composite

City-Region Growth Growth Price: Growth DemandProjection Projection Earnings Projection Index

2008-based

2012-based

ratio 2011-41

Gtr Bristol 1.49 0.92 6.43 0.87 10Gtr Bath 1.00 0.72 8.01 0.64 17

Milton Keynes Luton Watfd 1.06 1.16 6.15 0.34 30Gtr Reading 1.09 0.95 7.57 0.65 56Gtr Oxford 1.22 0.71 6.12 0.54 15Gtr Cambridge 0.82 1.04 6.52 1.04 -5

London 0.96 1.27 8.58 0.55 72

Southampton-West Hants 0.98 0.82 6.76 0.58 27Swindon-Cots-Downland 1.07 0.85 6.97 0.34 21Gloucs -Cheltenham 1.18 0.91 6.40 0.33 13Gtr Exeter 0.67 0.76 7.94 1.31 16Gtr Peterboro 0.67 0.94 7.94 1.31 16

Gtr Manchester 0.95 0.79 5.24 0.72 -48Leeds 1.40 0.79 5.13 0.88 -36Gtr Leicester 1.05 0.80 6.09 0.47 -12Gtr Nottingham 1.05 0.75 5.22 0.49 -38

England 0.94 0.85 6.51 0.64 0


Outcome-based criteria of plan adequacy

• Household growth to achieve the overall levels reflected in the official long term household projections*

• Affordability of younger households able to buy in the market to improve, at least to the levels of a base period such as the mid-2000s.

• Affordability to rent in the market to improve in a similar fashion

• Unmet housing need to be reduced to base year levels or below

• Growth of working population to be roughly in line with the growth in workplace employment embodied in the forecast

[Note these criteria approx represented recommendations of 2014 NPPG]


Table 2: Key Performance Criteria for Housing Provision in West of England in Baseline and Selected Alternative Scenarios

Lo Gro

WoE &

WoE & Adjac WoE & Low IntMig

Model V.16b WoE Case

Adjacent RSS 2008 Adjac End CR Hi Gro

Greater Bristol (WoE) Baseline

A D Fairly V high Mod Hi Hi IntMig I Lo Int

Numbers over 20 years Low (0.72) High (1.46) supp Hi AH Mod Hi Migrn

'Provision' 65,404 X 46,992 95,827 142,826 95,161 95,932 64,673 Completions 68,391

62,068 79,128 96,738 102,637 82,049 66,090

Household Growth 85,676

78,891 96,910 107,190 105,899 100,383 79,402 DCLG Household Projection 80,751

80,751 80,751 80,751 80,751 80,751 80,751

Net Migration inc international 92,491

82,839 107,774 120,196 85,346 129,053 61,577

Total Population growth 171,486

162,136 186,151 197,477 157,973 211,543 139,340

Working Age Population 76,764 X 71,227 85,518 92,226 62,654 105,593 50,484 Job Growth* 97,503

97,503 97,503 97,503 87,657 107,465 97,503

Rental affordability 50.2

48.5 53.2 58.8 61.6 53.5 50.1

difference from England -3.1 X -4.7 -0.3 4.9 2.8 -0.2 -3.1 Affordability change % pt 11-31 -0.8

-3.3 3.2 11.9 15.7 4.3 -1.9

Affordability ave level % buy 27.9

27.2 29.2 31.4 36.6 27.9 29.4 difference from England -12.0 X -12.6 -10.8 -8.7 -9.6 -11.1 -11.5 Affordability change % pt 07-31 -11.4 X -12.5 -9.4 -4.0 5.1 -10.9 -9.5 Backlog need change 2007-31 -2,931 -2,447 -3,707 -5,934 -10,156 -2,735 -3,931

Net Need-supply 2021 383 X 180 290 -323 -1,568 93 440


West of England case outcomes

• In 2008 projections, WoE would have had 137,000 growth 2011-31;

• 2012 projections drop this to 86,000• Current plan provision not so far short of this (65,000), and

forecast hh growth might hit 85,000• This is ‘convenient’ for LA’s who don’t want to build urban

extensions and have a lot of Green Belt• But other outcomes show that such provision is wholly inadequate

in terms of workforce vs job growth; affordability to buy or rent (current and forecast); shortfall of affordable need vs supply

• They should be building at least 100,000, arguably 140,000 to get on top of housing affordability, need and growth requirements.

