BLOGS

A formula rewritten, a system under strain

England's local planning authorities have faced years of contested housing targets, but the revised standard method for calculating Local Housing Need (LHN) — confirmed through the updated National Planning Policy Framework (NPPF) in December 2024 — marks a genuine inflection point. By anchoring the baseline to existing dwelling stock rather than contested household projections, and sharpening the affordability uplift, the government has produced significantly higher need figures for the vast majority of English councils. The political consequences are already being felt in planning committees, examination hearings and by-election leaflets from Cornwall to Cambridgeshire.

For analysts working with REalyse's planning and development data, the shift is visible in real time: pipeline permissions, local plan timetables and developer land searches have all moved since the revised method took hold.

How the new formula works — and why it lands harder

The old standard method calculated LHN using a starting point drawn from ONS household projections, adjusted by an affordability uplift capped at 40% for areas with high house-price-to-income ratios. Critics argued the projections were outdated and that the 40% cap blunted the signal in the least affordable markets.

The revised method takes a materially different approach. The baseline is now set at approximately 0.8% of the existing dwelling stock in each local authority — a figure designed to reflect gradual, compounding growth rather than demographic snapshots. That baseline is then multiplied by an affordability ratio drawn from the latest ONS median workplace-based earnings and Land Registry median house prices. Crucially, the cap has been removed entirely for the most unaffordable areas.

The practical effect is substantial. Across London, where median house prices in many boroughs still sit at eight to twelve times local earnings despite recent softening, LHN figures have risen sharply compared to the previous method. In the South East and East of England — where commuter-belt affordability ratios have worsened as prices remained sticky while mortgage affordability tightened — need figures are running materially ahead of existing local plan allocations. REalyse data tracking active planning applications and local plan submissions shows a marked uptick in pre-application enquiries and site promotion activity in districts where the gap between old targets and new is widest.

Even Midlands and Northern authorities that previously had relatively modest housing targets are seeing upward pressure. In areas where affordability has deteriorated fastest over the past five years — notably parts of the East Midlands and the outer commuter ring of Greater Manchester — the formula is producing need figures 20–40% above what councils had been planning for.

Local plans thrown into flux

The timing creates a planning system under simultaneous stress from multiple directions. Many councils had only recently adopted local plans under the previous regime, or were deep into examination when the NPPF revision landed. The Planning Inspectorate has had to issue updated guidance on how plans at different stages of preparation should respond, but ambiguity remains.

For authorities whose plans are not yet adopted, the revised LHN figure effectively becomes the minimum housing requirement they must demonstrate a deliverable five-year housing land supply against. Failure to do so exposes them to what planners call the "tilted balance" — the presumption in favour of sustainable development that allows speculative applications to succeed even against local plan policies. REalyse's planning pipeline data shows that promoted sites and outline applications have accelerated most sharply in districts where local plans are weakest or most out of date, as land promoters move quickly to exploit the policy gap.

For councils whose adopted plans were calibrated to lower targets, the question is whether to review immediately or wait and manage speculative pressure case by case. Neither option is comfortable. A formal review takes years and consumes officer resource that most LPAs are already stretched to provide. Sitting tight means a steady stream of appeals, many of which — given the national policy context — are increasingly difficult to defend.

The five-year supply problem

The five-year housing land supply (5YHLS) test remains the sharpest pressure point. Under the revised NPPF, councils must demonstrate not just a five-year supply of specific deliverable sites, but meet a higher buffer requirement if they have a track record of under-delivery — typically 20% above the LHN-derived requirement.

With the formula raising need figures, many councils that previously passed the 5YHLS test now fail it. REalyse analysis of planning application and decision data across England suggests that the share of LPAs unable to demonstrate a robust five-year supply has risen materially since the method change. That figure translates directly into a larger portion of the country where developer appeals are more likely to succeed and where planning departments face the paradox of being overwhelmed by applications they cannot easily refuse.

Green belt pressure returns to the agenda

Perhaps the most politically charged consequence of higher LHN figures is the renewed pressure on green belt land. In many of the authorities where the formula has pushed need highest — particularly the Home Counties, the outer London boroughs and the Green Belt districts of the South East — there is simply insufficient brownfield or urban capacity to accommodate the step-change in requirement without releasing land from the green belt.

The government's introduction of "grey belt" as a planning concept within the revised NPPF was an explicit acknowledgement of this tension. Grey belt — broadly defined as lower-quality green belt land, including scrubland, surface car parks and degraded parcels close to existing settlements — is intended to provide a release valve. In practice, identifying, assessing and progressing grey belt sites through the planning system takes time, and the definition remains contested at local and national level.

REalyse's land ownership and planning data shows that land promoters and housebuilders began site searches and option agreements on potential grey belt parcels almost immediately after the NPPF revision was published. In Surrey, Hertfordshire, Buckinghamshire and the London green belt fringe, promoted site numbers have risen noticeably, though many remain at the earliest stages of local plan review or call-for-sites processes. The pipeline is building, but delivery is measured in years rather than months.

What the numbers mean for developers and investors

For residential developers, the revised formula is broadly enabling — at least in policy terms. A higher LHN figure weakens local resistance, strengthens the case for allocated and promoted sites and, in areas with a broken five-year supply, effectively allows market-led applications to proceed without a plan allocation. Housebuilders with land banks in constrained Southern markets have been particularly active in testing the boundaries of the new policy environment.

For investors assessing sites or schemes, the key metrics have shifted. REalyse's comparables and valuation data shows that residual land values in high-need districts with weak local plans have held firm or edged upward, even as construction costs and sales rate assumptions have been revised more cautiously. Gross yields on Build-to-Rent schemes in high-need urban areas — typically ranging from 4.5% to 6.5% depending on location and unit mix — have attracted institutional interest in part because the planning risk premium in these markets has reduced under the new framework.

Can the system actually deliver?

The fundamental tension is between need on paper and homes on the ground. The revised standard method produces a national aggregate LHN of well over 300,000 homes per year — in line with the government's stated ambition of 1.5 million homes over the parliamentary term. But England has not consistently delivered at that scale for decades. The record in recent memory sits closer to 200,000–240,000 net additions per year, and many of the structural constraints — planning officer capacity, viability, infrastructure funding, materials and labour — have not changed with the formula.

ONS and DLUHC data show that net housing additions have stalled or softened in the period since interest rate rises from 2022 onwards squeezed developer viability and buyer affordability simultaneously. Even as mortgage rates have moderated through 2025 and into 2026, build rates in some markets remain below pre-2022 peaks.

REalyse data tracking live sales listings and transactional volumes in high-delivery districts shows only a modest recovery in absorption rates compared to the pre-tightening cycle, suggesting that demand-side conditions will continue to act as a check on developer output even in areas where planning permission becomes easier to obtain.

Outlook: permission is not delivery

The revised standard method is the most significant recalibration of English housing need calculations in a generation. It has correctly identified that the old formula was systematically underestimating need in the most unaffordable markets, and it has given developers and land promoters a more powerful tool to unlock sites. But the distance between a higher number on a local plan and a completed home remains long and full of variables.

The battles that matter most now are not over the formula itself — that argument has largely been won in Whitehall — but over which sites come forward, how quickly local plans can be updated to reflect new requirements, and whether the infrastructure funding gap can be bridged quickly enough to make large-scale sites viable. For planners, developers, investors and councils alike, the revised LHN is the beginning of the pressure, not the end of it.