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: [e-mail]; 44 (0)131 451 4605)

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Workshop on UK Population Change and Housing
Across the Life Course
Sub-regional household growth, housing supply
and the economy some problems associated with
the use of conventional household projections in
planningGlen Bramley(Heriot-Watt University,
Edinburgh, UKContact g.bramley_at_hw.ac.uk 44
(0)131 451 4605) June 2015
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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

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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 Projs, 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 Projs
  play key role in
• In Scotland, HNDA framework treats HHProj as
  central

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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

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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

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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

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Identity Relationship

• There is an identity relationship between
  households and dwellings (sometimes called the
  Holmans identity)
• In change form, this states that?HH ?DWG -
  ?VAC - ?SEC ?XSHR 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 dont change very much, and sharing
  is pretty rare, thenhousehold 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

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Headship declining in south of England
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
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Flows of new households by tenure
Big decline in new households moving into owner
occupation or social renting.Offset by rise in
private renting, esp in 2010
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Components of Household Change 2012-37 by
selected locality
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.
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Influences on Migration

• Structural effects in-migration -gt
  out-migration size of area/popn adjacent
  out-migrn -gt in-migrn
• Geographical effects - sparsity
  counter-urbanisation
• Demographic effects singles vs couples younger
  (like attracts like) ethnic effects
• Socio-economic effects - employment -gt mobility
  and moving towards opportunity by younger groups
  students
• Income ve? but poverty more -ve
• Tenure - social renting -gt less in-migrn
• Housing market relative house price -gt -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

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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)

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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, gt GLA)

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Incremental Net Additions and Household Growth
for Selected Areas
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.
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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

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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

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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 wont 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 wont 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

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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

Household Household House Job Composite
City-Region Growth Growth Price Growth Demand
Projection Projection Earnings Projection Index
  2008-based 2012-based ratio 2011-41  

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

Milton Keynes Luton Watfd 1.06 1.16 6.15 0.34 30
Gtr Reading 1.09 0.95 7.57 0.65 56
Gtr Oxford 1.22 0.71 6.12 0.54 15
Gtr 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 27
Swindon-Cots-Downland 1.07 0.85 6.97 0.34 21
Gloucs -Cheltenham 1.18 0.91 6.40 0.33 13
Gtr Exeter 0.67 0.76 7.94 1.31 16
Gtr Peterboro 0.67 0.94 7.94 1.31 16

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

England 0.94 0.85 6.51 0.64 0
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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 forecastNote these criteria
  approx represented recommendations of 2014 NPPG

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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 LAs who dont 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

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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

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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

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London SE/EE Growth Scenarios
Note that extra housing leads to similarscale of
extra hh growth in each area.Building in London
improves affordythere moderately, with little
impact onSE/EE whereas building in
SE/EEimproves 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 bothSE/EE and in
London
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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

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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

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So what should we do?

• Planning for housing should not be based solely
  on hh projs 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 projs 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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