• In this case underprovision has been there for some time; net additions 2001-11 0.83% pa, actual hh grwth 0.94%; negative net internal migration

• real house prices rose 4.6% pa 2001-11 vs 2.9% England


Headship movements in WoE

• In Gtr Bristol area, young adult headship has fallen a long way since 1991, but decline began in 1990s

• For core age adults the fallback was in 2000s, with some bounceback c.2010

Table3: Headship Rates by Age, Greater Bristol (WoE) 1991-2011.

LFS est mod adj

Gtr Bristol 1991 2001 2007 2011 Aged 16-24 0.162 0.148 0.108 0.109 aged 25-59 0.531 0.559 0.547 0.558


Geographical Interactions

• Sub-regional housing markets and demographic trends interact

• In some cases (e.g. London vs SE/EE) these interactions are quite strong

• They are also not completely symmetric• This means that planning for housing solely on basis of hh

projs for each area in isolation may give unhelpful results• Illustrate by comparing two forecast scenarios using SRHMM,

involving adding 25k to housing supply (a) in London and (b) in SE & EE


London & SE/EE Growth Scenarios

New Build Rate Household Growth (5YA)

2021 2031 2041 2021 2031 2041

London+25k

EE 0.1% 0.6% 1.0% 0.4% 2.5% 22.5%

SE 0.1% 0.9% 1.0% -0.2% 3.2% 21.2%

GL 100.9% 103.2% 6.7% 123.1% 39.9% 93.3%

England 1.4% 2.2% 1.5% 13.9% 7.8% 20.8%

SEEE+25k

EE 43.0% 30.9% 11.2% 26.6% 54.5% 97.7%

SE 59.2% 59.5% 8.5% 50.6% 47.9% 121.9%

GL -2.9% -1.7% 0.3% -19.1% 1.7% -3.1%

England 16.3% 13.2% 2.4% 10.1% 14.3% 27.5%

Affordability to Buy Backlog Need

2021 2031 2041 2021 2031 2041

London+25kEE 0.0% 0.3% 0.0% 0.0% 0.4% 1.2%SE 0.3% 0.5% 0.2% -0.1% 0.3% 1.2%GL 10.3% 18.9% 10.9% -6.3% -5.2% 0.3%England -0.1% -0.4% -0.3% 0.0% 0.7% 1.1%SEEE+25kEE 13.9% 25.1% 4.6% -9.8% -9.9% 2.0%SE 13.4% 23.9% 6.2% -9.8% -10.3% 1.1%GL 5.8% 10.8% 4.6% -5.1% -8.4% -3.2%England 2.6% 4.1% 0.2% -2.8% -2.6% 0.9%

Note that extra housing leads to similarscale of extra hh growth in each area.Building in London improves afford’y

there moderately, with little impact onSE/EE; whereas building in SE/EE

improves affordability more in SE/EEAND also sizeable improvement in

London as well.Building in London improves need moder-

ately in London only, whereas buildingin SE/EE improves need more in both

SE/EE and in London


Conclusions (1)

• Literature makes strong case for recognising economic influences

• Integrated HMA scale model fits with planning and deals with issue of ‘predicting the predictors’

• (Re-)estimation of migration & hshld formn functions confirms importance of key economic & market factors.

• Essential to recognise implications of household-dwelling identity, e.g. by imposing some non-linear/thresholded feedbacks

• Simulations confirm strong impacts of supply on household growth in medium-longer term, esp in tighter markets

• Outcome criteria based approach to planning desirable and feasible

• Housing supply in southern England needs to increase a lot to meet some of the key criteria


Conclusions (2)

• There is clear evidence that ‘circularity’ is a problem with using HH Projs as primary basis for planned housing numbers

• There is evidence from recent round of projections that there is a significant danger of getting out of phase with cycle – ie. Reducing planned housing in period of recovery in demand

• There are some grounds for arguing that l. t. trend of household formation may be lower, but should not be overstated

• Geographical interactions are very significant in some areas, and these effects can be asymmetric – planning for one area in isolation can be unhelpful

• Anomalies in 2012-based English projections may be partly related to data problems associated with 2011 Census


So what should we do?

• Planning for housing should not be based solely on hh proj’s – should use basket of indicators including market signals, needs and employment to assess adequacy of plans

• There is a need for a broader geographical scale of assessment and stronger planning coordination powers at this broader scale, esp in England

• Further research on aspects of household formation is needed to determine likely longer term outcomes relating to e.g. migration, poverty, welfare

• HH proj’s exercise might be more tractable (in data terms) and more stable if it were less disaggregated than in current (English) system


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